CDM Manual - Global Environment Centre Foundation (GEC)

CDM ManualFor project developers and policy makers

PrefaceThis manual was originally made for Japanese entities conducting the Clean DevelopmentMechanism (CDM) and Joint Implementation (JI) feasibility studies supported by the Ministryof the Environment, Japan (MOE). But as the CDM relating rules and procedures are rapidlyevolving and have become more complex, there has been growing demand for a comprehensiveguide for the CDM, both in Annex I countries and non-Annex I countries.As Russia formally ratified the Kyoto Protocol and it will come into effect on 16 February2005, the Global Environmental Foundation Centre (GEC) takes this opportunity to respond tothis demand. With the technical assistance of Pacific Consultants Co., Ltd. and support fromthe MOE, the GEC is pleased to launch this English version of the comprehensive CDM guidefor a wide range of stakeholders to further promote CDM projects.We hope this manual will be of help to many people, especially CDM developers andpolicymakers. We are pleased if it would contribute to implementation of high-quality CDMprojects worldwide.Ministry of the Environment, Japan (MOE)Global Environmental Centre Foundation (GEC)Pacific Consultants Co., Ltd.BackgroundThe Kyoto Protocol, which was adopted at the third Conference of the Parties to the UnitedNations Framework Convention on Climate Change held in December 1997, will come into forcein February 2005. To assist the Parties achieve their GHG emission reduction targets, the Protocoldefines three innovative “flexibility mechanisms” to lower the overall costs to meet the targets. Thesemechanisms are comprised of the Clean Development Mechanism (CDM), Joint Implementation(JI) and Emissions Trading. Japan, taking into consideration the use of those mechanisms, plans toadvance its emissions reduction.Since 1999, the Ministry of the Environment, Japan has been supporting feasibility studies onCDM and JI projects carried out by Japanese private companies and NGOs. Those studies are toaccumulate know-how and experience on project findings and related international and domesticrules, in the aim of finding promising projects.The Global Environmental Centre Foundation has been managing those feasibility studies as thesecretariat.v

Table of ContentsCDM Manual for Project Participants and Policy MakersPreface ....................................................................................................................................................... iiiTable of Contents ....................................................................................................................................... ivList of Abbreviations................................................................................................................................... vi1. Objectives and Structure of this Manual ................................................................12. CDM Institutions and Processes.............................................................................52.1 Institutions.....................................................................................................................................62.1.1 COP/MOP, CDM Executive Board, Panels and Working Groups......................................62.1.2 Designated Operational Entities........................................................................................92.2 Processes....................................................................................................................................122.2.1 CDM project cycle and project types..............................................................................122.2.2 Overview of approval process of project activities and methodologies..........................143. Small-scale CDM Project Activities ......................................................................233.1 Overview and definition of small-scale CDM project activities ...................................................243.1.1 Overview of small-scale CDM project activities..............................................................243.1.2 Definition of small-scale CDM project activities..............................................................243.1.3 Rules of small-scale CDM ...............................................................................................263.1.4 Project additionality in small-scale CDM project activities .............................................273.2 Categories of Small-scale CDM..................................................................................................28vi

4. Normal Scale CDM Project Activities ...................................................................294.1 CDM Project Design Document (CDM-PDD) - a guide for writing a CDM-PDD.........................304.1.1 Outline of CDM-PDD Version 2 .......................................................................................304.1.2 Basic technical information about the CDM and CDM-PDD ..........................................314.1.2.1 Baseline...............................................................................................................314.1.2.2 Additionality.........................................................................................................334.1.3 A guide to filling out the CDM-PDD.................................................................................344.2 New methodologies ....................................................................................................................464.2.1 Outline of the form for Proposed New Methodology: Baseline (CDM-NMB)..................464.2.2 Outline of the form for Proposed New Methodology: Monitoring (CDM-NMM)..............544.3 Approved methodologies and tools ............................................................................................594.3.1 Approved methodologies ................................................................................................594.3.2 Approved consolidated methodologies ..........................................................................644.3.3 Tool for the demonstration and assessment of additionality...........................................685. Afforestation or Reforestation Project Activity under the CDM(A/R CDM project activity)......................................................................................775.1 Overview of the A/R CDM project activity...................................................................................785.1.1 Participation requirements ..............................................................................................785.1.2 Definitions of terms used in A/R CDM.............................................................................795.2 Project cycle of A/R CDM project activities ................................................................................805.2.1 Overview of approval process of project activities and methodologies..........................805.3 Technical aspects of items covered in CDM-AR-PDD ................................................................835.3.1 Overview of CDM-AR-PDD .............................................................................................835.3.2 Section A. General description of the proposed A/R CDM project activity ...................835.3.3 Section B. Application of a baseline methodology ........................................................855.3.4 Section C. Application of a monitoring methodology and of a monitoring plan .............875.3.5 Section D. Estimation of net anthropogenic GHG removals by sinks............................875.3.6 Addressing non-permanence ..........................................................................................885.3.7 Environmental and socio-economic impacts of A/R CDM project activities ..................905.4 Small-scale A/R project activities under the CDM ......................................................................90vii

1.Objectives andStructure ofthis Manual

1. Objectives and Structure of this ManualProject ActivitiesEmission Reduction CDM Project ActivitiesAfforestation/Reforestation CDM Project ActivitiesFigure 1: Structure of this Manual3

2.CDM Institutionsand Processes

2.1.1 COP/MOP, CDM Executive Board, Panelsand Working GroupsThe institutions for the CDM are depicted in the following chart.(Finished itsactivities inAugust 2002)(CDM accreditationassessment team )Figure 2: CDM institutionsCOP/MOPAs the CDM is a mechanism under the Kyoto Protocol, the Conference of the Partiesserving as the meeting of the Parties to the Kyoto Protocol (COP/MOP) shall have authorityover and provide guidance to the CDM. [CDM Modalities and Procedures (CDM M&P)para2].The Executive BoardFor the actual operation of the CDM, the executive board (EB) is the body that supervisesthe CDM, under the authority and guidance of the COP/MOP. [CDM M&P para5]The responsibilities of the EB include:• Approve new methodologies related to, inter alia, baselines, monitoring plans andproject boundaries;• Review provisions with regard to simplified modalities, procedures and the definitionsof small scale project activities and make recommendations to the COP/MOP; and• Be responsible for the accreditation of operational entities, in accordance withaccreditation standards, and make recommendations to the COP/MOP for thedesignation of operational entities.This responsibility includes:6

2. CDM Institutions and Processes(i) Decisions on re-accreditation, suspension and withdrawal of accreditation; and(ii) Operationalization of accreditation procedures and standards.The EB is also responsible for, among others, making recommendations to the COP/MOPon further modalities and procedures for the CDM; reviewing the accreditation standards;reporting to the COP/MOP on the regional and subregional distribution of CDM projectactivities; and developing and maintaining the CDM registry.The EB comprises of ten members from Parties to the Kyoto Protocol, as follows:One member from each of the five United Nations regional groups: 5Parties included in Annex I: 2Parties not included in Annex I: 2Small island developing States: 1Total: 10Since the EB held its first meeting in November 2001, it has been holding meetings everytwo to three months. Meeting reports, agenda and relevant documents, including webcast ofthe meetings are available on the CDM web site at http://cdm.unfccc.int/EB/Meetings.The EB has thus far established the following panels and working groups to assist it in theperformance of its functions.Methodologies Panel (Meth Panel) and Experts to undertake desk reviewThe Meth Panel was established to develop recommendations to the EB on guidelinesfor methodologies for baselines and monitoring plans and prepare recommendations onsubmitted proposals for new baseline and monitoring methodologies.Specifically, the Meth Panel:• Prepares recommendations on submitted proposals for new baseline and monitoringmethodologies;• Prepares draft reformatted versions of proposed new baseline and monitoringmethodologies approved by the Board;• Prepares recommendations on options for expanding the applicability of methodologiesand provide tools for project participants to choose among approved methodologies ofa similar nature; and• Maintains a roster of experts and select experts who are to undertake desk reviews toappraise the validity of the proposed new methodology.Furthermore, the Meth Panel elaborates recommendations to the EB on:• Revisions to the project design document, in particular on sections relevant to baselineand monitoring;• Draft “decision trees, and other methodological tools, where appropriate, to guidechoices in order to ensure that the most appropriate methodologies are selected, takinginto account relevant circumstances”;7

2.1 Institutions• Guidance on identified modalities and procedures contained in the annex to decision17/CP.7 with a view to facilitating the development of project-based methodologies byproject participants. Such modalities and procedures shall be identified by the paneland addressed in accordance with guidance provided by the EB;• Further work on items identified in Appendix C of the CDM modalities and procedures,as appropriate; and• Amendments on the annex on indicative simplified methodologies for CDM small-scaleproject activities.Since the Meth Panel held first meeting in June 2002, it has been holding meetings everytwo to three months. Meeting reports, agenda and relevant documents are available on theCDM web site at http://cdm.unfccc.int/Panels/meth.When a new methodology is submitted to the Meth Panel, the Meth Panel selectsexperts from a roster of experts, to obtain an appraisal of the validity of the methodology byundertaking a desk review. The Meth Panel will make a recommendation to the EB based onthe desk review no later than one month after the receipt of the new methodology. [EB04,para 11 (b) (c)]Small scale Panel (SSC Panel) was operational from April 2002 to August 2002 andrecommended draft simplified modalities and procedures for small-scale CDM projectactivities to the EB. The SSC Panel met three times and finished its work with the result of afinal recommendation to the EB on its fifth meeting.Accreditation Panel and Accreditation TeamThe CDM accreditation panel (CDM-AP) prepares the decision making of the EB inaccordance with the procedure for accrediting operational entities. CDM-AP chooses an adhoc Accreditation Assessment Team (CDM-AT). The CDM-AT shall undertake an assessmentof the applicant and/or designated operational entities and prepare an assessment report forthe CDM-AP. A team shall be composed of a team leader and at least two team memberschosen to serve in a team for an assessment at a time. [EB09, Annex 1]Afforestation and Reforestation Working Group (AR WG)The working group on afforestation and reforestation for CDM project activities (AR WG)was established to prepare recommendations on submitted proposals for new baseline andmonitoring methodologies for CDM A/R project activities. The AR WG is expected to work incooperation with the Meth Panel.The Small Scale Working Group (SSC WG)The small scale working group (SSC WG) was established to prepare recommendationson submitted proposals for new baseline and monitoring methodologies for CDM small scaleproject activities.SSC WG will:8

2. CDM Institutions and Processes• Prepare precise and workable recommendations for consideration and adoption bythe EB on submitted proposals for new small-scale project activity categories and newsimplified baseline and monitoring plans; and• Prepare, as appropriate, draft revisions for the consideration of the EB of the indicativelist of simplified baseline and monitoring methodologies contained in the appendix B ofthe modalities and procedures for small-scale CDM project activities. [EB15, Annex 11]2.1.2 Designated Operational EntitiesDesignated operational entity (DOE) is either a domestic legal entity or an internationalorganization accredited and designated on a provisional basis by the EB until confirmed bythe COP/MOP.DOE has the following two key functions in the CDM project cycle.1) Validation: It validates and subsequently requests registration of a proposed CDM projectactivity.2) Verification and Certification: It verifies emission reduction of a registered CDM projectactivity and certifies as appropriate and requests the EB to issue Certified EmissionReductions (CERs) accordingly.A DOE can perform either validation or verification and certification on the same CDMproject activity. However, upon request, the EB may allow a single DOE to perform all thesefunctions within a single CDM project activity.A list of sectoral scopes, shown in Table 1 below, has been prepared based on the listof sectors and sources contained in Annex A of the Kyoto Protocol. A sectoral scope(s)of accreditation sets the limits for work which a DOE may perform under the CDM withregard to validation as well as verification and certification related to identified sector(s)and determines the requirements it shall meet in addition to those determined in AppendixA to the CDM M&P. This list may be further modified in accordance with the proceduralguidelines. [http://cdm.unfccc.int/DOE/scopes.html]Table 1: list of sectoral scopesScopeNumberSectoral Scope1 Energy industries (renewable - / non-renewable sources)2 Energy distribution3 Energy demand4 Manufacturing industries5 Chemical industries6 Construction7 Transport8 Mining/mineral production9

2.1 Institutions9 Metal production10 Fugitive emissions from fuels (solid, oil and gas)11Fugitive emissions from production and consumption of halocarbons andsulphur hexafluoride12 Solvent use13 Waste handling and disposal14 Afforestation and reforestation15 AgricultureSource: http://cdm.unfccc.int/DOE/scopes.htmlAs said before, the current DOEs have been designated on a provisional basis by theEB, until the COP/MOP confirms the designation. Table 2 shows the DOEs that have beendesignated by the EB as of November 2004.Table 2: List of DOEs as of November 2004Ref.NumberE-0001E-0003E-0005E-0010Entity Name (short name)Japan Quality Assurance Organization(JQA)Det Norske Veritas Certification Ltd.(DNVcert)TÜV Industrie Service GmbH TÜVSUD GRUPPE (TÜV Industrie ServiceGmbH TÜV)Société Générale de Surveillance UKLtd. (SGS)Source: http://cdm.unfccc.int/DOE/listSectoral scopesfor validation4, 5, 6, 7, 10, 11,121, 2, 3, 4, 5, 6, 7,10, 11, 12, 131, 2, 34, 5, 6, 7, 10, 11,12Sectoral scopesfor verificationand certificationAn applicant entity (AE) is an entity, which has applied for accreditation by the EB but hasnot yet been accredited and designated as a DOE. An AE, in order to be accredited, has tocarry out activities witnessed by the CDM-AT related to validation and/or verification andcertification. Validation and/or verification and certification activities, witnessed during theaccreditation procedure, are considered valid if the applicant entity is successfully accreditedby the EB. An AE, for which a CDM-AT has been assigned, may submit proposed newmethodologies. An AE must also maintain documentary evidence (e.g. a procedural report)for each new methodology submitted to the EB. The AE once accredited is authorized tofunction as DOE in the sectoral scope(s) for which the EB agreed to designate.Table 3 shows the AEs, for which a CDM-AT has been assigned as of November 2004.10

2. CDM Institutions and ProcessesTable 3: List of applicant entities, for which a CDM-AT has been assignedAZSA and Co.(Formally Asahi and Co.)British Standards Institution (BSI)BVQI Holdings Ltd.ChuoAoyama PwC Research Institute Corporation (Formally, Chuo Sustainability ResearchInstitute Co. Ltd. (CSRI))Clouston Environmental Sd. Bhd.Colombian Institute for Technical Standards and Certification (ICONTEC)Conestoga Rovers & Associates Limited. (CRA)Det Norske Veritas Certification Ltd. (DNV Certification Ltd)ERM Certification and Verification services Limited. (ERM CVS)Japan Audit and Certification Organisation for Environment and QualityJapan Consulting Institute (JCI)Japan Quality Assurance Organisation (JQA)Korean Foundation for Quality (KFQ)KPMG Certification B.V.Lloyd’s Register Quality Assurance (LRQA)Nexant IncRWT_V Systems GmbHSpanish Association for Standardisation and Certification (AENOR)SGS UK Ltd. (SGS = Société Générale de Surveillance)The Korea Energy Management Corporation (Kemco)Tohmatsu Evaluation and Certification Organization (TECO)TÜV Industrie Service GmbH - TÜV Rheinland Group (Former TÜV Anlagentechnik GmbH)TÜV Industrie Service GmbH TÜV Süd Gruppe (former TÜV Süddeutschland)URS Corporation LimitedSource: http://cdm.unfccc.int/DOE/AEnewMeth11

2.2.1 CDM project cycle and project typesThe project cycle is common to all CDM project types, such as normal scale, small scaleand A/R CDM activities. This manual covers up to step3 in the project cycle shown below. Figure 3: CDM project cycle12

2. CDM Institutions and ProcessesCDM project activities can be divided into the following types (refer Table 4) depending onthe size and types of activity undertaken. Project participants who wish to develop a CDMproject activity should first determine in which of the following categories the project activitywould fit, as different modalities and procedures and formats apply to each project type.This chapter explains the processes related to emission reduction CDM project activities.A/R CDM project activities are explained in Chapter 5.Table 4: Classification of CDM project activitiesEmission reduction CDM project activitiesProject Activities Modalities and Procedures FormatsSmallscaleCDM(SSC)Type (i) : Renewable energy projectactivities with a maximum outputcapacity equivalent to up to 15megawatts (or an appropriate equivalent)Type (ii) : Energy efficiency improvementproject activities which reduce energyconsumption, on the supply and/ordemand side, by up to the equivalent of15 gigawatt hours per yearType (iii) : Other project activities thatboth reduce anthropogenic emissions• Simplified modalities andprocedures for small-scale CDMproject activities (Annex II toDecision 21/CP.8)• Appendix B of the simplifiedmodalities and proceduresfor small-scale CDM projectactivitiesGuidance/clarifications:• EB03, Annex 2• EB07, Annex 6• EB14, Annex2• EB16, Annex 2PDD: SSC-PDDBaseline Meth: N/AMonitoring Meth: N/ANormalCDMCDM project activities that are not SSCor AR project activitiesCDM Modalities and Procedures(CDM M&P; Extract of Decision17/CP.7)Guidelines:• Guidelines for completingCDM-PDD, CDM-NMB andCDM-NMMGuidance/clarifications:• EB05, Annex 3• EB08, Annex 1• EB09, Annex 3• EB10, Annex 1• EB16, Annex 3PDD: CDM-PDDBaseline Meth:CDM-NMBMonitoring Meth:CDM-NMMAfforestation and Reforestation CDM project activities (A/R CDM)Project Activities Modalities and Procedures FormatsSmallscaleA/RCDM• Those that are expected to result innet GHG removals by sinks of lessthan 8 kilotonnes of CO 2 per year• Developed or implemented bylow-income communities andindividuals as determined by the hostParty.Details on procedures forsmall-scale A/R CDM projectactivities will be discussed furtherin the AR working group.Details on formats forsmall-scale A/R CDMproject activities willbe discussed furtherin the AR workinggroup.NormalA/R CDMA/R CDM project activities that are notsmall-scale A/R CDMRules and formats are available on the CDM web site at:http://cdm.unfccc.int/Reference/Documents/index.html• Modalities and procedures forafforestation and reforestationproject activities under the CDM- Decision 19/CP.9Guidelines:• Guidelines for completingCDM-AR-PDD, CDM-AR-NMBand CDM-AR-NMMPDD: CDM-AR-PDDBaseline Meth:CDM-AR-NMBMonitoring Meth:CDM-AR-NMM13

2.2 Processes2.2.2 Overview of approval process of projectactivities and methodologiesThe following figure describes the approval process of on emission reduction projectactivity and methodologies up to the registration of the project activity as a CDM projectactivity.Figure 4: Approval process of CDM project activities and methodologiesSTEP1: Determine if your project qualify as a small-scale CDM projectactivity.As shown in Figure 4 above, project participants should first consider if their project fallsunder one of the following three types of small-scale CDM project types.Type (i):Type (ii):Renewable energy project activities with a maximum output capacity equivalentto up to 15 megawatts (or an appropriate equivalent)Energy efficiency improvement project activities which reduce energyconsumption, on the supply and/or demand side, by up to the equivalent of 15gigawatt hours per year14

2. CDM Institutions and ProcessesType (iii): Other project activities that both reduce anthropogenic emissions by sourcesand directly emit less than 15 kilotonnes of CO 2 equivalent annuallyAlthough small-scale CDM project activities follow the same stages of the project cycledescribed in section 2.2.1, simplified modalities and procedures apply in order to reducetransaction costs. For example, the requirements for the CDM-PDD are reduced, baselineand monitoring methodologies are simplified, and the same operational entity can undertakevalidation, and verification and certification. If your project activity qualifies as a small-scaleCDM project activity, proceed to Chapter 3, which explains the small-scale CDM projectactivities, related processes and simplified methodologies in detail. Otherwise, proceed toStep 2 below.STEP2: Determine if an approved baseline and monitoring methodologyis applicable to your project.All normal scale CDM project activities go through a procedure of approval by the EBbefore they can be registered as CDM project activities. However, the procedure differsdepending on the applicability of approved baseline and monitoring methodologies. In caseapproved methodologies can be used, the DOE may proceed with the validation of the CDMproject activity and submit CDM-PDD for registration. If not, project participants must submitnew baseline and monitoring methodologies using formats CDM-NMB and CDM-NMM,respectively, along with the draft CDM-PDD and have them approved by the EB. Only then,the DOE can proceed with the validation of the CDM project activity. Baseline and monitoringmethodologies are to be proposed and approved together, as they are closely related toeach other.Project participants should check the applicability of approved methodologies andapproved consolidated methodologies in order to see if they are applicable to your projectactivity. If one of the approved methodologies or approved consolidated methodologies isapplicable to your project activity, skip Step 3 and proceed to Step 4. If project participantswish to propose a new methodology with a similar applicability as an already approvedmethodology or a consolidated methodology, they can do so for consideration of the EB atany time. However, proponents need to provide justification on how such a methodologydiffers from an approved methodology and that its accuracy and completeness iscomparable to that of the approved methodology. [EB15, para8(c)] Chapter 4 explains in theapproved methodologies and consolidated methodologies.Approved methodologies (AM)Once a proposed new methodology is approved by the EB, it is reformatted and given anumber as an approved methodology (AM).Table 5 is the list of approved methodologies as of November 2004. The list of approvedmethodologies is regularly updated on the CDM web site [http://cdm.unfccc.int/methodologies/PAmethodologies/approved.html].15

2.2 ProcessesTable 5: List of approved methodologies as of November 2004NumberOriginal NMNumberMethodologies Title(including baseline and monitoring methodologies)AM0001 NM0007 Incineration of HFC 23 Waste StreamsAM0002NM0004Greenhouse gas emission reductions through landfill gas captureand flaring where the baseline is established by a public concessioncontractAM0003 NM0005 Simplified financial analysis for landfill gas capture projectsAM0004NM0019Grid-connected biomass power generation that avoids uncontrolledburning of biomassAM0005 NM0023 Small grid-connected zero-emissions renewable electricity generationAM0006 NM0022 GHG emission reductions from manure management systemsAM0007 NM0028 Analysis of the least-cost fuel option for seasonally-operatingAM0008AM0009AM0010AM0011AM0012AM0013NM0016NM0026NM0010NM0021NM0032NM0039Industrial fuel switching from coal and petroleum fuels to natural gaswithout extension of capacity and lifetime of the facilityRecovery and utilization of gas from oil wells that would otherwise beflaredLandfill gas capture and electricity generation projects where landfillgas capture is not mandated by lawLandfill gas recovery with electricity generation and no capture ordestruction of methane in the baseline scenarioBiomethanation of municipal solid waste in India, using compliancewith MSW rulesForced methane extraction from organic waste-water treatmentplants for grid-connected electricity supplyAM0014 NM0018 Natural gas-based package cogenerationAM0015 NM0001 Bagasse-based cogeneration connected to an electricity gridAM0016NM0034-rev.2Greenhouse gas mitigation from improved animal waste managementsystems in confined animal feeding operationsSource: http://cdm.unfccc.int/methodologies/PAmethodologies/approved.htmlApproved Consolidated Methodologies (ACM)The EB at its 11 th meeting, requested the Meth Panel to consider and recommend, amongothers, options on generalizing applicability of methodologies and providing tools for projectparticipants to choose among approved methodologies of a similar nature. The EB and theMeth Panel proceeded with this effort, partly to solve the problem of unsustainable workloadfor Meth Panel members. As a result, the EB, at its 15 th meeting, agreed on two consolidatedbaseline and monitoring methodologies, one for landfill gas project activities and another forgrid-connected electricity generation from renewable sources. An approved methodology,which is covered by a consolidated methodology, continues to remain valid in its ownright. Approved Consolidated Methodology is to be used in conjunction with “Tool for thedemonstration and assessment of additionality” [EB16, Annex1]. Section 4.3.3 explains thistool in detail.16

2. CDM Institutions and ProcessesTable 6: List of approved consolidated methodologies as of November 2004NumberACM0001ACM0002Consolidated Methodologies Title(including baseline and monitoring methodologies)Consolidated methodology for landfill gas project activitiesConsolidated methodology for grid-connected electricity generation fromrenewable sourcesSource: http://cdm.unfccc.int/methodologies/PAmethodologies/approved.htmlAs explained in Step 4 below, the DOE has to confirm, in the process of validation, thatthe proposed baseline and monitoring methodologies comply with requirements pertaining tomethodologies previously approved by the EB, or modalities and procedures for establishinga new methodology.STEP3: Proposal of a New Baseline and/or Monitoring MethodologyFigure 5 shows the procedures for proposing a new baseline and/or monitoringmethodology.If project participants intend to propose a new baseline or monitoring methodology forconsideration and approval by the EB, they should prepare the methodologies forms forbaseline and monitoring methodologies (CDM-NMB and CDM-NMM) along with a draftproject design document (CDM-PDD) and as a minimum, complete sections A to E, includingrelevant annexes.Project participants should select and contract a DOE/AE for submission of newmethodologies. In case of a DOE, ensure that the DOE is accredited to perform validation ofthe sectoral scope of the proposed project activity. (refer Table 2 and Table 3)Once project participants submit necessary documentations (CDM-NMB, CDM-NMM anddraft CDM-PDD) to the EB through DOE/AE, a member of the Meth Panel would conduct ascreening of the quality of the submission.If the quality is satisfactory (grade 1), the proposed NM is made publicly available on theCDM web site to invite public inputs for a period of 15 working days. Comments shall beforwarded to the Meth Panel at the moment of receipt and made available to the public atthe end of the 15 working days. If the quality is unsatisfactory (grade 2), the documentationis sent back to the project participants.For submissions rated grade 1, after being made publicly available for public inputs,two members of the Meth Panel would prepare a draft recommendation, based onrecommendations by desk reviewers selected from a roster of experts. During that process,the Meth Panel may request additional technical information from the project participants.The Meth Panel would prepare a preliminary recommendation regarding the approvalof the proposed new methodology and forward them to project participants. At thisstage, project participants may submit clarifications to the Meth Panel regarding thepreliminary recommendation made by the Meth Panel. If the preliminary recommendationis in favor of approving the proposed new methodology, or the project participants donot provide any clarifications, the preliminary recommendation is to be considered as a17

2.2 ProcessesCDM projectparticipantsDOEUNFCCCsecretariatMeth Panel (MP)EBPrepare• CDM-NMB• CDM-NMM• draft CDM-PDDFill form F-CDM-NM andforwarddocumentationto theSecretariat.Check andforwarddocumentationto the MP.A member of MPassesses the qualityof the submission andgrades it as beinggrade 1 or grade 2.grade 2grade 1The documentation isto be sent back tothe projectparticipants.Make theproposed NMpublicly availableon the CDMweb site andinvite publicinputs for aperiod of 15working days.Two members of theMP are selected toprepare draftrecommendations bythe MP.Desk reviewers froma roster of expertsforwards his/herrecommendation tothe MP.MP may requestadditional technicalinformation from theproject participants.Prepares preliminaryrecommendationregarding theapproval of theproposed NM to theEB.MP forwards itspreliminaryrecommendation toproject participants.Project participantsmay submitclarifications to theMP.Project participantsdo not provide anyclarification ORthe preliminaryrecommendation isin favour ofapproving theproposed NM, it isconsidered as a finalrecommendation.The finalrecommendationis forwarded tothe EB andmade publiclyavailable.Project participantsprovide clarifications,the MP considersthem at its nextmeeting and prepareits finalrecommendation.Considers aproposed NM atthe next meetingfollowing thereceipt of thefinalrecommendationby the MP.Figure 5: Procedures for proposing new methodology18

2. CDM Institutions and Processesfinal recommendation. If project participants provide clarifications, the Meth Panel wouldconsider them at its next meeting and prepare its final recommendation. The Meth Panel, inits recommendation to the EB, rates the proposed new methodology as follows:a. To approve the proposed methodology with minor changesb. To reconsider the proposed methodology, subject to required changesc. Not to approve the proposed methodologyThe final recommendation is forwarded to the EB and is made publicly available. The EBwould consider the proposed new methodology at the next meeting following the receipt ofthe final recommendation by the Meth Panel.The approval process, from the date of transmission of documentation from theSecretariat to the EB until the date of EB decision on approval of the new methodology,would take at most four months.For further details of the submission and approval process, refer “Procedures for thesubmission and consideration of a proposed new methodology Version 06” available at theweb site address [http://cdm.unfccc.int/Reference/Procedures/Pnm_proced_ver06b.pdf].STEP4: Draft a Project Design Document (CDM-PDD)Project participants need to draft a project design document (CDM-PDD), which describesthe project activity as well as application of baseline and monitoring methodologies to theproject activity. Project participants should check with the CDM web site for the most currentversion of the CDM-PDD. As of November 2004, CDM-PDD Version 02 is the most recentversion. Chapter 4 explains in detail how to fill out the PDD.STEP5: Validation of the CDM project activityValidation is the process of independent evaluation of a project activity by a DOE againstthe requirements of the CDM on the basis of the CDM-PDD. Project participants shouldselect and contract a DOE to undertake validation, if they have not done so already in Step 3.The validation and registration process is shown in Figure 6 below.First, project participants submit a CDM-PDD to a DOE, who reviews the CDM-PDDand opens it for public inputs. For the purpose of the local stakeholder review, projectparticipants are requested to describe a project activity in a manner that allows the localstakeholders to understand the project activity. During this review process, DOEs usuallydraw attention of the project participants to the points in the PDD that need to be clarifiedand/or improved through Corrective Action Requests (CARs). This way, project participantsare given the opportunity to improve the CDM-PDD. After the deadline for receipt of publicinputs, the DOE determines whether the proposed project activity should be validated. Oncethe decision is made, the DOE informs project participants its determination on the validationof the project activity.19

2.2 Processes Figure 6: Procedures for validation and registrationThe DOE reviews the CDM-PDD and any supporting documentation to confirm that thefollowing validation requirements, as set out in paragraph 37 of the CDM M&P, are met.(a) The following participation requirements are satisfied;• Participation in a CDM project activity is voluntary.20

2. CDM Institutions and Processes• Parties participating in the CDM shall designate a national authority for the CDM.• A Party not included in Annex I may participate in a CDM project activity if it is aParty to the Kyoto Protocol. [CDM M&P, para 28-30](b) Comments by local stakeholders have been invited, a summary of the commentsreceived has been provided, and a report to the DOE on how due account was takenof any comments has been received;(c) Project participants have submitted to the designated operational entitydocumentation on the analysis of the environmental impacts of the project activity,including transboundary impacts and, if those impacts are considered significant bythe project participants or the host Party, have undertaken an environmental impactassessment in accordance with procedures as required by the host Party;(d) The project activity is expected to result in a reduction in anthropogenic emissions bysources of greenhouse gases (GHGs) that are additional to any that would occur in theabsence of the proposed project activity;(e) The baseline and monitoring methodologies comply with requirements pertaining to:(i) Methodologies previously approved by the EB; or(ii) Modalities and procedures for establishing a new methodology;(f) Provisions for monitoring, verification and reporting are in accordance with decision17/CP.7, the CDM M&P and relevant decisions of the COP/MOP;(g) The project activity conforms to all other requirements for CDM project activities indecision 17/CP.7, the CDM M&P and relevant decisions by the COP/MOP and the EB.STEP6: Registration of the CDM project activityRegistration is the formal acceptance by the EB of a validated project as a CDM projectactivity. Registration is the prerequisite for the verification, certification and issuance of CERsrelated to that project activity.As shown in Figure 6 above, the registration by the EB shall be deemed final eight weeksafter the date of receipt by the EB of the request for registration, unless a Party involved inthe project activity or at least three members of the EB request a review of the proposedCDM project activity.The review by the EB shall be made in accordance with the following provisions [CDMM&P, para 41]:(a) It shall be related to issues associated with the validation requirements;(b) It shall be finalized no later than at the second meeting following the request forreview, with the decision and the reasons for it being communicated to the projectparticipants and the public.As of November 2004, there are two projects that have received three requests for review.The EB gave clarifications on procedures for review at its 16 th meeting. Refer to Annex 5 ofthe report of the 16 th meeting of the EB [EB16, Annex5].For detailed procedural instructions for the registration of a proposed CDM project activity,refer to Annex 7 to the report of the 14 th meeting of the EB. [EB14, Annex 7].21

2.2 ProcessesBox: What constitutes a “written approval”?Project participants must submit to the DOE “written approval of voluntaryparticipation from the designated national authority (DNA) of each Party involved,including confirmation by the host Party that the project activity assists it in achievingsustainable development” [CDM M&P, para 40]The EB, at its 16 th meeting, clarified that ”a written approval constitutes DNA’sauthorization of specific entity(ies’) participation as project proponents in the specificCDM project activity”.Furthermore, the EB clarified on the elements of a “written approval”, as follows [EB16,Annex 6]:1. The designated national authority (DNA) of a Party involved in a proposed CDMproject activity shall issue a statement including the following:- The country has ratified the Kyoto Protocol.- The approval of voluntary participation in the proposed CDM project activity.- Host Parties: statement that the proposed CDM project activity contributes tosustainable development.This implies that approvals should be specific to projects. Multilateral funds do notnecessarily require letters from each participant’s DNA. However, those not providingletters may be giving up some of their rights and privileges in terms of being a Partyinvolved in the project. A letter of approval from a Party may cover more than oneproject, provided that projects are clearly listed in the letter. [EB 13, para 38 & 39]22

3.Small-scale CDMProject Activities

3.1.1 Overview of small-scale CDM projectactivitiesThe framework of small-scale CDM would enable project participants to use a fast-trackapproach for CDM procedures which could help reduce transaction costs compared tothose of normal scale CDM.Small-scale CDM project activities are those projects that meet certain eligibility criteriaset by the EB. Once a project is classified as a small-scale CDM project activity, then it canbenefit from being able to use simplified modalities and procedures for small-scale CDMproject activities, use a simplified PDD form (SSC-PDD), apply a lowered registration fee,and apply less intensive procedures for validation, verification and certification.To use simplified modalities and procedures for small-scale CDM project activities, aproposed project activity shall:(a) Meet the eligibility criteria for small-scale CDM project activities set out in para 6 (c) ofCDM M&P (types (i)-(iii) described below);(b) Conform to one of the project categories in appendix B to Annex II to Decision 21/CP.8(refer to Section 3.2 for the categories);(c) Not be a debundled component of a larger project activity, as determined throughappendix C to Annex II to Decision 21/CP.8 (refer to section 3.1.2).3.1.2 Definition of small-scale CDM projectactivitiesThree project types are currently recognized as eligible small-scale CDM activity inemission reduction sector, and they are as follows:(1) Type (i) project activities:Type I covers renewable energy project activitieswith a maximum output capacity equivalent to upto 15 MW.Type I category covers renewable energyprojects including: Solar, wind, hybrid systems,biogas or biomass, water, geothermal and waste.The total capacity of a plant used for the projectactivity should not exceed 15 MW in output. Theoutput, by definition, is installed or rated capacity.On contrary, the load factor which would affect thereal output is not taken into consideration.Figure 7: Type (i) Renewable energyproject activities.24

3. Small-scale CDM Project Activities(2) Type (ii) project activities:Energy efficiency improvementproject activities which reduceenergy consumption, on the supplyand/or demand side, by up to theequivalent of 15 GWh/yearType II covers supply side projectsand end-use projects includingresidential, service, industry,transport, agricultural machineriesand cross-cutting technologieswhich result in improvement in perunit power for the service provider orin reduction of energy consumptionin watt hour in comparison with theapproved baseline.15GWhFigure 8: Type (ii) Energy efficiency improvementproject activities(3) Type (iii) project activities:Other project activities that both reduce anthropogenic emissions by sources anddirectly emit less than 15 kilotonnes of carbon dioxide equivalent annually.Type III covers agricultural projects, fuel switching, industrial processes and wastemanagement. Possible examplesin the agricultural sector includeimproved manure management,reduction of enteric fermentation,improved fertilizer usage or improvedwater management in rice cultivation.Other project activities that couldqualify include CO 2 recycling, carbonelectrodes, adipic acid productionand the use of HFCs, PFCs and SF 6making reference to the emission reductions generated by suchprojects expressed in CO 2 equivalent. Figure 9: Type (iii) Other project activitiesA project activity falling into one of the project types above and conform with the thresholdof the project type is eligible to use simplified methodologies for baseline and monitoring.25

3.1 Overvies and defi nition of small-scale CDM project activities3.1.3 Rules of small-scale CDMIt should be noted when developing a small-scale CDM project, project participants needto follow the stages of the project cycle specified in the CDM modalities and proceduresas mentioned in Chapter 2. However, as described above, simplified methodologies can beapplied to small-scale CDM project activities, which save both time and cost of developingnew methodologies from the beginning. The list of the small-scale CDM project types isavailable to project participants and will be explained in the next section.There are other benefits that project participants can receive from applying the schemeof small-scale CDM. In order to reduce transaction costs modalities and procedures aresimplified as follows:(a) Project activities may be bundled or portfolio bundled at the following stages inthe project cycle: the project design document, validation, registration, monitoring,verification and certification. The size of the total bundle should not exceed the limitsset out for the three project types (i) to (iii) above;(b) The requirements for the project design document are reduced;(c) Baseline methodologies by project category are simplified to reduce the cost ofdeveloping a project baseline;(d) Monitoring plans are simplified, including simplified monitoring requirements, toreduce monitoring costs; and(e) The same operational entity may undertake validation, and verification andcertification.As mentioned earlier, the proposed project activity shall not be a debundled componentof a larger project activity if it aims at using the simplified modalities and procedures forsmall-scale CDM project activities. Debundling is defined as “the fragmentation of a largeproject activity into smaller parts”. A proposed small-scale project activity is considered tobe a debundled component of a large project activity if there is a registered small-scale CDMproject activity or an application to register another small-scale CDM project activity:• With the same project participants;• In the same project category and technology/measure;• Registered within the previous 2 years; and• Whose project boundary is within 1 km of the project boundary of the proposedsmall-scale activity at the closest point.However, even though a proposed small-scale project activity is considered to bea debundled component, if total size of such an activity combined with the previouslyregistered small-scale CDM project activity does not exceed the limits for small-scaleCDM project activities as shown in the types (i) through (iii) explained earlier, the projectactivity can qualify to use simplified modalities and procedures for small-scale CDM projectactivities.26

3. Small-scale CDM Project Activities3.1.4 Project additionality in small-scale CDMproject activitiesA simplified baseline and monitoring methodology listed in Appendix B of Annex II todecision 21/CP.8 (FCCC/CP/2002/7/Add.3) may be used for a small-scale CDM projectactivity if the project participants are able to demonstrate to a DOE that the project activitywould otherwise not be implemented due to the existence of one or more of the barrierslisted below.Project participants shall provide an explanation to show that the project activity wouldnot have occurred anyway due to at least one of the following barriers:(a) Investment barrier: a financially more viable alternative to the project activity wouldhave led to higher emissions;(b) Technological barrier: a less technologically advanced alternative to the projectactivity involves lower risks due to the performance uncertainty or low market share ofthe new technology adopted for the project activity and so would have led to higheremissions;(c) Barrier due to prevailing practice: prevailing practice or existing regulatory or policyrequirements would have led to implementation of a technology with higher emissions;(d) Other barriers: without the project activity, for another specific reason identified bythe project participant, such as institutional barriers or limited information, managerialresources, organizational capacity, financial resources, or capacity to absorb newtechnologies, emissions would have been higher.27

There are simplified methodologies developed for 15 categories of small-scale CDMproject activities. The list is shown below.Table 7: Categories of small-scale CDM as of November 2004I. TYPE I - RENEWABLE ENERGY PROJECTSI.A. Electricity generation by the userI.B. Mechanical energy for the userI.C. Thermal energy for the userI.D. Renewable electricity generation for a gridII. TYPE II - ENERGY EFFICIENCY IMPROVEMENT PROJECTSII.A. Supply side energy efficiency improvements - transmission and distributionII.B. Supply side energy efficiency improvements - generationII.C. Demand-side energy efficiency programmes for specific technologiesII.D. Energy efficiency and fuel switching measures for industrial facilitiesII.E. Energy efficiency and fuel switching measures for buildingsII.F. Energy efficiency and fuel switching measures for agricultural facilities and activitiesIII. TYPE III - OTHER PROJECT ACTIVITIESIII.A. AgricultureIII.B. Switching fossil fuelsIII.C. Emission reductions by low-greenhouse gas emitting vehiclesIII.D. Methane recoveryIII.E. Avoidance of methane production from biomass decay through controlledcombustionSource: http://cdm.unfccc.int/Projects/pac/ssclistmeth.pdf28

4.Normal Scale CDMProject Activities

4.1.1 Outline of CDM-PDD Version 2Project participants who wish to develop a CDM project activity must first prepare aProject Design Document (CDM-PDD). The CDM-PDD describes the project activity aswell as application of baseline and monitoring methodologies to the project activity. Projectparticipants should check with the CDM web site for the most current version of theCDM-PDD. As of November 2004, CDM-PDD version 02 is the most recent version.The EB has released a document containing guidelines for completing the CDM-PDD,CDM-NMB, and CDM-NMM. This document also contains the glossary of CDM terms, whichexplains key terms used in the CDM. Underlined terms in the forms can be found in theglossary. It can be downloaded form the CDM web site at http://cdm.unfccc.int/Reference/DocumentsThe guidelines explain the CDM-PDD as follows:1. The CDM-PDD presents information on the essential technical and organizationalaspects of the project activity and is a key input into the validation, registration, andverification of the project as required under the Kyoto Protocol to the UNFCCC. Therelevant modalities and procedures are detailed in decision 17/CP.7 contained indocument FCCC/CP2001/13/Add.2.2. The CDM-PDD contains information on the project activity, the approved baselinemethodology applied to the project activity, and the approved monitoringmethodology applied to the project. It discusses and justifies the choice of baselinemethodology and the applied monitoring concept, including monitoring data andcalculation methods.3. Project participants should submit the completed version of the CDM-PDD, togetherwith attachments if necessary, to an accredited designated operational entity forvalidation. The designated operational entity then examines the adequacy of theinformation provided in the CDM-PDD, especially whether it satisfies the relevantmodalities and procedures concerning CDM project activities. Based on thisexamination, the designated operational entity makes a decision regarding validationof the project.30

4. Normal Scale CDM Project ActivitiesStructure of the Project Design Document Version 02A. General description of project activityB. Application of a baseline methodologyC. Duration of the project activity / Crediting periodD. Application of a monitoring methodology and planE. Estimation of GHG emissions by sourcesF. Environmental impactsG. Stakeholders’ commentsAnnexesAnnex 1: Contact information on participants in the project activityAnnex 2: Information regarding public fundingAnnex 3: Baseline informationAnnex 4: Monitoring plan4.1.2 Basic technical information about theCDM and CDM-PDD4.1.2.1 BaselineBaseline, a fundamental concept in the CDM, is defined as: “the scenario that reasonablyrepresents the anthropogenic emissions by sources of greenhouse gases (GHG) that wouldoccur in the absence of the proposed project activity” [CDM M&P, para44]. A baselineshall cover emissions from all gases (CO 2 , CH 4 , N 2 O, HFCs, PFCs SF 6 ), sectors and sourcecategories listed in Annex A (of the Kyoto Protocol) within the project boundary.CDM-PDD should describe how a baseline scenario is identified by applying a baselinemethodology, which could be either a methodology already approved by the EB or a newlyproposed methodology.Following is a list of the relevant decisions of the EB regarding baseline and baselinemethodology. Some of them can be found in the glossary of CDM terms within the document“Guidelines for Completing CDM -PDD, CDM-NMB and CDM-NMM”.• Baseline approachA baseline approach is the basis for a baseline methodology. The EB agreed that thethree approaches identified in sub-paragraphs 48 (a) to (c) of the CDM modalities andprocedures be the only ones applicable to CDM project activities. They are:• Existing actual or historical emissions, as applicable; or• Emissions from a technology that represents an economically attractive course ofaction, taking into account barriers to investment; or• The average emissions of similar project activities undertaken in the previous five years,in similar social, economic, environmental and technological circumstances, and whoseperformance is among the top 20 per cent of their category.31

4.1 CDM Project Design Document (CDM-PDD)• Baseline methodology:A methodology is an application of an approach as defined in paragraph 48 of the CDMmodalities and procedures (refer to Baseline approach), to an individual project activity,reflecting aspects such as sector and region. No methodology is excluded a priori sothat project participants have the opportunity to propose a methodology. In consideringparagraph 48, the EB agreed that, in the two cases below, the following applies [EB05,Annex3]:(a) Case of a new methodology: In developing a baseline methodology, the first step is toidentify the most appropriate approach for the project activity and then an applicablemethodology;(b) Case of an approved methodology: In opting for an approved methodology, projectparticipants have implicitly chosen an approach.• Establish a baseline in a transparent and conservative manner:Establishing a baseline in a transparent and conservative manner (paragraph 45 (b) of theCDM modalities and procedures) means that:• assumptions are made explicitly and choices are substantiated.• in case of uncertainty regarding values of variables and parameters, the establishmentof a baseline is considered conservative if the resulting projection of the baseline doesnot lead to an overestimation of emission reductions attributable to a CDM projectactivity (that is, in the case of doubt, values that generate a lower baseline projectionshall be used).• Treatment of “existing” and “newly built” facilities [EB08, Annex1]If a proposed CDM project activity seeks to retrofit or otherwise modify an existing facility,the baseline may refer to the characteristics (i.e. emissions) of the existing facility only to theextent that the project activity does not increase the output or lifetime of the existing facility.For any increase of output or lifetime of the facility, which is due to the project activity, adifferent baseline shall apply.• Treatment of hydropower in the case of hydro-dominated grid [EB09, Annex3]If an electricity generation CDM project activity which uses an operating marginmethodology is connected to a primarily hydropowered grid, project participants who wantto exclude hydropower from the operating margin must justify this explicitly.• Ex post calculation of baselines [EB10, Annex1]The ex post calculation of baseline emission rates may only be used if proper justificationis provided. Notwithstanding, the baseline emission rates shall also be calculated ex-anteand reported in the draft CDM-PDD in order to satisfy the requirements for identification ofthe elements of a baseline methodology agreed by the EB at its eighth meeting.• Treatment of national and/or sectoral policies and regulations [EB16, Annex3]Type E+: Existing national and/or sectoral policies or regulations that create policy-drivenmarket distortions which give comparative advantages to more emissions-intensivetechnologies or fuels over less emissions-intensive technologies or fuels.➥ Only “Type E+” national and/or sectoral policies or regulations that have been32

4. Normal Scale CDM Project Activitiesimplemented before adoption of the Kyoto Protocol by the COP shall be taken intoaccount when developing a baseline scenario. If “Type E+” national and/or sectoralpolicies were implemented since the adoption of the Kyoto Protocol (decision 1/CP.3,11 December 1997), the baseline scenario should refer to a hypothetical situationwithout the national and/or sectoral policies or regulations being in place.Type E-: National and/or sectoral policies or regulations that give positive comparativeadvantages to less emissions-intensive technologies over more emissions-intensivetechnologies (e.g. public subsidies to promote the diffusion of renewable energy or tofinance energy efficiency programs).➥ “Type E-” national and/or sectoral policies or regulations that have been implementedsince the adoption by the COP of the CDM M&P (decision 17/CP.7, 11 November2001) may not be taken into account in developing a baseline scenario (i.e. thebaseline scenario should refer to a hypothetical situation without the national and/orsectoral policies or regulations being in place).4.1.2.2 AdditionalityAdditionality is a concept closely related to baseline, which project participants need topay particular attention in establishing a baseline and devising baseline methodologies.According to the Marrakech Accords, a CDM project activity is additional if anthropogenicemissions of GHGs by sources are reduced below those that would have occurred in theabsence of the registered CDM project activity [CDM M&P, para43].The EB has taken the following decisions related to additionality.• Clarifications about baseline and additionality [EB09, Annex3]A proposed new methodology shall explain how a project activity using the methodologycan demonstrate that it is additional i.e. different from the baseline scenario. Projectparticipants shall therefore describe how to develop the baseline scenario and “how thebaseline methodology addresses…the determination of project additionality.” In addition,the methodology shall provide elements to calculate the emissions of the baseline. Theproject participants shall ensure consistency between the elaboration of the baselinescenario and the procedure and formulae to calculate the emissions of the baseline.• Examples of tools that may be used to demonstrate that a project activity isadditional and therefore not the baseline scenario [EB10, Annex1](a) A flow-chart or series of questions that lead to a narrowing of potential baselineoptions; and/or(b) A qualitative or quantitative assessment of different potential options and an indicationof why the non-project option is more likely; and/or(c) A qualitative or quantitative assessment of one or more barriers facing the proposedproject activity (such as those laid out for small-scale CDM projects); and/or(d) An indication that the project type is not common practice (e.g. occurs in less than[

4.1 CDM Project Design Document (CDM-PDD)4.1.3 A guide to filling out the CDM-PDDThis section explains some of the key points to keep in mind when drafting a ProjectDesign Document, based on the CDM-PDD Version 02 format and the guidelines, which areshown in boxes. Additional tips are given in the dotted-line boxes with little light bulbs.CLEAN DEVELOPMENT MECHANISMPROJECT DESIGN DOCUMENT FORM (CDMPDD)Version 02 - in effect as of: 1 July 2004)A. General description of project activityB. Application of a baseline methodologyC. Duration of the project activity/Crediting periodD. Application of a monitoring methodology and planE. Estimation of GHG emissions by sourcesF. Environmental impactsG. Stakeholdersʼ commentsAnnexesAnnex 1: Contact information on participants in the project activityAnnex 2: Information regarding public fundingAnnex 3: Baseline InformationAnnex 4: Monitoring plan34

4. Normal Scale CDM Project ActivitiesSECTION A. General description of project activityA.1. Title of the project activity:A simple title that includes information about the technology employed andthe country name where the project takes place would be desirable as ithelps identify the substance of the project activity.A.2. Description of the project activity:Please include in the description• the purpose of the project activity• the view of the project participants of the contribution of the project activity to sustainabledevelopment (max. one page).The contribution of the project activity to sustainable development isan important element in order to qualify as a CDM project activity. If thehost country presents its criteria to judge the contribution to sustainabledevelopment, this section should be written according to such criteria.A.3. Project participants:Please list project participants and provide contact information in Annex 1.A.4. Technical description of the project activity:A.4.1. Location of the project activity:A.4.1.1. Host Party(ies):A.4.1.2. Region/State/Province etc.:A.4.1.3. City/Town/Community etc:A.4.1.4. Detail of physical location, including information allowing the uniqueidentification of this project activity:Please fill in the field and do not exceed one page.Describe the characteristics of the area where the project activity takes place,using maps, photographs and/or ground plan of the project facilities.A.4.2. Category(ies) of project activity:Please use the list of categories of project activities and of registered CDM project activities bycategory available on the UNFCCC CDM web site, please specify the category(ies) of projectactivities into which this project activity falls. If no suitable category(ies) of project activities canbe identified, please suggest a new category(ies) descriptor and its definition, being guided byrelevant information on the UNFCCC CDM web site.35

4.1 CDM Project Design Document (CDM-PDD)A.4.3. Technology to be employed by the project activity:This section should include a description of how environmentally safe and sound technology andknow how to be used is transferred to the Host Party.A.4.4. Brief explanation of how the anthropogenic emissions of anthropogenicgreenhouse gas (GHGs) by sources are to be reduced by the proposed CDM projectactivity, including why the emission reductions would not occur in the absence of theproposed project activity, taking into account national and/or sectoral policies andcircumstances:Please explain briefly how anthropogenic greenhouse gas (GHG) emission reductions are tobe achieved (detail to be provided in section B) and provide the estimate of anticipated totalreductions in tonnes of CO 2 equivalent as determined in section E. Max. length one page.Here, it is desirable to focus on the following two points.• Reasons why project scenario is not the baseline scenario• How and how much GHG emissions reductions are to be achieved inthe project scenario compared with the baseline scenarioRegarding national and/or sectoral policies and circumstances, the EB hasdecided that if “Type E+” national and/or sectoral policies 1 were implementedsince the adoption of the Kyoto Protocol, the baseline scenario should referto a hypothetical situation without the national and/or sectoral policies orregulations being in place; and if “Type E–” national and/or sectoral policiesor regulations have been implemented since the adoption by the COP of theCDM M&P (decision 17/CP.7, 11 November 2001), they may not be taken intoaccount in developing a baseline scenario (i.e. the baseline scenario shouldrefer to a hypothetical situation without the national and/or sectoral policiesor regulations being in place). [EB16, Annex 3]A.4.4.1 Estimated amount of emission reductions over the chosen crediting period:Please indicate the chosen crediting period and provide the total estimation of emission reductionsas well as annual estimates for the chosen crediting period.The methods and results of calculations are to be described in Section E.A.4.5. Public funding of the project activity:In case public funding from Parties included in Annex I is involved, please provide in Annex 2information on sources of public funding for the project activity from Parties included in AnnexI which shall provide an affirmation that such funding does not result in a diversion of officialdevelopment assistance and is separate from and is not counted towards the financial obligationsof those Parties.1 “Type E+”: Existing national and/or sectoral policies or regulations that create policy driven marketdistortions which give comparative advantages to more emissions-intensive technologies or fuels overless emissions-intensive technologies or fuels.“Type E-“: National and/or sectoral policies or regulations that give positive comparative advantages toless emissions-intensive technologies over more emissions-intensive technologies (e.g. public subsidiesto promote the diffusion of renewable energy or to finance energy efficiency programs).36

4. Normal Scale CDM Project ActivitiesSECTION B. Application of a baseline methodology:Where project participants wish to propose a new baseline methodology, please complete theform for “Proposed New Methodology: Baseline”(CDM-NMB) in accordance with proceduresfor submission and consideration of proposed new methodologies (see Part III of theseGuidelines).Refer to the CDM web site (http://cdm.unfccc.int/methodologies/approved)for the most recent list of approved methodologies and approvedconsolidated methodologies, in order to check if there is an approvedmethodology applicable to the project activity. If there is no applicableapproved methodology, project participants should propose new baselineand monitoring methodologies.This can be considered the most important section of the CDM-PDD, whichdescribes how the baseline methodology is applied to the project activity.This section should explain how the baseline scenario has been drawn upaccording to the manner and methods prescribed in the selected baselinemethodology ( * ) .If the applied new baseline methodology has not been approved yet, thissection should be written assuming that the methodology has already beenapproved.* Baseline methodology explains and justifies the methodology to establish a baselinescenario, whereas Section B of CDM-PDD should explain that the baseline scenario wasdrawn up according to the methods prescribed in the baseline methodology. One shouldclearly make this distinction and avoid repetitions and duplications between the baselinemethodology and Section B of CDM-PDD.B.1. Title and reference of the approved baseline methodology applied to the projectactivity:Please refer to the UNFCCC CDM web site for the title and reference list as well as the details ofapproved baseline methodologies 2 . Please note that the table “Baseline Information” contained inAnnex 3 is to be prepared in parallel to completing the remainder of this section.B.1.1 Justification of the choice of the methodology and why it is applicable to theproject Activity:Please justify the choice of methodology by showing that the proposed project activity meet theapplicability conditions under which the methodology is applicable.It would be easy to justify the applicability when proposing a newmethodology since the methodology has been developed for the proposedproject activity. However, when applying an approved methodology, one mustbe careful in assessing the applicability of the methodology to the proposedproject activity.2 If a new baseline methodology is proposed, please complete the form for “Proposed New Methodology:Baseline”(CDM-NMB).37

4.1 CDM Project Design Document (CDM-PDD)B.2. Description of how the methodology is applied in the context of the projectactivity:Please explain the basic assumptions of the baseline methodology in the context of the projectactivity and show that the key methodological steps are followed in determining the baselinescenario. Provide the key information and data used to determine the baseline scenario (variables,parameters, data sources etc.) in table form.B.3. Description of how the anthropogenic emissions of GHG by sources are reducedbelow those that would have occurred in the absence of the registered CDM projectactivity:Explanation of how and why this project is additional and therefore not the baseline scenarioin accordance with the selected baseline methodology. Include 1) a description of the baselinescenario determined by applying the methodology, 2) a description of the project scenario, and 3)an analysis showing why the emissions in the baseline scenario would likely exceed emissions inthe project scenario.For example, if the use of decision trees is prescribed in the baselinemethodology, this section establishes a baseline scenario and provesadditionality using such decision trees. It is not necessary to justify the usethe decision trees in this section, since this done in the baseline methodology.B.4. Description of how the definition of the project boundary related to the baselinemethodology selected is applied to the project activity:CDM glossary of terms defines project boundary as “the project boundaryshall encompass all anthropogenic emissions by sources of greenhousegases (GHG) under the control of the project participants that are significantand reasonably attributable to the CDM project activity.”The EB has not decided on the specific definitions of the terms “under thecontrol of”, “significant” and “reasonably attributable”. The Meth Panel is todevelop specific proposals on how to operationalize these terms. Pendingdecisions by the EB on these terms, project participants are invited to explaintheir interpretation of such terms when completing and submitting theCDM-NMB and CDM-NMM.As in B.3 explained above, this section establishes a project boundaryaccording to the methods prescribed in the baseline methodology. Also, itshould present conceivable GHG emissions inside and outside the projectboundary for the project and baseline scenarios.B.5. Detailed baseline information, including the date of completion of the baselinestudy and the name of person(s)/entity(ies) determining the baseline:Please attach detailed baseline information in Annex 3.Please provide date of completion in DD/MM/YYYY.Please provide contact information and indicate if the person/entity is also a project participantlisted in Annex 1.38

4. Normal Scale CDM Project ActivitiesSECTION C. Duration of the project activity/Crediting period:The crediting period for a CDM project activity is the period for whichreductions from the baseline are verified and certified by a DOE for thepurpose of issuance of certified emission reductions (CERs). Projectparticipants shall choose the starting date of a crediting period to be after thedate the first emission reductions are generated by the CDM project activity.A crediting period shall not extend beyond the operational lifetime of theproject activity.The crediting period may only start after the date of registration of theproposed activity as a CDM project activity. In exceptional cases, for projectactivities starting between 1 January 2000 and the date of the registrationof a first CDM project, the starting date of the crediting period may be priorto the date of registration of the project activity if the project activity issubmitted for registration before 31 December 2005.C.1. Duration of the project activity:C.1.1. Starting date of the project activity:The starting date of a CDM project activity is the date on which the implementation orconstruction or real action of a project activity begins.Project activities starting between 1 January 2000 the date of the registration of a first cleandevelopment mechanism project, if the project activity is submitted for registration before 31December 2005; have to provide documentation, at the time of registration, showing that thestarting date fell within this period.C.1.2. Expected operational lifetime of the project activity:Please state the expected operational lifetime of the project activity in years and months.C.2. Choice of crediting period and related information:Please state whether the project activity will use a renewable or a fixed crediting period andcomplete C.2.1 or C.2.2 accordingly.Note that the crediting period may only start after the date of registration of the proposed activityas a CDM project activity. In exceptional cases, (see instructions for section C.1.1. above) thestarting date of the crediting period may be prior to the date of registration of the project activityas provided for in paragraphs 12 and 13 of decision 17/CP.7, paragraph 1 (c) of decision 18/CP.9and through any guidance by the Executive Board, available on the UNFCCC CDM web site.C.2.1. Renewable crediting period:Each crediting period shall be at most 7 years and may be renewed at most two times, providedthat, for each renewal, a designated operational entity determines and informs the executive boardthat the original project baseline is still valid or has been updated taking account of new datawhere applicable;39

4.1 CDM Project Design Document (CDM-PDD)C.2.1.1. Starting date of the first crediting period:Please state the dates in the following format: (DD/MM/YYYY).C.2.1.2. Length of the first crediting period:Please state the length of the first crediting period in years and months.C.2.2. Fixed crediting period:Fixed crediting period shall be at most ten (10) years.C.2.2.1. Starting date:Please state the dates in the following format: (DD/MM/YYYY).C.2.2.2. Length:Please state the length of the crediting period in years and monthsSECTION D. Application of a monitoring methodology and plan:Where project participants wish to propose a new monitoring methodology, please complete form“Proposed New Methodology: Monitoring”(CDM-NMM) ) in accordance with procedures forsubmission and consideration of proposed new methodologies (see Part III of these Guidelines).This section shall provide a detailed description of the monitoring plan, including an identificationof the data and its quality with regard to accuracy, comparability, completeness and validity,taking into consideration any guidance contained in the methodology. The monitoring plan is tobe attached in annex 4.The monitoring plan needs to provide detailed information related to the collection and archivingof all relevant data needed to- estimate or measure emissions occurring within the project boundary,- determine the Baseline, and- identify increased emissions outside the project boundary.The monitoring plan should reflect good monitoring practice appropriate to the type of projectactivity. The plan should follow the instructions and steps defined in the approved monitoringmethodology. Project participants shall implement the registered monitoring plan and providedata, in accordance with the plan, through their monitoring report.Please note that data monitored and required for verification and issuance are to be kept for twoyears after the end of the crediting period or the last issuance of CERs for this project activity,whatever occurs later.This section describes the monitoring plan, the results of which are usedfor the calculation of the emission reductions achieved through the projectactivity. Since the difference between the baseline emissions and actualproject emissions is to be claimed as CERs, it is very important to develop adetailed and rigorous monitoring plan.40

4. Normal Scale CDM Project ActivitiesD.1. Name and reference of approved monitoring methodology applied to the projectactivity:Please refer to the UNFCCC CDM web site for the name and reference as well as detailsof approved methodologies. Where project participants wish to propose a new monitoringmethodology, please complete the form for “Proposed New Methodology: Monitoring”(CDM-NMM) and subsequently complete, sections A-E of the CDM-PDD to demonstrate theapplication of the proposed new methodology to the project activity.If a national or international monitoring standard has to be applied to monitor certain aspects ofthe project activity, please identify this standard and provide a reference to the source where adetailed description of the standard can be found.Please fill sections D.2.2 or D.2.3 below in accordance with the approved monitoringmethodology selected.D.2. Justification of the choice of the methodology and why it is applicable to theproject activity:Please justify the choice of methodology by showing that the proposed project activity and thecontext of the project activity meet the conditions under which the methodology is applicable.Project participants can choose between Option 1 (D.2.1.) and Option 2(D.2.2.). Option 1 establishes formulae to calculate baseline emissions andproject emissions and take the difference between the two as the GHGemission reductions achieved by the project activity. Option 2 directlymonitors the GHG emission reductions achieved by the project activity.In both options, in this section, project participants should describe themonitoring data necessary to calculate the GHG emission reductionsaccording to the monitoring methodology appolied to the project activity.D.2.1. Option 1: Monitoring of the emissions in the project scenario and the baselinescenario:D. 2.1.1. Data to be collected in order to monitor emissions from the project activity, andhow this data will be archived:Description of data to be collected and how data will be archived. Data shall be archived for 2years following the end of the crediting period. Please add rows to the table, as needed.D.2.1.2. Description of formulae used to estimate project emissions (for each gas, source,formulae/algorithm, emissions units of CO 2 equ.):Formulae should be consistent with the formulae outlined in the description of the baselinemethodology.D.2.1.3. Relevant data necessary for determining the baseline of anthropogenic emissionsby sources of GHGs within the project boundary and how such data will be collectedand archived:Description of data to be collected and how data will be archived. Data shall be archived for 2years following the end of the crediting period. Please add rows to the table below, as needed.41

4.1 CDM Project Design Document (CDM-PDD)D.2.1.4. Description of formulae used to estimate baseline emissions (for each gas,source, formulae/algorithm, emissions units of CO 2 equ.):Formulae should be consistent with the formulae outlined in the description of the baselinemethodology.D.2.2. Option 2: Direct monitoring of emission reductions from the project activity(values should be consistent with those in section E):D.2.2.1. Data to be collected in order to monitor emissions from the project activity, andhow this data will be archived:Description of data to be collected and how data will be archived. Data shall be archived for 2years following the end of the crediting period. Please add rows to the table below, as needed.D.2.2.2. Description of formulae used to calculate project emissions (for each gas, source,formulae/algorithm, emissions units of CO 2 equ.):Formulae should be consistent with the formulae outlined in the description of the baselinemethodology.D.2.3. Treatment of leakage in the monitoring plan:Leakage is defined as the net change of anthropogenic emissions by sourcesof GHG, which occurs outside the project boundary, and which is measurableand attributable to the CDM project activity. Here, the terms measurableand attributable should be read as “which can be measured” and “directlyattributable”, respectively, in an operational context.D.2.3.1. If applicable, please describe the data and information that will be collected inorder to monitor leakage effects of the project activity:Monitored data shall be archived for 2 years following the end of the crediting period. Please addrows to the table below, as needed.D.2.3.2. Description of formulae used to estimate leakage (for each gas, source,formulae/algorithm, emissions units of CO 2 equ.):Formulae should be consistent with the formulae outlined in the description of the baselinemethodology.D.2.4. Description of formulae used to estimate emission reductions for the projectactivity (for each gas, source, formulae/algorithm, emissions units of CO 2 equ.):Formulae should be consistent with the formulae outlined in the description of the baselinemethodology.42

4. Normal Scale CDM Project ActivitiesD.3. Quality control (QC) and quality assurance (QA) procedures undertaken for datamonitored:Data items in tables contained in sections D.2.1 or D.2.2, as applicable.D.4. Please describe the operational and management structure that the projectoperator will implement in order to monitor emission reductions and any leakage effectsgenerated by the project activity:D.5. Name of person/entity determining the monitoring methodology:Please provide contact information and indicate if the person/entity is also a project participantlisted in Annex 1 of this document.SECTION E. Estimation of GHG emissions by sources:Please fill section E. following the selected baseline and monitoring methodologies.This section presents the formulae to calculate GHG emission reductionsthat will be the base to decide the amount of CERs to be issued. In thissection the formulae as well as the resulting reduction estimates should bepresented. The amount of GHG emission reductions calculated here is anestimate at the moment of drafting the CDM-PDD. The actual amount ofCERs to be issued will be decided after verification by the DOE based on thecalculated amount using the monitored results.E.1. Estimate of GHG emissions by sources:Please provide estimated anthropogenic emissions by sources of greenhouse gases of the projectactivity within the project boundary (for each gas, source, formulae/algorithm, emissions in unitsof CO 2 equivalent). Alternatively, provide directly estimated emission reductions due to theproject activity.Refer Section D.7 of CDM-NMB.E.2. Estimated leakage:Please provide estimate of any leakage, defined as: the net change of anthropogenic emissions bysources of greenhouse gases which occurs outside the project boundary, and that is measurableand attributable to the project activity. Estimates should be given for each gas, source,formulae/algorithm, emissions in units of CO 2 equivalent.Refer Section D.8 of CDM-NMB.E.3. The sum of E.1 and E.2 representing the project activity emissions:43

4.1 CDM Project Design Document (CDM-PDD)E.4. Estimated anthropogenic emissions by sources of greenhouse gases of the baseline:Estimates should be given for each gas, source, formulae/algorithm, emissions inunits of CO 2 equivalent.Refer Section D.7 of CDM-NMB.E.5. Difference between E.4 and E.3 representing the emission reductions of the projectactivity:E.6. Table providing values obtained when applying formulae above:The ex post calculation of baseline emission rates may only be used if proper justification isprovided. Notwithstanding, the baseline emission rates shall also be calculated ex-ante andreported in the CDM-PDD.Usually estimated annual GHG emission reductions by the project activityare presented in a table format, for the first 7 years in case of a renewablecrediting period and 10 years for a fixed crediting period.SECTION F. Environmental impacts:This section describes the environmental impact of the project activity to theproject location and surrounding area. If the impact is considered significant,it is necessary to implement an environmental impact assessment. Thus,before submission of the CDM-PDD, it is necessary to conduct an analysis ofenvironmental impact or an environmental impact assessment.Project participants must confirm and comply with the requirements andprocedures of the host country regarding environmental impact analysis orassessment. The rules and procedures, as well as the concept of sustainabledevelopment, differ from one country to another. It would be desirable torefer cases of environmental impact analysis/assessment in similar projectsundertaken in the same host country. It is also necessary to consider notonly impacts on the natural environment but also on the socio-economicconditions.F.1. Documentation on the analysis of the environmental impacts, includingtransboundary impacts:Please attach the documentation to the CDM-PDD.F.2. If environmental impacts are considered significant by the project participants orthe host Party, please provide conclusions and all references to support documentationof an environmental impact assessment undertaken in accordance with the proceduresas required by the host Party.44

4. Normal Scale CDM Project ActivitiesSECTION G. Stakeholdersʼ comments:G.1. Brief description of how comments by local stakeholders have been invited andcompiled:Please describe the process by which comments by local stakeholders have been invited andcompiled. An invitation for comments by local stakeholders shall be made in an open andtransparent manner, in a way that facilities comments to be received from local stakeholders andallows for a reasonable time for comments to be submitted. In this regard, project participantsshall describe a project activity in a manner which allows the local stakeholders to understandthe project activity, taking into account confidentiality provisions of the CDM modalities andprocedures.G.2. Summary of the comments received:Please identify stakeholders that have made comments and provide a summary of thesecomments.G.3. Report on how due account was taken of any comments received:Please explain how due account have been taken of comments received.Annex 1CONTACT INFORMATION ON PARTICIPANTS IN THE PROJECTACTIVITYPlease copy and paste table as needed.Annex 2INFORMATION REGARDING PUBLIC FUNDINGPlease provide information from Parties included in Annex I on sources of public funding for theproject activity which shall provide an affirmation that such funding does not result in a diversionof official development assistance and is separate from and is not counted towards the financialobligations of those Parties.Annex 3BASELINE INFORMATIONPlease provide a table containing the key elements used to determine the baseline for the projectactivity including elements such as variables, parameters and data sources. For approvedmethodologies you may find a draft table on the UNFCCC CDM web site.Annex 4MONITORING PLAN45

4.2.1 Outline of the form for Proposed NewMethodology: Baseline (CDM-NMB)This format is to be used for proposing a new baseline methodology to the EB. Projectparticipants proposing a new baseline methodology must write up Section B “Application ofbaseline methodology” of the CDM-PDD based on the baseline methodology described inCDM-NMB. It is of great importance that the proposed new methodology is designed in atransparent and conservative manner, and the CDM-NMB is drafted in a logical, concise andclear manner, which would increase the likelihood of obtaining the approval of the EB.Furthermore, when drafting the CDM-NMB, project participants must always be awarethat a baseline methodology should be applicable to multiple projects under a similarcondition. In other words, the proposed project activity contained in the draft CDM-PDDis only one of the many cases to which the proposed baseline methodology is applicable.Therefore, CDM-NMB should be drafted in a generic form without containing project-specificinformation, in principle 1 .In Section B “Application of baseline methodology” of the CDM-PDD, project participantsshould first explain that the proposed project activity satisfies the applicability conditions ofthe baseline methodology, then identify the baseline scenario, prove additionality, establish aproject boundary, estimate baseline emissions and project emissions, according to the stepsprescribed in the baseline methodology.The document “Guidelines for Completing the CDM-PDD, CDM-NMB and CDM-NMM”gives the following instructions regarding CDM-NMB.• Different scenarios may be elaborated as potential evolutions of the situation existingbefore the proposed CDM project activity. The continuation of a current activity couldbe one of them; implementing the proposed project activity may be another; and manyothers could be envisaged. Baseline methodologies shall require a narrative descriptionof all reasonable baseline scenarios. [Glossary of CDM terms, “Baseline scenario”]• A strong link between baseline and monitoring methodologies is to be provided. Newbaseline and monitoring methodologies shall be proposed and approved together.• When drafting a proposed new baseline methodology, project participants shall followthe following steps:(a) Choose and justify why one of the baseline approaches listed in paragraph 48 ofthe CDM modalities and procedures is considered to be the most appropriate;(b) Elaborate a proposal for a new baseline methodology. A baseline methodologyis an application of the selected baseline approach contained in paragraphs 48(a) to (c) of the CDM modalities and procedures to an individual project activity,1 The Guidelines note “information which is related to the application of the proposed new methodologyfor a project activity may be footnoted for illustrative purposes”46

4. Normal Scale CDM Project Activitiesreflecting aspects such as sector, technology and region. The EB agreed thatno methodology is to be excluded a priori so that project participants have theopportunity to propose any methodology, which they consider appropriate. Theproject participant shall take into account guidance by the EB on aspects to becovered by a methodology (please see guidance and clarifications by the EB on the“Guidance – clarifications” web page of the UNFCCC CDM web site);(c) Describe the proposed new methodology using the forms for “ProposedNew Methodology: Baseline” (CDM-NMB) and “Proposed New Methodology:Monitoring” (CDM-NMM) taking into account guidance given by the EB as well asthe information provided in the CDM-PDD Glossary of Terms; and(d) Demonstrate the applicability of the proposed methodology, and, implicitly, that ofthe approach, to a project activity by providing relevant information in sections A-Eof a draft CDM-PDD.• In accordance with guidance provided by the EB, the proposed new baselinemethodology shall include, inter alia, the following:(a) A basis for determining the baseline scenario:✓ An explanation of how the baseline scenario is chosen, taking into accountparagraph 45 (e) of the CDM modalities and procedures;✓ An underlying rationale for algorithm/formulae (e.g. marginal vs. average.) used inthe baseline methodology;✓ An explanation of how, through the methodology, it is demonstrated that aproject activity is additional and, therefore, not the baseline scenario (Section B.4of the CDM-PDD);(b) Formulae/algorithms, which shall specify:✓ The type of variables used (e.g. fuel(s) used, fuel consumption rates, etc.);✓ The spatial level of data (local, regional, national, etc.);✓ The project boundary (gases and sources included, physical delineation);✓ The vintage of data (relative to project crediting period);(c) The data sources and assumptions:✓ Where the data are obtained (official statistics, expert judgement, proprietarydata, IPCC, commercial and scientific literature, etc.);✓ The assumptions used;✓ Clearly specify data requirements and sources, as well as procedures to befollowed if expected data are unavailable. For instance, the methodology couldpoint to a preferred data source (e.g. national statistics for the past 5 years), andindicate a priority order for use of additional data (e.g. using longer time series)and/or fall back data sources to preferred sources (e.g. private, internationalstatistics, etc.). Use International System Units (SI units – refer to http://www.bipm.fr/enus/3_SI/si.html).47

4.2 New Methodologies• All algorithms, formulae, and step-by-step procedures for applying the methodologyshall be included in completing this form for “Proposed New Methodology: Baseline”.The completed form “shall provide stand-alone replicable methodologies, and avoidreference to any secondary documents.• Proposals should be written in a concise and clear manner. Important procedures andconcepts should be supported by equations and diagrams. Non-essential informationshould be avoided. Information which is related to the application of the proposed newmethodology for a project activity may be footnoted for illustrative purposes.• Project participants shall refrain from providing glossaries or using key terminology notused in the documents of the Conference of the Parties (COP) or the CDM glossary andrefrain from rewriting the instructions on the forms.Contents of CDM-NMBA. Identification of methodologyB. Overall summary descriptionC. Choice of and justification as of baseline approachD. Explanation and justification of the proposed new baseline methodologyE. Data sources and assumptionsF. Assessment of uncertaintiesG. Explanation of how the baseline methodology was developed in a transparent andconservative mannerThe following section explains some of the key points to keep in mind when drafting anew baseline methodology, based on the format CDM-NMB and the guidelines.SECTION A. Identification of methodology:A.1. Proposed methodology title:Provide an unambiguous title for a proposed methodology. Avoid project-specific titles. Thetitle, once approved, should allow project participants to get an indication of the applicability ofan approved methodology.The title usually focuses on the technology employed to reduce GHGemissions. As a general rule, a title of the baseline methodology does notinclude proper noun, e.g. geographic name of the site of the proposed projectactivity. However, if the proposed baseline methodology is applicable only toprojects undertaken in a certain geographical area, it is conceivable that thetitle would include a geographical name.48

4. Normal Scale CDM Project ActivitiesA.2. List of category(ies) of project activity to which the methodology may apply:Use the list of categories of project activities and of registered CDM project activities by categoryavailable on the UNFCCC CDM web site, please specify the category(ies) of project activitiesfor which this proposed new methodology may be used. If no suitable category(ies) of projectactivities can be identified, please suggest a new category(ies) descriptor and its definition, beingguided by relevant information on the UNFCCC CDM web site.As of November 2004, a list of categories of project activities has not beenmade available on the UNFCCC CDM web site. Proposed new baselinemethodologies usually refer to the sectoral scopes, which are used for theaccreditation of operational entities. (see table 1 in section 2.1.2)A.3. Conditions under which the methodology is applicable to CDM project activities:Provide conditions under which the methodology is applicable to CDM project activities: (e.g.circumstances, region, data availability, resource availability). Please indicate if an approvedmethodology exists for the same conditions of application.As a rule of thumb, this section can be written by generalizing thedistinguishing characteristics of the proposed project activity. Be sure notto include information specific to the proposed project activity, such as thename of the project, etc. The conditions would include, for example, the typeof the project activity, as well as characteristics of the area where the projectis implemented, such as the existence of regulations, as needed.A.4. What are the potential strengths and weaknesses of this proposed newmethodology?Please outline how the accuracy and completeness of the new methodology compares to thatof approved methodologies, in particular with regard to approved methodologies for the sameconditions of application.SECTION B. Overall summary description:Summarize the description of the proposed new methodology. Provide information onhow baseline emissions are determined. Provide step by step instructions for the baselinemethodology, including how through the methodology, it can be demonstrated that a projectactivity is additional and therefore not the baseline scenario (detailed explanation of themethodology to be provided in section 6). Please do not exceed more that 1 page.49

4.2 New MethodologiesSECTION C. Choice of and justification as to why one of thebaseline approaches listed in paragraph 48 of CDM modalities andprocedures is considered to be the most appropriate:C.1 General baseline approach:Please check a single option.If the third approach is being checked kindly refer to additional guidance provide by theExecutive Board – (see guidance and clarifications by the Executive Board on the “Guidance –clarifications” web page of the UNFCCC CDM web site).A baseline approach is the basis for a baseline methodology. Check only onefrom the following three approaches:(a) Existing actual or historical emissions, as applicable; or(b) Emissions from a technology that represents an economically attractivecourse of action, taking into account barriers to investment; or(c) The average emissions of similar project activities undertaken in theprevious five years, in similar social, economic, environmental andtechnological circumstances, and whose performance is among the top20 per cent of their category.The Guidelines state that in developing a baseline methodology, the firststep is to identify the most appropriate approach for the project activity andthen an applicable methodology. In practice, however, there may be cases inwhich it is easier to do it in a reverse order. In such cases, project participantswould first draft a new baseline methodology and CDM-PDD, and identifywhich of the three approaches the methodology would be best fit to theproposed methodology.In case the third approach ((c) above) is selected, the “additional guidanceprovided by the EB” referred above are as follows:• Project participants wishing to select this approach shall elaborate in theirsubmission of a proposed new baseline methodology, inter alia, on:(a) How they determine “similar social, economic, environmental andtechnological circumstances”, and(b) How they assess the “performance among the top 20 per cent of theircategory” defined as GHG emissions performance (in terms of CO 2 equemissions per unit of output).• Project participants wishing to use this approach and a related approvedmethodology shall assess the applicability and use the most conservativeof the following options:(a) The output-weighted average emissions of the top 20 per cent ofsimilar project activities undertaken in the previous five years in similarcircumstances;(b) The output-weighted average emissions of similar project activitiesundertaken in the previous five years under similar circumstances thatare also in the top 20 per cent of all current operating projects in theircategory (i.e. in similar circumstances as defined above).[EB08, Annex1]50

4. Normal Scale CDM Project ActivitiesC.2. Justification of why the approach chosen in C.1 above is considered the mostappropriate:SECTION D. Explanation and justification of the proposed newbaseline methodology:In accordance with the guidance of the Executive Board, a proposed new methodology shallexplain how a project activity using the methodology can demonstrate that it is additional, thatis, different from the baseline scenario. Project participants shall therefore describe how todevelop the baseline scenario and “how the baseline methodology addresses…the determinationof whether the project is additional.” In addition, the methodology shall provide elements tocalculate the emissions of the baseline. The project participants shall ensure consistency betweenthe elaboration of the baseline scenario and the procedure and formulae to calculate the emissionsof the baseline.This is the most important section in the CDM-NMB, where it explains howa baseline scenario is identified, how additionality is proven, as well as theprocedure and formulae to calculate the emissions of the baseline and projectscenarios.D.1. Explanation of how the methodology determines the baseline scenario (that is,indicate the scenario that reasonably represents the anthropogenic emissions by sourcesof greenhouse gases (GHG) that would occur in the absence of the proposed projectactivity):Please state the basic assumptions of the baseline methodology and describe the key analyticalsteps that should be followed in determining the baseline scenario. Describe how themethodology determines the most likely scenario – the baseline scenario— from among theplausible scenario alternatives.The basic steps to follow to identify the baseline scenario is as follows:• List and provide a narrative description of all reasonable baseline scenariosthat may be elaborated as potential evolutions of the situation existingbefore the proposed CDM project activity. The reasonable baselinescenarios would include the continuation of a current activity; implementingthe proposed project activity may be another; and many others.• Evaluate the potential baseline scenarios from various perspectives, suchas economic return, regulations in the project area, penetration rate of thetechnology to be employed by the project activity, etc.• Identify the most likely outcome as the baseline scenario based on theabove evaluation.Baseline scenario should describe what would be the GHG emissions withoutthe project activity.D.2. Criteria used in developing the proposed baseline methodology:In general, criteria such as conservativeness, completeness, transparency,versatility, accuracy, and feasibility can be the criteria used in developing abaseline methodology.51

4.2 New MethodologiesD.3. Explanation of how, through the methodology, it can be demonstrated that aproject activity is additional and therefore not the baseline scenario (section B.3 of theCDM-PDD):Paragraph 43 of the CDM modalities and procedures stipulates that a CDM project activity isadditional if its emissions are below those of its baseline (see guidance by the EB at its fifthmeeting). “The baseline for a CDM project activity is the scenario that reasonably represents theanthropogenic emissions by sources of greenhouse gases that would occur in the absence of theproposed project activity” (paragraph 44 CDM modalities and procedures).Please refer to guidance and clarifications on baseline and monitoring methodologies in theGuidance/Clarifications section of the UNFCCC CDM web site.Please also include information on algorithms and formulae, if used.Here, an explanation shall be made of how, through the use of themethodology, it can be demonstrated that a project activity is additional andtherefore not the baseline scenario. The methodology to identify the baselinescenario involves choosing a baseline scenario from multiple potentialbaseline scenarios, which includes the scenario with the project activity.Therefore, at the moment the baseline scenario has been identified logicallyand it has been shown the baseline scenario is not the project scenario, it canbe considered that the additionality has been already demonstrated. Thus, itis of utmost importance to develop a logical and convincing methodology toidentify the baseline scenario in order to demonstrate additionality.The EB provides examples of tools that may be used to demonstrate that aproject activity is additional and therefore not the baseline scenario. Thesetools include, among others:(a) A flow-chart or series of questions that lead to a narrowing of potentialbaseline options; and/or(b) A qualitative or quantitative assessment of different potential options andan indication of why the non-project option is more likely; and/or(c) A qualitative or quantitative assessment of one or more barriers facingthe proposed project activity (such as those laid out for small-scale CDMprojects); and/or(d) An indication that the project type is not common practice (e.g. occurs inless than [

4. Normal Scale CDM Project ActivitiesD.5. Project boundary (gases and sources included, physical delineation):Please describe and justify the project boundary bearing in mind that it shall encompass allanthropogenic emissions by sources of greenhouse gases under the control of the projectparticipants that are significant and reasonably attributable to the project activity. Please describeand justify which the boundary.In terms of securing transparency, it is important to demonstrate that effortshave been made to consider all possible GHG emission sources and potentialleakages in the process of establishing the project boundary.D.6. Elaborate and justify formulae/algorithms used to determine the baseline scenario.Variables, fixed parameters and values have to be reported (e.g. fuel(s) used, fuelconsumption rates):D.7. Elaborate and justify formulae/algorithms used to determine the emissions from theproject activity. Variables, fixed parameters and values have to be reported (e.g. fuel(s)used, fuel consumption rates):D.8. Description of how the baseline methodology addresses any potential leakage of theproject activity:Please note: Leakage is defined as the net change of anthropogenic emissions by sources ofgreenhouse gases which occurs outside the project boundary and which is measurable andattributable to the CDM project activity.Please explain how leakage is to be estimated ex-ante and indicate in the monitoring methodologyform (CDM-NMM) how it is to be monitored ex-post. Explain if leakage will be assumed orcalculated either as a relative amount (i.e. percentage) of the total emission reductions due to theproject activity or as an absolute amount of emissions.Please describe algorithms, data, information and assumptions and provide the total estimate ofleakage.Also include formulae and algorithms to be used in section E of the CDM-PDD attached.D.9. Elaborate and justify formulae/algorithms used to determine the emissionsreductions from the project activity. Variables, fixed parameters and values have to bereported (e.g. fuel(s) used, fuel consumption rates):SECTION E. Data sources and assumptions:It is most desirable to collect data that represent the specific circumstancesof the project site and surrounding areas. For example, in case of electricitygeneration projects that substitutes grid electricity, it is desirable to usedata owned by the local electricity board or company. In case it has beenconfirmed that it is impossible to acquire location-specific data, which areusually available, project participants can opt to use more general valuessuch the IPCC default values.53

4.2 New MethodologiesE.1. Describe parameters and or assumptions (including emission factors and activitylevels):E.2. List of data used indicating sources (e.g. official statistics, expert judgement,proprietary data, IPCC, commercial and scientific literature) and precise references andjustify the appropriateness of the choice of such data:E.3. Vintage of data (e.g. relative to starting date of the project activity):E.4. Spatial level of data (local, regional, national):SECTION F. Assessment of uncertainties (sensitivity to key factorsand assumptions):Please highlight any factors and assumptions that would have a significant impact on thebaseline and/or the calculation of baseline emission levels and how uncertainty related to thoseassumptions and factors are to be addressed.SECTION G. Explanation of how the baseline methodology allowsfor the development of baselines in a transparent and conservativemanner:4.2.2 Outline of the form for Proposed NewMethodology: Monitoring (CDM-NMM)This format is to be used for proposing a new monitoring methodology to the EB. Projectparticipants proposing a new monitoring methodology must write up Section D “Applicationof monitoring methodology” of the CDM-PDD based on the monitoring methodologydescribed in CDM-NMM. It is of great importance that the proposed new methodologyis designed in a transparent and conservative manner, and the CDM-NMM is drafted ina logical, concise and clear manner, which would increase the likelihood of obtaining theapproval of the EB.In Section D “Application of monitoring methodology” of the CDM-PDD, projectparticipants should first explain that the proposed project activity satisfies the applicabilityconditions of the monitoring methodology, then devise a monitoring plan according to thesteps prescribed in the baseline methodology.The document “Guidelines for Completing the CDM-PDD, CDM-NMB and CDM-NMM”gives the following instructions regarding CDM-NMM.• Monitoring of a CDM project activity refers to the collection and archiving of all relevantdata necessary for determining the baseline, measuring anthropogenic emissions by54

4. Normal Scale CDM Project Activitiessources of GHGs within the project boundary of a CDM project activity and leakage, asapplicable.• When drafting a proposed new monitoring methodology, project participants shall:(a) Describe the proposed new methodology using the forms for “ProposedNew Methodology: Baseline” (CDM-NMB) and “Proposed New Methodology:Monitoring” (CDM-NMM) taking into account guidance given by the EB as well asthe information provided in the CDM-PDD Glossary of Terms;(b) Demonstrate the applicability of the proposed monitoring methodology to a projectactivity by providing relevant information in sections A-E of a draft CDM-PDD.• The monitoring methodology needs to provide detailed information on how to establishthe monitoring plan related to the collection and archiving of all relevant data neededto:- Estimate or measure emissions occurring within the project boundary,- Determine the baseline emissions, and- Identify increased emissions outside the project boundary;• The monitoring methodology should reflect good monitoring practice appropriate to thetype of project activity.• All algorithms, formulae, and step-by-step procedures for applying the methodologyshall be included in completing this form. The completed form shall provideindependent replicable methodologies, and avoid reference to any secondarydocuments.• Proposals should be written in a concise and clear manner. Important procedures andconcepts should be supported by equations and diagrams. Non-essential informationshould be avoided. The completed form shall not contain information which is relatedto the application of the proposed new methodology.• Project participants shall refrain from providing glossaries or using key terminology notused in the documents of the Conference of the Parties (COP) or the CDM glossary andfrom rewriting the instruction on the form “Proposed New Methodology: Monitoring”.Contents of CDM-NMMPROPOSED NEW METHODOLOGY: MONITORING (CDM-NMM)A. Identification of methodologyB. Proposed new monitoring methodologySECTION A. Identification of methodology:A.1. Title of the proposed methodology:Provide an unambiguous title for a proposed methodology. Avoid project-specific titles. Thetitle, once approved, should allow project participants to get an indication of the applicability ofan approved methodology.Since baseline and monitoring methodologies are closely related and areto be proposed together, the title should show the linkage with the baselinemethodology.55

4.2 New MethodologiesA.2. List of category(ies) of project activity to which the methodology may apply:Using the list of categories of project activities and of registered CDM project activities bycategory available on the UNFCCC CDM web site, please specify the category(ies) of projectactivities for which this proposed new methodology can be used. If no suitable category(ies)of project activities can be identified, please suggest a new category(ies) descriptor and itsdefinition, being guided by relevant information on the UNFCCC CDM web site.A.3. Conditions under which the methodology is applicable to CDM project activities:Provide conditions under which the methodology is applicable to CDM project activities: (e.g.circumstances, region, data availability, resource availability). Please indicate if an approvedmethodology exists for the same conditions of application.A.4. What are the potential strengths and weaknesses of this proposed newmethodology?Please outline how the accuracy and completeness of the new methodology compares to thatof approved methodologies, in particular with regard to approved methodologies for the sameconditions of application.SECTION B. Proposed new monitoring methodology:Please provide a detailed description of the monitoring plan, including the identification of dataand its quality with regard to accuracy, comparability, completeness and validity.Different types of project activities will have different monitoring requirements. For someproject activities, emission reductions are calculated as the difference between the project activityand the baseline emissions. For others emission reductions are monitored directly. Dependingon the type of project activity, please fill out their option 1 or option 2. Option 1 (section 2.2):Please describe the data and information that will be collected in order to monitor the emissionsin the baseline scenario and the project scenario.Option 2 (section 2.3): Describe the data and information that will be collected in order to directlymonitor and calculate the emission reductions from the project activity.B.1. Brief description of the new methodology:Please outline the main points and give a reference to a detailed description of the monitoringmethodology.This section aims at presenting the overview and important points of themonitoring methodology, thereby helping the readers to understand thecontents of the following sections. In practice, list up the parameters thatneed to be monitored for project emissions and baseline emissions (in caseof Option 1). It would be useful to explain the elements to be monitored withina figure showing project boundary.B.2. Option 1: Monitoring of the emissions in the project scenario and the baselinescenario:56

4. Normal Scale CDM Project ActivitiesB.2.1. Data to be collected or used in order to monitor emissions from the projectactivity, and how this data will be archived:Monitored data shall be archived for 2 years following the end of the crediting period. Please addrows to the table below, as needed.Header of tables and titles of columns shall not be modified and columns shall not be deleted.Please add rows to the table below, as needed.B.2.2. Description of formulae used to estimate project emissions (for each gas, source,formulae/algorithm, emissions units of CO 2 equ.):Formulae should be consistent with the formulae outlined in the description of the baselinemethodology.B.2.3. Relevant data necessary for determining the baseline of anthropogenic emissionsby sources of greenhouse gases (GHG) within the project boundary and how such datawill be collected and archived:Monitored data shall be archived for 2 years following the end of the crediting period. Header oftables and titles of columns shall not be modified and columns shall not be deleted. Please addrows to the table below, as needed.B.2.4. Description of formulae used to estimate baseline emissions (for each gas, source,formulae/algorithm, emissions units of CO 2 equ.):Formulae should be consistent with the formulae outlined in the description of the baselinemethodology.B.3. Option 2: Direct monitoring of emission reductions from the project activity:Values should be consistent with those in section E of the CDM-PDD.B.3.1. Data to be collected or used in order to monitor emissions from the projectactivity, and how this data will be archived:Monitored data shall be archived for 2 years following the end of the crediting period. Header oftables and titles of columns shall not be modified and columns shall not be deleted. Please addrows to the table below, as needed.B.3.2. Description of formulae used to calculate project emissions (for each gas, source,formulae/algorithm, emissions units of CO 2 equ.):Formulae should be consistent with the formulae outlined in the description of the baselinemethodology.57

4.2 New MethodologiesB.4. Treatment of leakage in the monitoring plan:Please explain if leakage will be monitored during the implementation of the project activity. Ifrelevant, please explain and justify if leakage will not be estimated ex-post. Explain if leakagewill be calculated as the difference between emissions occurring outside the boundaries of theproject and emissions in the baseline scenario, or if leakage will be monitored directly.B.4.1. If applicable, please describe the data and information that will be collected inorder to monitor leakage effects of the project activity:Monitored data shall be archived for 2 years following the end of the crediting period. Header oftables and titles of columns shall not be modified and columns shall not be deleted. Please addrows to the table below, as needed.B.4.2. Description of formulae used to estimate leakage (for each gas, source,formulae/algorithm, emissions units of CO 2 equ.):Formulae should be consistent with the formulae outlined in the description of the baselinemethodology.B.5. Description of formulae used to estimate emission reductions for the projectactivity (for each gas, source, formulae/algorithm, emissions units of CO 2 equ.):Formulae should be consistent with the formulae outlined in the description of the baselinemethodology.B.6. Assumptions used in elaborating the new methodology:Please list information used in the calculation of emissions which is not measured or calculated,for example use of any default emission factors.In case certain assumptions are made, you should justify the assumptionshere. For example, in case of using a default value, you should explainwhy such value had to be used. Moreover, it should be explained that theuse of such default value would lead to a conservative result and wouldnot overestimate the GHG emission reductions to be achieved. Whenevermonitored values or local values are available, it is better to use such valuesinstead of default values such as those included in the IPCC GHG InventoryGuideline.B.7. Please indicate whether quality control (QC) and quality assurance (QA)procedures are being undertaken for the items monitored:See tables in sections B.2 or B.3 and B.4 above.Header of tables and titles of columns shall not be modified and columns shall not be deleted.Rows are allowed to be added, as needed.B.8. Has the methodology been applied successfully elsewhere and, if so, in whichcircumstances?58

4. Normal Scale CDM Project Activities4.3.1 Approved methodologiesAs explained earlier, a proposed new methodology, once approved by the EB, becomesan approved methodology (AM). Approved methodologies are formatted in the followingstructure. The corresponding section of the CDM-PDD is indicated for each part.Approved Baseline MethodologyTitlePDD B.1.SourceThis section shows on which proposed new methodology and proposed project theapproved methodology is based.Selected approach from paragraph 48 of the CDM modalities and proceduresThis refers to the baseline approach, which is explained on p. 31, Section 4.1.2. Bychoosing to use an approved methodology, it is assumed that project participants haveimplicitly chosen an approach. This part shows on which baseline approach the approvedmethodology is based.Applicability PDD B.1.1.Project participants must carefully read this part in order to determine if the approvedmethodology is applicable to your project activity. For example, even for approvedmethodologies that deal with landfill gas capture activity, applicability conditions varydepending on the specific situation for which the methodologies have been developed. Alist of applicability of the already approved methodologies (AM0001-AM0016) is provided inTable 7.Project Activity PDD A.2This part describes to what kind of project activity the methodology refers. Although someapproved methodologies lack this part, the “applicability” part usually describes what kind ofproject activities are considered.Emission Reduction PDD A.4.4.1, Section EThis part describes the GHG emission reduction to be achieved by the project activity,as well as the steps and formulae for the calculation of emission reduction. Some approvedmethodologies provide details on possible data sources and how to apply such data. Projectparticipants should be able to calculate the emission reduction to be achieved by the projectactivity using the methods prescribed in the approved methodology. Emission reductionis calculated as the difference between emissions in the baseline scenario and the projectscenario, taking into account any leakage that would occur.59

4.3 Approved methodologies and toolsBaseline PDD A.4.4, B.2, B.3This part describes the baseline scenario. In some cases a step-wise explanation of howto establish a baseline scenario is explained. On the other hand, some identify a singlebaseline scenario. Project participants should be able to identify an appropriate baselinescenario by following the methodology.Additionality PDD A.4.4, B.3The methods employed to prove additionality are explained, which include, for example,barrier analysis, investment analysis, and common practice analysis. Some approvedmethodologies combine the “baseline” and “additionality” parts, as they are closelyrelated to each other. Project participants should be able to prove additionality, i.e. that theanthropogenic emissions of GHGs by sources are reduced below those that would haveoccurred in the absence of the project activity.Leakage PDD B.4, D.2.3, E.2Possibility of leakage is identified and the way to quantify it is addressed.Approved Monitoring MethodologyTitlePDD D.1.SourceSame as in approved baseline methodology.Applicability PDD D.2Applicability is not always the same as in the corresponding baseline methodology.Monitoring Methodology PDD Section DExplains the variables to be monitored as well as the methods employed to monitor thosevariables, usually using figures describing the project site and tables.Baseline Data PDD Section DThis part explains the data to calculate the baseline emissions.Table 7: Applicability of approved methodologiesMeth Number: Title(sectoral scope)ApplicabilityMeth Number: Title(sectoral scope)ApplicabilityAM0001: Incineration of HFC 23 Waste Streams (11)HFC 23 (CHF3) waste streams from a HCFC production facility in non-Annex I Party where regulations do notrestrict HFC 23 emissions.AM0002: Greenhouse gas emission reductions through landfill gas capture and flaring where the baselineis established by a public concession contract (13)Landfill gas capture and flaring project activities where:- There exists a contractual agreement that makes the operator responsible for all aspects of the landfilldesign, construction, operation, maintenance and monitoring;- The contract was awarded through a competitive bidding process;- The contract stipulates the amount of landfill gas (expressed in cubic meters) to be collected and flaredannually by the landfill operator;- The stipulated amount of landfill gas to be flared reflects performance among the top 20% in the previous fiveyears for landfills operating under similar social, economic, environmental and technological circumstances;and- No generation of electricity using captured landfill gas occurs or is planned.60

4. Normal Scale CDM Project ActivitiesMeth Number: Title(sectoral scope)ApplicabilityMeth Number: Title(sectoral scope)ApplicabilityMeth Number: Title(sectoral scope)ApplicabilityMeth Number: Title(sectoral scope)ApplicabilityMeth Number: Title(sectoral scope)ApplicabilityAM0003: Simplified financial analysis for landfill gas capture projects (13)Landfill gas capture project activities where:- The captured gas is flared; or- The captured gas is used to generate electricity, but no emission reductions are claimed for displacing oravoiding electricity generation by other sources.This methodology must be used in conjunction with the monitoring methodology. It is applicable only wherethe only plausible outcomes are a business-as-usual scenario (with minor changes and modifications) and theproposed project. In other words, the methodology is inapplicable where a plausible outcome is substantialchange in practice or technology different from the proposed technology.AM0004: Grid-connected biomass power generation that avoids uncontrolled burning of biomass (1)Biomass-fired power generation project activities displacing grid electricity that:- Use biomass that would otherwise be dumped or burned in an uncontrolled manner- Have access to an abundant supply of biomass that is unutilised and is too dispersed to be used for gridelectricity generation under business as usual (BAU);- Have a negligible impact on plans for construction of new power plants;- Not be connected to a grid with suppressed demand;- Have a negligible impact on the average grid emissions factor;- Where the grid average carbon emission factor (CEF) is lower (and therefore more conservative as thebaseline) than the CEF of the most likely operating margin candidate.AM0005: Small grid-connected zero-emissions renewable electricity generation (1)Grid-connected zero-emission renewable power generation project activities under the following conditions:- There is sufficient publicly available information to document in a transparent and conservative manner thenature of the prohibitive barriers to which the proposed project activity is subject, and the nature of themeans by which its registration as a CDM activity would enable the project to overcome those barriers (andthus be successfully undertaken);- There is sufficient publicly available information to document in a transparent and conservative mannerthat the proposed project is occurring in a sector and investment context that does not feature the type ofproposed activity as a common practice;- The project will provide electricity to the electric grid, displacing power that would otherwise be providedby other generating sources through the operation and expansion of the electric sector. The geographicand system boundaries for the relevant electricity grid can be clearly identified and information on thecharacteristics of the grid is available;- The project is in an electric sector that is not dominated by generating sources with zero- or low-operatingcosts such as hydro, geothermal, wind, solar, nuclear, and low-cost biomass, and this fuel mix is expectedto persist for the duration of the crediting period;- Electricity exports are included in electricity generation data used for calculating and monitoring the baselineemission rate to avoid potential leakage; and- Applies only to small electricity capacity additions, i.e. less than or equal to 60 MW and using a 50:50 defaultweighting of the build and operating margins.AM0006: GHG emission reductions from manure management systems (13, 15)Manure management projects with the following conditions:- The project context is represented by farms operating under a competitive market;- The manure management system introduced as part of the project activity, as well as the manuremanagement system in the baseline scenario, must be in accordance with the regulatory framework in thecountry;- Livestock populations are managed under confined conditions. Barn systems and barn flushing systemsshould neither be the baseline scenario nor the project activity;- Livestock populations comprise only cattle, buffalo and/or swine;- The manure management system introduced as part of the project activity, as well as the manuremanagement system in the baseline scenario, may consist of several stages of manure treatment, includingall options (or a combination of them) listed below in step 1 under “Additionality”, but excluding the dischargeof manure into natural water resources (e.g. rivers or estuaries);- The project activity does not lead to a significant increase of electricity consumption.AM0007: Analysis of the least-cost fuel option for seasonally-operating biomass cogeneration plants (1, 4)The refurbishment and fuel-switch of biomass cogeneration projects connected to the grid with the followingconditions:- The proposed project activity has access to biomass that is not currently used for energy purposes;- The project activity proposes to operate existing equipment using other fuel(s)1 during the off-season (whenbiomass associated to the main activity of the unit – for instance bagasse in case of a sugar mill - is notbeing produced);- Project must operate in seasonal mode;- The proposed baseline methodology is applied for each separate plant location.61

4.3 Approved methodologies and toolsMeth Number: Title(sectoral scope)ApplicabilityMeth Number: Title(sectoral scope)ApplicabilityMeth Number: Title(sectoral scope)ApplicabilityMeth Number: Title(sectoral scope)ApplicabilityMeth Number: Title(sectoral scope)ApplicabilityAM0008: Industrial fuel switching from coal and petroleum fuels to natural gas without extension ofcapacity and lifetime of the facility (4)A project activity, which is to switch the industrial fuel currently used in some element processes of a facilityto natural gas from coal and/or petroleum fuels that would otherwise continue to be used during the creditingperiod under the following conditions:- The local regulations/programs do not constrain the facility from using coal/petroleum fuels;- Use of coal and/or petroleum fuels is less expensive than natural gas per unit of energy in the country andsector;- The facility would not have major efficiency improvements during the crediting period;- The project activity does not increase the capacity of final outputs and lifetime of the existing facility duringthe crediting period (i.e. this methodology is applicable up to the end of the lifetime of existing facility ifshorter than crediting period), and- The proposed project activity is defined as fuel switching applied to element processes1 and does not resultin integrated process change, except for possible associated changes in other energy use (such as electricityfor coal processing) outside the affected element processes, which shall (could) be treated as leakage.AM0009: Recovery and utilization of gas from oil wells that would otherwise be flared (10)Projects recovering gas at oil wells under the following conditions:- Gas at oil wells is recovered and transported in pipelines to a process plant where dry gas, LPG andcondensate are produced;- Energy required for transport and processing of the recovered gas is generated by using the recovered gas;- The products (dry gas, LPG and condensate) are likely to substitute in the market only the same type of fuelsor fuels with a higher carbon per energy intensity;- The substitution of fuels due to the project activity is unlikely to lead to an increase of fuel consumption in therespective market;- In the absence of the project activity, the gas is mainly flared;- Data (quantity and fraction of carbon) is accessible on the products of the gas processing plant and on thegas recovered from other oil exploration facilities in cases where these facilities supply recovered gas to thesame gas processing plant.AM0010: Landfill gas capture and electricity generation projects where landfill gas capture is not mandatedby law (1, 13)Landfill gas capture and electricity generation project activities where:- The landfill is subject to regulation of methane (CH 4 ) concentration but landfill gas capture is not mandatedby law;- The captured gas is used to generate electricity and the CO 2 emissions intensity of this electricity is lowerthan the emissions intensity of the electricity displaced;- The electricity generation capacity of the project shall not exceed 15 MW.This methodology must be used in conjunction with the monitoring methodology. It is applicable only wherethe only plausible outcomes are a business-as-usual scenario (with minor changes and modifications) and theproposed project. In other words, the methodology is inapplicable where a plausible outcome is substantialchange in practice or technologically different from the proposed technology.AM0011: Landfill gas recovery with electricity generation and no capture or destruction of methane in thebaseline scenario (13)Landfill gas capture and electricity generation project activities where:- The baseline is atmospheric release of the landfill gas;- There are no regulations governing the landfill gas emissions;- The captured gas is used to evaporate leachate, generate electricity for on-site use and/or is flared;- Emissions reductions associated with generation of the displaced electricity do not generate credits.AM0012: Biomethanation of municipal solid waste in India, using compliance with MSW rules (13)Municipal waste treatment by biomethanation under the following conditions:- The project is located in India;- Waste handling in the baseline scenario shows a continuation of current practice despite environmentalregulation;- The compliance rate of the 2000 MSW Management Rules during (part of) the crediting period is below50%; if monitored compliance with the MSW rules exceeds 50%, the project activity shall receive no furthercredit, since the assumption that the policy is not enforced is no longer tenable;- Too little data is available to use the first decay model or other more accurate models of methane emissionsunder baseline conditions;- The additionality of the project activity must be assessed taking into account the revenue from electricitygeneration and organic fertilizer, regardless of whether credit is to be claimed for these components or not.Note: This methodology deals exclusively with the component biomethanation of municipal waste resultingin reduction of methane emissions. In case the proposed project also reduces emissions through electricitygeneration and organic fertilizer production, approved methodologies should be applied to these componentsas well.62

4. Normal Scale CDM Project ActivitiesMeth Number: Title(sectoral scope)ApplicabilityMeth Number: Title(sectoral scope)ApplicabilityMeth Number: Title(sectoral scope)ApplicabilityMeth Number: Title(sectoral scope)ApplicabilityAM0013: Forced methane extraction from organic waste-water treatment plants for grid-connectedelectricity supply (13)Methane recovery project activities involving organic wastewater treatment plants with the following applicabilityconditions:- The existing waste water treatment system is an open lagoon system with an 'active' anaerobic conditioni.e. with a high level of CH 4 generation;- The methodology applies to forced CH 4 extraction project cases, as there is a process change from openlagoon to accelerated CH 4 generation in a closed tank digester or similar technology. Therefore, dependingonly on the amount of captured methane emissions to establish baseline emissions will not be adequate asthe project activity may extract more CH 4 than would be emitted in the baseline case;- The captured methane is used for electricity generation, which avoids emissions due to displaced electricityin a well-defined grid electricity;- For projects with a renewable power generation capacity lower than 15 MW.AM0014: Natural gas-based package cogeneration (1, 4)Natural gas-based cogeneration projects under the following conditions:- The cogeneration system is a third party cogeneration systems, i.e. not own or operated by the consumingfacility that receives the project heat and electricity;- The cogeneration system provides all or a part of the electricity and or heat demand of the consumingfacility;- No excess electricity is supplied to the power grid and no excess heat from the cogeneration system isprovided to another user.AM0015: Bagasse-based cogeneration connected to an electricity grid (1)Bagasse-based cogeneration power plants displacing grid electricity with the following conditions:- The bagasse to be used as the feedstock for cogeneration shall be supplied from the same facility where theproject is implemented;- Documentation is available supporting that the project activity would not be implemented by the publicsector, project participants or other relevant potential developers, notwithstanding of the governmentalpolicies/programs to promote renewables if any, in the absence of the clean development mechanism(CDM);- The implementation of the project shall not increase the bagasse production in the facility;- The bagasse at the project facility should not be stored for more than one year.AM0016: Greenhouse gas mitigation from improved animal waste management systems in confined animalfeeding operations (13, 15)Animal Waste Management Systems (AWMS) project activities aiming at mitigating greenhouse gases (GHG)where the proposed improvements result in:- The captured gas being flared, or- The captured gas is used to produce energy (e.g. electricity/thermal energy), but no emission reductions areclaimed for displacing or avoiding energy from other sources 1 .AWMS with the following conditions:- Farms with livestock populations managed under confined conditions which operate in a competitive market;- Livestock populations comprising: Cattle, buffalo, swine, sheep, goats, and/or poultry;- AWMS – including both the baseline scenario and the manure management system introduced via theproposed project activity – are in accordance with the regulatory framework of the host country and areexcluding the discharge of manure into natural water resources (e.g. rivers or estuaries);- On-farm systems that introduce AWMS practices and technology change to reduce GHG emissions.Source: approved methodologies (available on CDM web sitehttp://cdm.unfccc.int/methodologies/PAmethodologies/approved.htm)Project participants should be aware that the DOE will check the applicability of theselected approved methodology to the proposed project activity in the process of validation.As of November 2004, 16 baseline and monitoring methodologies have been approvedby the EB. As can be seen in table 7 shown above, there have been multiple approvedmethodologies that deal with the same kind of project activities. For example, out of the 16approved methodologies, four methodologies deal with landfill gas capture projects, andtwo deal with animal waste management projects. In order to streamline such situation,consolidation of methodologies, aiming to develop methodologies with wider applicability,has started.63

4.3 Approved methodologies and tools4.3.2 Approved consolidated methodologiesAs explained in Chapter 2, approved consolidated methodologies (ACM) were developedto be applicable to wider range of project activities. As of November 2004, there are twoACMs available on the CDM web site. [http://cdm.unfccc.int/methodologies/PAmethodologies/approved.html]The ACM and AM formats have the same basic structure, therefore, this section focuseson the basic concept of the two ACMs currently available.ACM0001Baseline: Consolidated baseline methodology for landfill gas project activitiesSourcesThis methodology is based on elements from the following approved proposals forbaseline methodologies:- AM0002: GHG emission reductions through landfill gas capture and flaring;- AM0003: Simplified financial analysis for landfill gas capture projects;- AM0010: Landfill gas capture and electricity generation projects;- AM0011: Landfill gas recovery with electricity generation.ApplicabilityThis methodology is applicable to landfill gas capture project activities, where the baselinescenario is the partial or total atmospheric release of the gas and the project activitiesinclude situations such as:a) The captured gas is flared; orb) The captured gas is used to produce energy (e.g. electricity/thermal energy), but noemission reductions are claimed for displacing or avoiding energy from other sources 1 ;orc) The captured gas is used to produce energy (e.g. electricity/thermal energy), andemission reductions are claimed for displacing or avoiding energy generation fromother sources.Emission reductionEmission reduction will differ among different types of the situations listed inthe applicability and for details please refer to the ACM0001.Project BoundaryThe project boundary is the site of the project activity where the gas is captured anddestroyed/used.1 Although in this case no emission reductions are claimed for displacing or avoiding energy from othersources, all possible financial revenues and/or emission leakages shall be taken into account in all theanalyses performed64

4. Normal Scale CDM Project ActivitiesBaselineThe baseline is the atmospheric release of the gas and the baseline methodologyconsiders that some of the methane generated by the landfill may be captured anddestroyed to comply with regulations or contractual requirements, or to address safety andodour concerns.Unlike AMs explained in the previous section, baseline for this methodologyis limited to above conditions, thus the baseline scenario has been identifiedand provided in this case.AdditionalityFor this methodology, “Tool for the demonstration and assessment of additionality” shallapply.LeakageNo leakage effects need to be accounted under this methodology.Monitoring: Consolidated monitoring methodology for landfill gas project activitiesSourcesSources for the monitoring methodology are the same as in its baseline methodology.ApplicabilityApplicability for the monitoring methodology is the same as in its baseline methodology.Monitoring MethodologyThe monitoring methodology is based on direct measurement of the amount of landfill gascaptured and destroyed at the flare platform and the electricity generating/thermal energyunit(s) to determine the quantities.To determine these variables, the following parameters have to be monitored (for completedescription, please refer to the ACM0001):• The amount of landfill gas generated• The fraction of methane in the landfill gas should be measured with a continuousanalyzer or, alternatively, with periodical measurements, at a 95% confidence level• The flare efficiency (FE), measured as the fraction of time in which the gas is combustedin the flare multiplied by the efficiency of the flaring process.• Temperature (T) and pressure (p) of the landfill gas are required to determine the densityof methane in the landfill gas.• The quantities of electricity or any other fuels required to operate the landfill gas projectshould be monitored.• Relevant regulations for LFG project activities shall be monitored. Changes toregulation should be converted to the amount of methane that would have beendestroyed/combusted during the year in the absence of the project activity.65

4.3 Approved methodologies and toolsACM0002Baseline: Consolidated baseline methodology for zero-emissions grid-connectedelectricity generation from renewable sourcesSourcesThis consolidated baseline methodology is based on elements from the followingproposed new methodologies:- NM0001-rev: Vale do Rosario Bagasse Cogeneration (VRBC) project in Brazil;- NM0012-rev: Wigton Wind Farm Project in Jamaica;- NM0023: El Gallo Hydroelectric Project, Mexico;- NM0024-rev: Colombia: Jepirachi Windpower Project ;- NM0030-rev: Haidergarh Bagasse Based Co-generation Power Project in India;- NM0036: Zafarana Wind Power Plant Project in the Arab Republic of Egypt;- NM0043: Bayano Hydroelectric Expansion and Upgrade Project in Panama;- NM0055: Darajat Unit III Geothermal Project in Indonesia.ApplicabilityThis methodology is applicable to grid-connected renewable power generation projectactivities under the following conditions:• Applies to electricity capacity additions from:- Run-of-river hydro power plants; hydro power projects with existing reservoirs wherethe volume of the reservoir is not increased.- Wind sources;- Geothermal sources;- Solar sources;- Wave and tidal sources.• This methodology is not applicable to project activities that involve switching fromfossil fuels to renewable energy at the site of the project activity, since in this case thebaseline may be the continued use of fossil fuels at the site;• The geographic and system boundaries for the relevant electricity grid can be clearlyidentified and information on the characteristics of the grid is available; and• Applies to grid connected electricity generation from landfill gas capture to the extentthat it is combined with the approved “Consolidated baseline methodology for landfillgas project activities” (ACM0001).Project activityThe project activity is grid-connected electricity generation from renewable energysources. There are a number of different sizes and sub-types of this project activity(Run-of-river hydro power plants; hydro power projects with existing reservoirs where thevolume of the reservoir is not increased, wind, geothermal, solar sources, tidal, wave).AdditionalityFor this methodology, “Tool for the demonstration and assessment of additionality” shallapply.66

4. Normal Scale CDM Project ActivitiesProject boundaryPlease refer to ACM0002 for details.BaselineThe baseline scenario is the following: electricity would have otherwise been generatedby the operation of grid-connected power plants and by the addition of new generationsources.For project activities that modify or retrofit an existing electricity generation facility, theguidance provided by EB08 shall be taken into account.A baseline emission factor is calculated as a combined margin (CM) according to thefollowing three steps. Calculations for this combined margin must be based on data from anofficial source (where available) 2 and made publicly available.STEP 1. Calculate the Operating Margin (OM) emission factor(s) based on one of the fourfollowing methods: (a) Simple OM, (b) Simple adjusted OM, (c) Dispatch Data Analysis OM,or (d) Average OM.STEP 2. Calculate the Build Margin emission factor as the generation-weighted averageemission factor (tCO 2 /MWh) of a sample of power plants:STEP 3. Calculate the baseline emission factor as the weighted average of the OperatingMargin emission factor and the Build Margin emission factor:Unlike AMs explained in the previous section, the baseline for thismethodology is limited to above conditions, thus the baseline scenario hasbeen identified and provided in this case.This manual does not go into the details of Operating Margin, Build Marginand Combined Margin concepts. There are many publications on these issues(e.g. OECD. 2002. “Practical Baseline Recommendations for GreenhouseGas Mitigation Projects in the Electric Power Sector”).LeakageThe main emissions potentially giving rise to leakage in the context of electric sectorprojects are emissions arising due to activities such as power plant construction, fuelhandling (extraction, processing, and transport), and land inundation (for hydroelectricprojects see applicability conditions above). Project participants do not need to considerthese emission sources as leakage in applying this methodology. Project activities using thisbaseline methodology shall not claim any credit for the project on account of reducing theseemissions below the level of the baseline scenario.Emission ReductionsThe project activity mainly reduces CO 2 through substitution of grid electricity generationwith fossil fuel fired power plants by renewable electricity. The emission reduction by the2 Plant emission factors used for the calculation of operating and build margin emission factors should beobtained in the following priority:67

4.3 Approved methodologies and toolsproject activity during a given year is the difference between baseline emissions, projectemissions and emissions due to leakage (see ACM0002 for details).Monitoring: Consolidated monitoring methodology for zero-emissions grid-connectedelectricity generation from renewable sourcesSourcesSources for the monitoring methodology are the same as in its baseline methodology.ApplicabilityApplicability for the monitoring methodology is the same as in its baseline methodology.Monitoring MethodologyThe methodology requires monitoring of the following:• Electricity generation from the proposed project activity;• Data needed to recalculate the operating margin emission factor, if needed, basedon the choice of the method to determine the operating margin (OM), consistent withconsolidated baseline methodology for grid-connected electricity generation fromrenewable sources (ACM0002);• Data needed to recalculate the build margin emission factor, if needed, consistent withconsolidated baseline methodology for grid-connected electricity generation fromrenewable sources (ACM0002);• For geothermal power projects, data needed to calculate fugitive carbon dioxide andmethane emissions and carbon dioxide emissions from combustion of fossil fuelsrequired to operate the geothermal power plant.Project boundaryPlease refer to ACM0002 for details.4.3.3 Tool for the demonstration andassessment of additionalityThe EB, at its 16 th meeting, adopted the “Tool for the demonstration and assessmentof additionality (additionality tool)” [EB16, Annex 1]. The “additionality tool” provides ageneral framework for demonstrating and assessing additionality and is to be applicable toa wide range of project types, though some project types may require adjustments. Projectparticipants proposing new baseline methodologies may incorporate this “additionality tool”,but may also propose other tools for the demonstration of additionality.When project participants choose to use the approved consolidated baselinemethodologies, they must use this tool in conjunction with the ACMs.The “additionality tool” provides for a step-wise approach to demonstrate and assessadditionality, as shown in Figure 10 below.68

4. Normal Scale CDM Project ActivitiesFigure 10: Flowchart: Additionality SchemeThe “additionality tool”, however, is useful only in showing that the project activity isnot part of the baseline scenario. It does not provide for a tool or a process of identifyingthe baseline scenario. The Meth Panel, at its 13th meeting, recommended to the EB thatmethodologies using the additionality tool should be careful to complement the use ofthe tool with a complete baseline scenario assessment approach. After application of theadditionality tool, the next step should be to establish the most likely baseline from a numberof plausible alternative scenarios, which may be defined, for instance, in Step 1 of theadditionality tool.The following section shows the “additionality tool”. For the full text of the tool includingfootnotes, refer to the document contained in Annex 1 of the report of the 16th meeting ofthe EB.69

4.3 Approved methodologies and toolsStep 0. Preliminary screening based on the starting date of the projectactivity1. If project participants wish to have the crediting period starting prior to the registration oftheir project activity, they shall:(a) Provide evidence that the starting date of the CDM project activity falls between 1January 2000 and the date of the registration of a first CDM project activity, bearing inmind that only CDM project activities submitted for registration before 31 December2005 may claim for a crediting period starting before the date of registration; and(b) Provide evidence that the incentive from the CDM was seriously considered inthe decision to proceed with the project activity. This evidence shall be based on(preferably official, legal and/or other corporate) documentation that was available tothird parties at, or prior to, the start of the project activity.Step 1. Identification of alternatives to the project activity consistentwith current laws and regulationsDefine realistic and credible alternatives to the project activity(s) that can be (part of) thebaseline scenario through the following sub-steps:Sub-step 1a. Define alternatives to the project activity:1. Identify realistic and credible alternative(s) available to the project participants or similarproject developers that provide outputs or services comparable with the proposed CDMproject activity. These alternatives are to include:• The proposed project activity not undertaken as a CDM project activity;• All other plausible and credible alternatives to the project activity that deliver outputsand on services (e.g. electricity, heat or cement) with comparable quality, propertiesand application areas;• If applicable, continuation of the current situation (no project activity or otheralternatives undertaken).Sub-step 1b. Enforcement of applicable laws and regulations:2. The alternative(s) shall be in compliance with all applicable legal and regulatoryrequirements, even if these laws and regulations have objectives other than GHGreductions, e.g. to mitigate local air pollution. (This sub-step does not consider nationaland local policies that do not have legally-binding status.).3. If an alternative does not comply with all applicable legislation and regulations, thenshow that, based on an examination of current practice in the country or region inwhich the law or regulation applies, those applicable legal or regulatory requirementsare systematically not enforced and that non-compliance with those requirements iswidespread in the country. If this cannot be shown, then eliminate the alternative fromfurther consideration;4. If the proposed project activity is the only alternative amongst the ones considered bythe project participants that is in compliance with all regulations with which there isgeneral compliance, then the proposed CDM project activity is not additional.70

4. Normal Scale CDM Project Activities➥ Proceed to Step 2 (Investment analysis) or Step 3 (Barrier analysis). (Project participantsmay also select to complete both steps 2 and 3.)Step 2. Investment analysisDetermine whether the proposed project activity is the economically or financially lessattractive than other alternatives without the revenue from the sale of certified emissionreductions (CERs). To conduct the investment analysis, use the following sub-steps:Sub-step 2a. Determine appropriate analysis method1. Determine whether to apply simple cost analysis, investment comparison analysis orbenchmark analysis (sub-step 2b). If the CDM project activity generates no financialor economic benefits other than CDM related income, then apply the simple costanalysis (Option I). Otherwise, use the investment comparison analysis (Option II) or thebenchmark analysis (Option III).Sub-step 2b. – Option I. Apply simple cost analysis2. Document the costs associated with the CDM project activity and demonstrate that theactivity produces no economic benefits other than CDM related income.➥ If it is concluded that the proposed CDM project activity is not financially attractive thenproceed to Step 4 (Common practice analysis).Sub-step 2b. – Option II. Apply investment comparison analysis3. Identify the financial indicator, such as internal rate of return (IRR), net present value (NPV),cost benefit ratio, or unit cost of service (e.g., levelized cost of electricity production in$/kWh or levelized cost of delivered heat in $/GJ) most suitable for the project type anddecision-making context.Sub-step 2b – Option III. Apply benchmark analysis4. Identify the financial indicator, such as IRR10, NPV, cost benefit ratio, or unit costof service (e.g., levelized cost of electricity production in $/kWh or levelized cost ofdelivered heat in $/GJ) most suitable for the project type and decision context. Identifythe relevant benchmark value, such as the required rate of return (RRR) on equity. Thebenchmark is to represent standard returns in the market, considering the specific risk ofthe project type, but not linked to the subjective profitability expectation or risk profile ofa particular project developer. Benchmarks can be derived from:• Government bond rates, increased by a suitable risk premium to reflect privateinvestment and/or the project type, as substantiated by an independent (financial)expert;• Estimates of the cost of financing and required return on capital (e.g. commerciallending rates and guarantees required for the country and the type of project activityconcerned), based on bankers views and private equity investors/funds’ requiredreturn on comparable projects;• A company internal benchmark (weighted average capital cost of the company) if thereis only one potential project developer (e.g. when the project activity upgrades an71

4.3 Approved methodologies and toolsexisting process). The project developers shall demonstrate that this benchmark hasbeen consistently used in the past, i.e. that project activities under similar conditionsdeveloped by the same company used the same benchmark.Sub-step 2c. Calculation and comparison of financial indicators (only applicable tooptions II and III):5. Calculate the suitable financial indicator for the proposed CDM project activity and, inthe case of Option II above, for the other alternatives. Include all relevant costs (including,for example, the investment cost, the operations and maintenance costs), and revenues(excluding CER revenues, but including subsidies/fiscal incentives where applicable),and, as appropriate, non-market cost and benefits in the case of public investors.6. Present the investment analysis in a transparent manner and provide all the relevantassumptions in the CDM-PDD, so that a reader can reproduce the analysis and obtainthe same results. Clearly present critical techno-economic parameters and assumptions(such as capital costs, fuel prices, lifetimes, and discount rate or cost of capital). Justifyand/or cite assumptions in a manner that can be validated by the DOE. In calculatingthe financial indicator, the project’s risks can be included through the cash flow pattern,subject to project-specific expectations and assumptions (e.g. insurance premiums canbe used in the calculation to reflect specific risk equivalents).7. Assumptions and input data for the investment analysis shall not differ across the projectactivity and its alternatives, unless differences can be well substantiated.8. Present in the CDM-PDD submitted for validation a clear comparison of the financialindicator for the proposed CDM activity and:(a) The alternatives, if Option II (investment comparison analysis) is used. If one of theother alternatives has the best indicator (e.g. highest IRR), then the CDM projectactivity can not be considered as the most financially attractive;(b) The financial benchmark, if Option III (benchmark analysis) is used. If the CDMproject activity has a less favourable indicator (e.g. lower IRR) than the benchmark,then the CDM project activity cannot be considered as financially attractive.Sub-step 2d. Sensitivity analysis (only applicable to options II and III):9. Include a sensitivity analysis that shows whether the conclusion regarding the financialattractiveness is robust to reasonable variations in the critical assumptions. Theinvestment analysis provides a valid argument in favour of additionality only if itconsistently supports (for a realistic range of assumptions) the conclusion that theproject activity is unlikely to be the most financially attractive (as per step 2c para 8a) oris unlikely to be financially attractive (as per step 2c para 8b).➥ If after the sensitivity analysis it is concluded that the proposed CDM project activity isunlikely to be the most financially attractive (as per step 2c para 8a) or is unlikely to befinancially attractive (as per step 2c para 8b), then proceed to Step 3 (Barrier analysis) orStep 4 (Common practice analysis).➥ Otherwise, unless barrier analysis below is undertaken and indicates that the proposedproject activity faces barriers that do not prevent the baseline scenario(s) from occurring,the project activity is considered not additional.72

4. Normal Scale CDM Project ActivitiesStep 3. Barrier analysisIf this step is used, determine whether the proposed project activity faces barriers that:(a) Prevent the implementation of this type of proposed project activity; and(b) Do not prevent the implementation of at least one of the alternatives. Use the followingsub-steps:Sub-step 3a. Identify barriers that would prevent the implementation of type of theproposed project activity:1. Establish that there are barriers that would prevent the implementation of the type ofproposed project activity from being carried out if the project activity was not registeredas a CDM activity. Such barriers may include, among others:Investment barriers, other than the economic/financial barriers in Step 2 above, inter alia:- Debt funding is not available for this type of innovative project activities.- No access to international capital markets due to real or perceived risks associatedwith domestic or foreign direct investment in the country where the project activity isto be implemented.Technological barriers, inter alia:- Skilled and/or properly trained labour to operate and maintain the technology is notavailable and no education/training institution in the host country provides the neededskill, leading to equipment disrepair and malfunctioning;- Lack of infrastructure for implementation of the technology.Barriers due to prevailing practice, inter alia:- The project activity is the “first of its kind”: No project activity of this type is currentlyoperational in the host country or region. The identified barriers are only sufficientgrounds for demonstration of additionality if they would prevent potential projectproponents from carrying out the proposed project activity if it was not expected to beregistered as a CDM activity.2. Provide transparent and documented evidence, and offer conservative interpretations ofthis documented evidence, as to how it demonstrates the existence and significance ofthe identified barriers. Anecdotal evidence can be included, but alone is not sufficientproof of barriers. The type of evidence to be provided may include:(a) Relevant legislation, regulatory information or industry norms;(b) Relevant (sectoral) studies or surveys (e.g. market surveys, technology studies, etc)undertaken by universities, research institutions, industry associations, companies,bilateral/multilateral institutions, etc;(c) Relevant statistical data from national or international statistics;(d) Documentation of relevant market data (e.g. market prices, tariffs, rules);(e) Written documentation from the company or institution developing or implementingthe CDM project activity or the CDM project developer, such as minutes from Boardmeetings, correspondence, feasibility studies, financial or budgetary information, etc;(f) Documents prepared by the project developer, contractors or project partners in thecontext of the proposed project activity or similar previous project implementations;(g) Written documentation of independent expert judgements from industry, educationalinstitutions (e.g. universities, technical schools, training centres), industryassociations and others.73

4.3 Approved methodologies and toolsSub-step 3 b. Show that the identified barriers would not prevent the implementationof at least one of the alternatives (except the proposed project activity):3. If the identified barriers also affect other alternatives, explain how they are affected lessstrongly than they affect the proposed CDM project activity. In other words, explainhow the identified barriers are not preventing the implementation of at least one ofthe alternatives. Any alternative that would be prevented by the barriers identified inSub-step 3a is not a viable alternative, and shall be eliminated from consideration. Atleast one viable alternative shall be identified.➥ If both Sub-steps 3a – 3b are satisfied, proceed to Step 4 (Common practice analysis)➥ If one of the Sub-steps 3a – 3b is not satisfied, the project activity is not additional.Step 4. Common practice analysisThe above generic additionality tests shall be complemented with an analysis of the extentto which the proposed project type (e.g. technology or practice) has already diffused in therelevant sector and region. This test is a credibility check to complement the investmentanalysis (Step 2) or barrier analysis (Step 3). Identify and discuss the existing commonpractice through the following sub-steps:Sub-step 4a. Analyze other activities similar to the proposed project activity:1. Provide an analysis of any other activities implemented previously or currently underwaythat are similar to the proposed project activity. Projects are considered similar if theyare in the same country/region and/or rely on a broadly similar technology, are of a similarscale, and take place in a comparable environment with respect to regulatory framework,investment climate, access to technology, access to financing, etc. Other CDM projectactivities are not to be included in this analysis. Provide quantitative information whererelevant.Sub-step 4b. Discuss any similar options that are occurring:2. If similar activities are widely observed and commonly carried out, it calls into questionthe claim that the proposed project activity is financially unattractive (as contended inStep 2) or faces barriers (as contended in Step 3). Therefore, if similar activities areidentified above, then it is necessary to demonstrate why the existence of these activitiesdoes not contradict the claim that the proposed project activity is financially unattractiveor subject to barriers. This can be done by comparing the proposed project activity tothe other similar activities, and pointing out and explaining essential distinctions betweenthem that explain why the similar activities enjoyed certain benefits that rendered itfinancially attractive (e.g., subsidies or other financial flows) or did not face the barriersto which the proposed project activity is subject.3. Essential distinctions may include a serious change in circumstances under which theproposed CDM project activity will be implemented when compared to circumstancesunder which similar projects where carried out. For example, new barriers may havearisen, or promotional policies may have ended, leading to a situation in which theproposed CDM project activity would not be implemented without the incentive providedby the CDM. The change must be fundamental and verifiable.74

4. Normal Scale CDM Project Activities➥ If Sub-steps 4a and 4b are satisfied, i.e. similar activities cannot be observed or similaractivities are observed, but essential distinctions between the project activity and similaractivities can reasonably be explained, please go to step 5 (Impact of CDM registration).➥ If Sub-steps 4a and 4b are not satisfied, i.e. similar activities can be observed andessential distinctions between the project activity and similar activities cannot reasonablybe explained, the proposed CDM project activity is not additional.Step 5. Impact of CDM registrationExplain how the approval and registration of the project activity as a CDM activity, and theattendant benefits and incentives derived from the project activity, will alleviate the economicand financial hurdles (Step 2) or other identified barriers (Step 3) and thus enable the projectactivity to be undertaken. The benefits and incentives can be of various types, such as:• Anthropogenic greenhouse gas emission reductions;• The financial benefit of the revenue obtained by selling CERs,• Attracting new players who are not exposed to the same barriers, or can accept a lowerIRR (for instance because they have access to cheaper capital),• Attracting new players who bring the capacity to implement a new technology, and• Reducing inflation /exchange rate risk affecting expected revenues and attractiveness forinvestors.➥ If Step 5 is satisfied, the proposed CDM project activity is not the baseline scenario.➥ If Step 5 is not satisfied, the proposed CDM project activity is not additional.75

5.Afforestation orreforestationproject activityunder the CDM(A/R CDM projectactivity)

Marrakech Accords defined that Land use, Land-use change and forestry (so calledsink) under the CDM is limited to afforestation and reforestation (A/R) CDM during the firstcommitment period. Forest management and revegetation are, therefore not allowed underthe A/R CDM scheme.A/R CDM and emission reduction CDM project activities share many things in commonsuch as provisions for participation requirements, project cycle and procedures. While bothCDM rules have many similarities, they also have a completely different characteristic whichmakes their crediting scheme fundamentally unlike. This unique characteristic of A/R CDMproject activities is called non-permanence originating from the issue of temporal storage ofGHG removals in forest. Non-permanence is further explained in Section 5.3.In this section, a brief overview is provided on what project participants need to know inorder to plan an A/R CDM project activity.Following the overview, more technical information is explained with respect to keypoints covered in a project design document for A/R CDM project activities (CDM-AR-PDD)including baseline, additionality, monitoring, calculation of GHG removals by sinks, issue ofnon-permanence and small-scale A/R CDM project activities.5.1.1 Participation requirementsAs mentioned above, all provisions of Section F of the CDM M&P, contained in the Annexto decision 17/CP.7, apply to afforestation and reforestation project activities under theCDM (i.e. Participation in a CDM project activityis voluntary, Parties need to establish DNA,non-Annex I party has to be a Party to KyotoProtocol, Annex I Party has to calculate andrecord assigned amount and maintains nationalregistry, etc.).In order to host an A/R CDM project activity,a non-Annex I Party needs to determinethresholds for forest definition in addition to theparticipation requirements mentiond above andreport to the EB through its DNA. The thresholdsare:(a) A single minimum tree crown cover valuebetween 10 and 30 per cent; and(b) A single minimum land area value between0.05 and 1 hectare; and(c) A single minimum tree height value between2 and 5 metres. Figure 11: Thresholds for forest definition78

5. Afforestation or reforestation project activity under the CDM(A/R CDM project activity)5.1.2 Definitions of terms used in A/R CDM(1) Definition of afforestation and reforestation for A/R CDM project activitiesThe Marrakech Accords decided the eligibility of land use, land-use change andforestry project activities under the CDM is limited to afforestation and reforestation forthe first commitment period. The definition of afforestation and reforestation for A/RCDM project activities are as follows:(a) Afforestation:It is the direct human-induced conversion of land that has not been forested for a periodof at least 50 years to forested land through planting, seeding and/or the human-inducedpromotion of natural seed sources;(b) Reforestation:It is the direct human-induced conversion of non-forested land to forested land throughplanting, seeding and/or the human-induced promotion of natural seed sources, onland that was forested but that has been converted to non-forested land. For the firstcommitment period, reforestation activities will be limited to reforestation occurring onthose lands that did not contain forest on 31 December 1989;(2) Carbon pools“Carbon pools” are: above-ground biomass, below-ground biomass, litter, dead woodand soil organic carbon.(3) Project boundaryWhen project participants start an A/R CDM project activity, a project boundary needsto be clearly defined to calculate GHG removals by sinks per unit of area or in the totalarea.The project boundary geographically delineates the A/R project activity under thecontrol of the project participants. The project activity may contain more than onediscrete area of land.In another word, the project boundary is a physical line surrounding piece(s) of landand an A/R CDM project activity could be composed of different pieces of land as oneproject.(4) “Baseline net GHG removals by sinks”It is the sum of the changes in carbon stocks in the carbon pools within the projectboundary that would have occurred in the absence of the A/R project activity under theCDM.(5) “Actual net GHG removals by sinks”It is the sum of the verifiable changes in carbon stocks in the carbon pools withinthe project boundary, minus the increase in emissions of the GHGs measured in CO 2equivalents by the sources that are increased as a result of the implementation ofthe A/R project activity, while avoiding double counting, within the project boundary,attributable to the A/R CDM project activity.79

5.1 Overview of the A/R CDM project activity(6) “Net anthropogenic GHG removals by sinks”It is the actual net GHG removals by sinks minus the baseline net GHG removals bysinks minus leakage.(7) “temporary CER” or “tCER”It is a CER issued for an A/R CDM project activity which expires at the end of thecommitment period following the one during which it was issued. For example, if 100tons of tCERs are issued in the first commitment period, it will expire at the end of thesecond commitment period.(8) “long-term CER” or “lCER”It is a CER issued for an A/R CDM project activity which expires at the end of thecrediting period of the A/R CDM project activity for which it was issued.The project cycle of A/R CDM project activities is similar to that of emission reductionCDM project activities.The procedure is identical to emission reduction CDM. Project participants need tocheck whether their A/R CDM project activity is a normal scale A/R CDM project activityor a small-scale A/R CDM project activity, and whether an approved methodology isapplicable (see Section 5.4 for definition of small-scale A/R CDM project activity) asoutlined in Figure 1 of the structure of this manual. Then they need to proceed withdrafting of CDM-AR-PDD, validation, registration for issuance of credits (in case of A/RCDM project activities, tCERs and lCERs).5.2.1 Overview of approval process of projectactivities and methodologiesAs described in Chapter 2, the basic steps of approval process are the same asnormal CDM project activities. In this section, brief explanation of the approval processis given in step-by-step manner.Step 1: Determine if your project qualifies as a small scale A/R CDMproject activityAs already mentioned in Chapter 2, project participants should first consider if theirproject meets the eligibility criteria of small-scale A/R CDM project activities as listedbelow.80

5. Afforestation or reforestation project activity under the CDM(A/R CDM project activity)(1) Net anthropogenic GHG removals by sinks of less than 8,000 tons of CO 2 per year(2) Developed or implemented by low-income communities and individuals as determinedby the host PartySimplified modalities and procedures for small-scale CDM project activities are availablefor emission reduction CDM, whereas in small-scale A/R CDM, simplified modalities andprocedures are currently under discussion (as of November 2004). Once simplified modalitiesare made available, project participants can apply them to their project activity.If your project does not qualify as a small-scale A/R CDM project activity, proceed to Step2 below.Step 2: Determine if an approved baseline and monitoring methodologyis applicable to your projectProject participants need to apply either methodologies previously approved by the EBor propose new baseline and monitoring methodologies for A/R CDM project activities inaccordance with modalities and procedures for establishing a new methodology. In caseapproved methodologies can be used, the DOE may proceed with the validation of theCDM project activity and submit CDM-AR-PDD for registration. If not, project participantsmust submit new baseline and monitoring methodologies using formats CDM-AR-NMB andCDM-AR-NMM, respectively, along with the draft CDM-PDD and have them approved by theEB.As the rules and procedures of A/R CDM project activities have been decided atCOP9 in December 2003, the project approval process started later than that of normalCDM. Project participants who wish to develop or currently developing a small-scaleA/R CDM project may need to wait for simplified methodologies to become available.As of November 2004, there is the only one proposed new baseline and monitoringmethodology made available on the CDM web site.Step 3: Proposal of a new baseline and/or monitoring methodologyThe procedure for proposing a new baseline and/or monitoring methodology of a normalCDM project activity is identical to that of A/R CDM project activity (see Chapter 2 for agraphic overview of the whole procedure).• Submit proposed new methodologies for afforestation and reforestation projectactivities:The project participant proposing new A/R baseline and monitoring methodologiesshould prepare A/R baseline and monitoring methodologies forms (CDM-AR-NMB andCDM-AR-NMM), along with the draft CDM afforestation and reforestation project designdocuments (CDM-AR-PDD) and submit through a DOE or an AE.The DOE/AE, contracted by the project participants, should determine whether theproposed project activity intends to use a new baseline or monitoring methodology for A/Rproject activities.81

5.2 Project cycle of A/R CDM project activitiesThe DOE/AE should check whether documents are complete (draft CDM-AR-PDD,CDM-AR-NMB and CDM-AR-NMM, as well as relevant annexes) and forward, without furtheranalysis, the proposed new A/R methodology to the EB for its consideration and approval, ifappropriate.The secretariat shall forward the documentation to the EB and the working group onafforestation and reforestation after having checked that it has been duly filled by the DOEand documentation provided by the DOE is complete. The date of transmission to the EB isto be considered as the date of receipt of a proposed new A/R methodology by the EB.The secretariat shall make the proposed new A/R methodology publicly available on theCDM web site and invite public inputs for a period of 15 working days. Public inputs ona proposed new methodology shall be made using the “Proposed new A/R methodology- public comment form” (F-CDM-AR-NMpu ver01). Comments shall be forwarded to theworking group on afforestation and reforestation at the moment of receipt and madeavailable to the public at the end of the 15 working day period.Reference documents for “Procedure for Submission and Consideration of a ProposedNew Methodology for Afforestation and Reforestation Project Activities” are available on theCDM web site (http://cdm.unfccc.int/Reference/Procedures).A new set of methodologies is currently proposed and made available on the CDM website (http://cdm.unfccc.int/methodologies/ARmethodologies/process).ID number Methodology title SubmissionARNM0001 The Mountain Pine Ridge Reforestation Project Round 1Step 4: Draft a Project Design Document (CDM-AR-PDD)Project participants then need to fill out a PDD (CDM-AR-PDD), which includes informationsuch as general description of the project activity, baseline and additionality, monitoring plan,GHG removals, etc. The information required in the CDM-AR-PDD format will be discussedin section 5.3.Step 5: Validation of the CDM project activityValidation is the process of independent evaluation of an A/R project activity by a DOEagainst the requirements of the CDM as set out in decision 19/CP.9, the modalities andprocedures for A/R project activities under the CDM (CDM A/R M&P) and relevant decisionsof the COP/MOP, on the basis of the PDD for A/R project activities, as outlined in Appendix B.For more details on validation, see Chapter 2.Step 6: Registration of the CDM project activityRegistration is the formal acceptance by the EB of a validated project as an A/RCDM project activity. Registration is the prerequisite for the verification, certification andissuance of tCERs or lCERs related to that A/R project activity.82

5. Afforestation or reforestation project activity under the CDM(A/R CDM project activity)5.3.1 Overview of CDM-AR-PDDThis section discusses technical aspects of A/R CDM project activities and key itemsto be covered in the CDM-AR-PDD format. First, this section overlooks structure of theCDM-AR-PDD, followed by more detailed explanations on Sections A through G of the PDD.The explanations will, however, focus on key issues of A/R CDM project activities rather thanexplaining every item.The basic structure of the CDM-AR-PDD is shown below:PDD form for A/R CDM project activitiesContentsA. General description of the proposed A/R CDM project activityB. Application of a baseline methodologyC. Application of a monitoring methodology and planD. Estimation the net anthropogenic GHG removals by sinksE. Environmental impacts of the proposed A/R CDM project activityF. Socio-economic impacts of the proposed A/R CDM project activityG. Stakeholders’ commentsAnnexesAnnex 1: Contact information on participants in the proposed A/R CDM project activityAnnex 2: Information regarding public fundingAnnex 3: Baseline informationAnnex 4: Monitoring planThe following Sections 5.3.2 to 5.3.7 will explain each section of the CDM-AR-PDDformat.5.3.2 Section A. General description of theproposed A/R CDM project activityIn Section A, project participants are expected to provide overview and generalinformation of their project activities. The items that are specific to CDM-AR-PDD and notrequired in the CDM-PDD template will be explained in the following sections.• A.4.4. Carbon pools selectedAs already mentioned in Section 5.1.2, there are 5 carbon pools that project participantsshould consider when calculating baseline net GHG removals by sinks and/or actual netGHG removals by sinks. Project participants can avoid counting of one or more carbonpools, and/or emissions of the GHG, while avoiding double counting.83

5.3 Technical aspects of items covered in CDM-AR-PDDProject participants need to show that the choice will not increase the expected netanthropogenic GHG removals by sinks. Otherwise, they need to account for all significantchanges in carbon pools and/or emissions of the GHG by the sources.• A.4.9. Approach for addressing non-permanenceIn accordance with paragraph 38 and section K of the CDM A/R M&P, project participantsneed to select one of the following approaches to address non-permanence:- Issuance of tCERs- Issuance of lCERsThe approach chosen to address non-permanence shall remain fixed for the creditingperiod including any renewals.Non-permanence issue will be discussed in detail in Section 5.3.6.• A.4.10.3 Choice of crediting period and related informationProject participants need to state whether the proposed A/R CDM project activity will usea renewable or a fixed crediting period (choose only one crediting period).- Renewable crediting period: A maximum of 20 years which may be renewed at mosttwo times,- Fixed crediting period: A maximum of 30 yearsProject participants who choose renewable crediting period should be aware that, foreach renewal, a DOE determines and informs the EB that the original project baseline isstill valid or has been updated taking account of new data where applicable.Note:The crediting period may only start after the date of registration of the proposed A/RCDM project activity. In exceptional cases*, the starting date of the crediting periodmay be prior to the date of registration of the proposed A/R CDM project activity asprovided for in paragraphs 12 and 13 of decision 17/CP.7, paragraph 1 (c) of decision18/CP.9 and through any guidance by the EB, available on the UNFCCC CDM web site.* For project activities starting between 1 January 2000 and the date of the registration of the firstCDM project, if the proposed A/R CDM project activity is submitted for registration before 31December 2005, project participants have to provide documentation, at the time of registration,showing that the starting date fell within this period.• A.4.11. Brief explanation of how the net anthropogenic GHG removals by sinks areachieved by the proposed A/R CDM project activity, including why these would notoccur in the absence of the proposed A/R CDM project activity, taking into accountnational and/or sectoral policies and circumstances:Project participants are expected to describe following items:- How net anthropogenic GHG removals by sinks are to be achieved (detail to beprovided in section B)84

5. Afforestation or reforestation project activity under the CDM(A/R CDM project activity)- Provide the estimate of the anticipated total net anthropogenic GHG removals by sinksin tonnes of CO 2 equivalent as determined in section E.- Summary of section B5.3.3 Section B. Application of a baselinemethodologyAs described earlier, project participants need to refer to the CDM web site for approvedmethodologies applicable to their project activity. In case applicable methodologies forthe project activity do not exist, project participants need to propose new baseline and/ormonitoring methodologies.In any case, the following sections need to be filled out with information taken frommethodologies (either approved or proposed new ones) applied to the project activity.• B.3. Description of how the actual net GHG removals by sinks are increased abovethose that would have occurred in the absence of the registered A/R CDM projectactivity:Project participants should explain how and why this project is additional and thereforenot the baseline scenario in accordance with the selected baseline methodology. In SectionB.3., it is necessary to include:1) A description of the baseline scenario determined by applying the methodology,2) A description of the project scenario, and3) An analysis showing why the baseline net GHG removals by sinks scenario wouldlikely lie below actual net anthropogenic GHG removals by sinks in the projectscenario.The detailed information regarding baseline and additionality is given in the followingboxes.BaselineThe baseline for a proposed A/R CDM project activity is the scenario that reasonablyrepresents the sum of the changes in carbon stocks in the carbon pools within the projectboundary that would have occurred in the absence of the proposed project activity. A baselineshall reasonably represent the sum of the changes in carbon stocks in the carbon pools withinthe project boundary that would occur in the absence of the proposed A/R CDM project activityif it is derived using a baseline methodology referred to in paragraphs 12 and 13 of the CDM A/RM&P.• Establishment of Baseline net GHG removalsThe baseline net GHG removals by sinks for a proposed A/R CDM project shall be established:(a) By project participants in accordance with provisions for the use of approved and newbaseline methodologies (contained in decision 19/CP.9, the CDM A/R M&P and relevantdecisions of the COP/MOP);85

5.3 Technical aspects of items covered in CDM-AR-PDD(b) In a transparent and conservative manner regarding the choice of approaches, assumptions,methodologies, parameters, data sources, key factors and additionality, and taking intoaccount uncertainty;(c) On a project-specific basis;(d) In the case of small-scale A/R CDM project activities, in accordance with simplifiedmodalities and procedures developed for such activities;(e) Taking into account relevant national and/or sectoral policies and circumstances, such ashistorical land uses, practices and economic trends.• Carbon pools and baseline net GHG removalsIn calculating the baseline net GHG removals by sinks and/or actual net GHG removals bysinks, project participants may choose not to account for one or more carbon pools, and/oremissions of the GHGs measured in CO 2 equivalents, while avoiding double counting.This is subject to the provision of transparent and verifiable information that the choice willnot increase the expected net anthropogenic GHG removals by sinks. Project participants shallotherwise account for all significant changes in carbon pools and/or emissions of the GHGsmeasured in CO 2 equivalents by the sources that are increased as a result of the implementationof the A/R project activity, while avoiding double counting.• Baseline approachesIn choosing a baseline methodology for an afforestation or reforestation project activity underthe CDM, project participants shall select from among the following approaches the one deemedmost appropriate for the project activity, taking into account any guidance by the EB, and justifythe appropriateness of their choice:(a) Existing or historical, as applicable, changes in carbon stocks in the carbon pools within theproject boundary;(b) Changes in carbon stocks in the carbon pools within the project boundary from a land usethat represents an economically attractive course of action, taking into account barriers toinvestment;(c) Changes in carbon stocks in the pools within the project boundary from the most likely landuse at the time the project starts.AdditionalityThe issue of additionality has been discussed in Chapter 4 for normal CDM. The majorguidance given by the EB so far can be seen in Annex 1 to EB 10 (tools for demonstratingadditionality) and the tool for the demonstration and assessment of additionality which wasagreed at EB 16 (see more details in Chapter 4).The concepts of additionality in A/R CDM and normal CDM project activities are similar anddefined in A/R CDM M&P as follows:“The proposed A/R CDM project activity is additional if the actual net GHG removals by sinksare increased above the sum of the changes in carbon stocks in the carbon pools within theproject boundary that would have occurred in the absence of the registered A/R CDM projectactivities.”86

5. Afforestation or reforestation project activity under the CDM(A/R CDM project activity)5.3.4 Section C. Application of a monitoringmethodology and of a monitoring planIn the monitoring section, project participants describe, according to the monitoringmethodology they selected, methods of collecting and archiving of data necessary forestimating net GHG removals by sinks. The result of monitoring will be used to calculate thedifference between GHG removals in baseline scenario and• C.3.1.1. Data to be collected or used in order to monitor the verifiable changesin carbon stock in the carbon pools within the project boundary resulting from theproposed A/R CDM project activity, and how this data will be archived:Project participants need to archive monitored data for 2 years following the end of the (last)crediting period.When archiving data, header of tables and titles of columns should not be modified andcolumns should not be deleted. If necessary, add rows at the bottom of the table.5.3.5 Section D. Estimation of netanthropogenic GHG removals by sinksProject participants fill out Section D. based on selected baseline and monitoringmethodologies.• D.1. Estimate of the actual net GHG removals by sinksProject participants provide estimated sum of verifiable changes in carbon stocks, minusthe increase in emissions by the sources that are increased as an attributable result of theimplementation of the proposed A/R CDM project activity within the project boundary (foreach gas, pool, source, formulae/algorithm, in units of CO 2 equivalent).• D.2. Estimated baseline net GHG removals by sinksEstimates should be given for each carbon pool, source, in units of CO 2 equivalent.• D.3. Estimated leakageProject participants provide estimate of any leakage, defined as: the increase ofanthropogenic emissions by sources of GHG which occurs outside the project boundary,and that is measurable and attributable to the proposed A/R CDM project activity. Estimatesshould be given for each gas, source, in units of CO 2 equivalent.• D.4. The sum of D.1 minus D.2 minus D.3 representing the net anthropogenic GHGremovals by sinks of the proposed A/R CDM project activity:The net anthropogenic GHG removals by sinks are calculated as shown in Figure 12below.87

5.3 Technical aspects of items covered in CDM-AR-PDD Figure 12: Calculation of the net anthropogenic GHG removals by sinks5.3.6 Addressing non-permanence2,500 3,000 2,000 1,000 1,000 2,500 3,000 2,000 -1,000 -2,500 -3,000 1,000 2,500 3,000 * Note: The concerned Party shall transfer one AAU, CER, ERU, RMU or tCER to thetCER replacement account of the current commitment period.(A/R CDM M&P)88

5. Afforestation or reforestation project activity under the CDM(A/R CDM project activity)The issue of non-permanence arises from nature of GHG removals in forest. Unlikeemission reductions, they may be released back into the atmosphere in an occasion of forestfires, die back from pests or even harvesting.The issue of non-permanence should be addressed, therefore, through two differentcrediting systems as introduced earlier in the Section 5.3.2 named tCER and lCER.To illustrate the differences between the two, a hypothetical project case will be givenin Figure 13. Each graph has the same changes in net anthropogenic GHG removals whileissuance of the credits is different reflecting the differences between tCERs and lCERs. Theassumptions made here are:- Commitment periods would be of 5-year interval after the first commitment period- Credits would be used (and retired) for achieving the target of a Party- Replacement of the credits expired would be done by the concerned Party (thissituation would vary among countries to countries and the project participantsthemselves may be held responsible for replacement).Each lCER shall expire at the end of the crediting period at the end of the last creditingperiod of the project activity. Each tCER shall expire at the end of the commitment periodsubsequent to the commitment period for which it was issued.1,500 500 1,000 1,000 1,0002,500 1,000 1,000 1,500 500 -1,000 -2,000 2,000 * Note: The concerned Party shall transfer one AAU, CER, ERU or RMU to the lCER replacementaccount for the current commitment period.Figure 13: differences between tCER and lCER89

5.3 Technical aspects of items covered in CDM-AR-PDD5.3.7 Environmental and socio-economicimpacts of A/R CDM project activities•E.1. Documentation on the analysis of the environmental impacts, including impactson biodiversity and natural ecosystems, and impacts outside the project boundary ofthe proposed A/R CDM project activity:This analysis should include, where applicable, information on:- hydrology,- soils,- risk of fires,- pests and diseases.(Project participants attach the relevant documentation to the CDM-AR-PDD)• F.1 Documentation on the analysis of the socio-economic impacts, including impactsoutside the project boundary of the proposed A/R CDM project activity:This analysis should include, where applicable, information on:local communities,indigenous peoples,land tenure,local employment,food production,cultural and religious sites, andaccess to fuelwood and other forest products.(Please attach the documentation to the CDM-AR-PDD)As briefly mentioned earlier, small-scale A/R CDM project activities are those that areexpected to result in net anthropogenic GHG removals by sinks of less than 8 kilotonnes ofCO 2 per year and are developed or implemented by low-income communities and individualsas determined by the host Party.If a small-scale afforestation or reforestation project activity under the CDM results in netanthropogenic GHGs removals by sinks greater than 8 kilotonnes of CO 2 per year, the excessremovals will not be eligible for the issuance of tCERs or lCERs.Simplified methodologies are currently developed for small-scale A/R CDM projectactivities. These will be made available to project participants who plan to developsmall-scale A/R CDM, and they would be able to use simplified modalities to reducetransaction costs of developing new methodologies.90