Preparing a CDM Project Design Document (PDD)

1. Preparing a CDM Project Design Document (PDD) Michael Gerbis, P.Eng. President The Delphi Group

2. The Delphi Group • In Business since 1987 • Complexity, Creativity, Change • Business Units: • Health and the Environment • Business and the Environment • Clean Energy Markets and Technologies • Climate Change • Strategic Analysis • Policy assessment & development • GHG Mng Services

3. Overview • PDD 101 • What is a Project Design Document? • Key Components • Baselines • Monitoring Plans • Lessons Learned • Sources of Information

4. What is a PDD? • A PDD: • presents information on the essential technical and organizational aspects of the project activity • is a key input into the project validation, registration, and verification processes required for CDM projects under Kyoto

5. Key Components of a PDD • General description of project activity • Application of a baseline methodology • Duration of the project activity / Crediting period • Application of a monitoring methodology and plan • Estimation of GHG emissions by sources • Environmental impacts • Stakeholders’ comments

6. Lessons Learned* • Project participants not identified clearly • Insufficient description of the technology • Lack of logic and consistency in PDD • Small-scale selected for a large-scale project • Compliance with local legal requirements not covered sufficiently • Insufficient information on the stakeholder consultation process * Source: CDM PDD Guidebook: Navigating the Pitfalls, DNV & UNEP

7. Baselines Lesson Learned It is important to have a clearly defined baseline as early as possible; it is especially important to recognize how conditions may change a project's estimated emission reduction volume and to integrate these scenarios with a realistic project performance. - TransAlta

8. What is a Baseline? • A baseline is a hypothetical scenario that represents what would have happened in the absence of the project (i.e. business as usual). • A baseline methodology is used to estimate baseline GHG emissions that will be compared to project emissions to determine overall emission reductions

9. Application of a Baseline Methodology • CDM project proponents have two options: • Use an existing approved methodology • Simpler approach • Only if a relevant methodology exists • Develop a new methodology • Additional effort required • A new monitoring methodology and plan (Section D) will also be required

10. Application of a Baseline Methodology • In either case, in the PDD: • Identify the methodology to be used (either an existing or new methodology) • Justify why the methodology is relevant for the specific project • Describe how the methodology will be applied in the project context • Describe how project GHG emissions will be reduced below baseline emissions • Describe how the baseline boundary in the methodology is applied to the project activity

11. What is a Baseline Study? • Is a systematic and methodological analysis to determine the most likely development scenario and its evolution in time in absence of the Kyoto Protocol mechanisms • Is the basis for the projection of emission reductions • Credibly demonstrates environmental additionality • Provides all arguments, facts and evidence in support of the determined project baseline, so that the baseline can be validated • Required for the Project Design Document

12. Examples of Baseline Variables • Accessibility & reliability of relevant data • Location, type and size of project • Existing and planned policies • Available resources Lesson Learned Generally accepted data is vital, particularly when it comes to baselines. This will guard against future questioning of validity, and requests for a more objective baseline (i.e., one not established by the company looking to validate the project). Transparency is key. - Mikro-Tek

13. Complexities of Baselines • Baselines are complex & difficult to determine • Inherently speculative – it attempts to predict what will not happen • Forecasting uncertainty • Business-cycle forecasting is extremely difficult • Baseline level of emissions tend to be overstated

14. What is Additionality? • “Additionality” is the key eligibility criterion for CDM projects • Interpreted as “environmental additionality” • Assessed against a baseline Emission Reductions=hypothetical baseline emissions – actual (CDM project) emissions

15. Project Boundary The project boundary defines the area within which emissions reductions occur • Sets the physical area • Identifies sources and sinks • Anthropogenic; • Includes all GHG that are significant and attributable • On-site • Off-site

16. Project Boundary • On-site emissions • reductions that arise immediately from the project activity itself • Off-site emissions • reductions occur upstream or downstream of the project Takes into consideration “significant” and “reasonably attributable” including both: Boiler Emissions or Flaring Emissions Off-site Transportation of fuel or Fugitive Gas Emissions - Pipelines

17. Leakage GHG reductions or increases that result from the project outside the project boundary • Identification and quantification of leakage remains one of the most challenging technical issues related to the development of GHG mitigation projects. • Can occur at a local and international levels • Activity shifting • Outsourcing • Market shifts in supply and demand • Inaccurate or incomplete baseline (although should be seen as baseline fault not really leakage)

18. Set Crediting Period • Two Options • An initial period of 7 years (may be renewed a maximum of two times, for a total of 21 years) • Renewals are contingent on re-validation of the original baseline. • Baseline may need to be updated with newly available data • A maximum of 10 years with no option of renewal

19. Calculate Emissions Reductions Determine project boundary Project & Baseline Emissions Estimate Net Emissions Reductions Adjust Results for uncertainties and deduct any possible “leakage”

20. Lessons Learned • Host country expertise, particularly in sequestration projects, is vital. These experts possess information with respect to best practices and the establishment of baselines that can save both time and considerable expense. – Mikro-Tek Baseline emissions Emission Reductions Project emissions

21. Lessons Learned* • Insufficient explanation of baseline scenarios • Insufficient explanation of project additionality • Baseline information not sufficiently supported by evidence and/or not referenced sufficiently • Major risks to the baseline not identified/ described • The project boundaries not defined clearly • Project and/or crediting start date unclear * Source: CDM PDD Guidebook: Navigating the Pitfalls, DNV & UNEP

22. Monitoring Plans Lessons Learned Contracting is one of, if not the most, essential steps in the CDM process. Specifically, it is of paramount importance that all contracts (e.g. between buyer and seller of CERs) are legally binding and have an adequate process for arbitration - TransAlta

23. Monitoring Basics “Continuous or periodic data collection to check the accuracy of the baseline and project emissions” • Required for Validation and Project Design Document (attachment) • Builds on Baseline Study • Revisions need to be validated

24. Application of a Monitoring Methodology and Plan • Provides information on how to collect/ archive data needed to: • Estimate/measure emissions within the project boundary; • Determine the baseline; and • Identify increased emissions outside of the project boundary (i.e. leakage) • The Monitoring methodology describes how to prepare a project-specific monitoring plan

25. Application of a Monitoring Methodology and Plan • As with baseline methodologies, project proponents have two options: • Use an existing approved methodology • Simpler approach • Only if a relevant methodology exists • Develop a new methodology • Additional effort required • Necessary if a new baseline methodology is being used

26. Monitoring Plan A description of the project activities Key parameters involved Emission sources to be monitored Specific monitoring process • The data sources used to calculate baselines • All sources of GHG’s • Processes & procedures for data collection, measuring, reporting • Technical equations • Roles and responsibilities of participants • Quality assurance and control procedures • Record keeping systems • ER model and calculation procedures

27. Simple Examples of Data Monitoring

28. Preparing a New Monitoring Methodology • A template is available from UNFCCC website • Key areas: • Method description • Monitoring of leakage • Formulae used to estimate project emissions (as per baseline methodology) • Key assumptions (e.g. emission factors) • QA & QC procedures • Descriptions of past successful application of the method

29. Lessons Learned* • Deviations from monitoring methodology not justified sufficiently • Monitoring and project management procedures not defined • Lessons Learned: World Bank’s Prototype Carbon Fund (PCF) • The WB has developed, applied and tested a number of baseline and monitoring methodologies for a broad range of different project types and locations. Some of their lessons are highlighted in their Annual Reports and on their website www.prototypecarbonfund.org. * Source: CDM PDD Guidebook: Navigating the Pitfalls, DNV & UNEP

30. Key References • UNFCCC CDM website: • http://cdm.unfccc.int/Reference/Documents • Official PDD guideline document • Templates for PDDs; new baseline methodologies; and new monitoring methodologies. • CDM PDD Guidebook: Navigating the Pitfalls, DNV & UNEP http://cd4cdm.org/Publications/UNEP-DNV_PDD%20Pitfalls%20Guidebook.pdf • World Resource Institute GHG Protocol Guide http://www.ghgprotocol.org/templates/GHG5/layout.asp?MenuID=849

31. Small Scale CDM Projects

32. Small-Scale CDM (SSC) Overview • Simplified to reduce cost • 14 small-scale CDM project activity classifications • Opportunities for bundling projects • A simplified project design document • Simplified methodologies for baseline determination and monitoring plans

33. Small-Scale CDM (SSC) Overview • Furthermore • Simplified provisions for environmental impact analysis • Lowered project registration fee • Shorter review period for registration of project activities • The same DOE can validate as well as verify and certify emissions reductions

34. SSC Eligible Project Types • Type (i) – renewable energy <= 15 MW output capacity (disregarding actual load factor) • Type (ii) – energy efficiency improvement (supply and/or demand side) <= 15 GWh per year • Type (iii) – other activities that reduce emissions and have direct CO2e emissions <= 15 kT

35. Eligible Small Scale Project Types • Type I: Renewable Energy Projects • Electricity generation by user • Mechanical Energy for the user • Thermal energy for the user • Renewable Electricity generation for a grid

36. Eligible Small Scale Project Types • Type II: Energy Efficiency Improvement Projects • Supply side energy efficiency improvements – transmission and distribution • Supply side energy efficiency improvements – generation • Demand-side energy efficiency programs for specific technologies • Energy efficiency and fuel switching measures for industrial facilities • Energy efficiency and fuel switching measures for buildings

37. Eligible Small Scale Project Types • Type III: Other Project Activities • Agriculture • Switching fossil fuels • Emission reductions by low-greenhouse emission vehicles • Methane recovery and avoidance • Types I - III • Other small-scale project

38. PDD for SSC Projects • Same general approach, project cycle and PDD sections as for regular CDM projects • General Description of Project Activity • Essentially the same, except that confirmation must be given that the SSC project is not simply a ‘debundled’ large-scale project

39. PDD for SSC Projects • Application of a Baseline Methodology • Streamlined additionality explanation • Project boundary description linked to project type guidance • Detailed baseline info not required – simply reference relevant approved methodology

40. PDD for SSC Projects • Duration of the Project Activity / Crediting Period • Identical • Application of a Monitoring Methodology and Plan • Streamlined requirements • For monitoring plan, complete relevant table from approved methodology • Information on formula used moved to the next section of the document

41. PDD for SSC Projects • Estimation of GHG emissions by sources • Essentially the same, except formulae used are to be described in this section for the SSC project document • Environmental Impacts • Streamlined – only a short summary with relevant attached documentation required, if applicable • Stakeholders Comments • Identical

42. SSC Baseline and Monitoring Methodologies • A key area of difference between regular and small-scale project approaches • SSC methodologies are very simple, on the order of a few pages for both baseline and monitoring information combined • All approved methodologies contained in one document – “Appendix B” • Proposed new methodologies are simply submitted in writing to CDM executive board for consideration

43. SSC Baseline and Monitoring Methodologies – Key Sections • Technology/measure • Boundary • Baseline • Leakage • Monitoring

44. Example Cat. 1D: Renewable Electricity generation for a grid • E.G.: PVs, hydro, tidal/wave, wind, geothermal and biomass making electricity for a grid. • For small networks emission coefficients below is used. • For other systems an average of ”approximate operating margin” and ”build margin” is used, or a weighted average emissions of current generation mix if data not available.

45. Cat. 2C: Demand-side energy efficiency programs for specific technologies • This category comprises programmes that encourage the use of energy-efficient equipments, lamps, ballasts, refrigerators, motors, fans, air conditioners, appliances etc . At many sites • Baseline: number of devices times power of device times average annual operating hours/ grid loss times emission coefficient as in 1.D. • Monitoring: the number and power and operating hours of replaced devices. Annual check of a sample to show that they are still operating.

46. Further Questions? Please contact: Mike Gerbis The Delphi Group 428 Gilmour Street Ottawa, Ontario Canada Tel: 613-532-2005 Fax: 613-562-2008 E-mail: mgerbis@delphi.ca Web site: www.delphi.ca