CLEAN DEVELOPMENT MECHANISM- INTERIM APPROVAL CRITERIA

1. Purpose

The purpose of the clean development mechanism (CDM) is defined in Article 12 of the Kyoto Protocol to the United Nations Framework Convention on Climate Change. The CDM has a two-fold purpose: (a) to assist developing country Parties in achieving sustainable development, thereby contributing to the ultimate objective of the Convention, and (b) to assist developed country Parties in achieving compliance with part of their quantified emission limitation and reduction commitments under Article 3. Each CDM project activity should meet the above two-fold purpose.

2. Eligibility:

The project proposal should establish the following in order to qualify for consideration as CDM project activity:

Additionalities:

• Emission Additionality: The project should lead to real, measurable and long term GHG mitigation. The additional GHG reductions are to be calculated with reference to a baseline.

• Financial Additionality: The funding for CDM project activity should not lead to diversion of official development assistance. The project participants may demonstrate how this is being achieved.

• Technological Additionality: The CDM project activities should lead to transfer of environmentally safe and sound technologies and know how.

3. Sustainable Development Indicators:

It is the prerogative of the host Party to confirm whether a clean development mechanism project activity assists it in achieving sustainable development. The CDM should also be oriented towards improving the quality of life of the very poor from the environmental standpoint.

Following aspects should be considered while designing CDM project activity:

1. Social well being: The CDM project activity should lead to alleviation of poverty by generating additional employment, removal of social disparities and contribution to provision of basic amenities to people leading to improvement in quality of life of people.
2. Economic well being: The CDM project activity should bring in additional investment consistent with the needs of the people.
3. Environmental well being: This should include a discussion of impact of the project activity on resource sustainability and resource degradation, if any, due to proposed activity; bio-diversity friendliness; impact on human health; reduction of levels of pollution in general;
4. Technological well being: The CDM project activity should lead to transfer of environmentally safe and sound technologies with a priority to the renewables sector or energy efficiency projects that are comparable to best practices in order to assist in upgradation of technological base.

4. Baselines: The project proposal must clearly and transparently describe methodology of determination of baseline. It should confirm to following:

• Baselines should be precise, transparent, comparable and workable;
• Should avoid overestimation;
• The methodology for determination of baseline should be homogeneous and reliable;
• Potential errors should be indicated;
• System boundaries of baselines should be established;
• Interval between updates of baselines should be clearly described;
• Role of externalities should be brought out (social, economic and environmental);
• Should include historic emission data-sets wherever available;
• Lifetime of project cycle should be clearly mentioned;

The baseline should be on project by project basis except for those categories that qualify for simplified procedures. The project proposal should indicate the formulae used for calculating GHG offsets in the project and baseline scenario. Leakage, if any, should be described. For the purpose of Project Idea Notes (PIN), default values may be used with justification. Determination of base project which would have come up in absence of proposed project should be clearly described in the project proposal.

4.Financial Indicators:

The project participants should bring out the following aspects:

• Flow of additional investment
• Cost effectiveness of energy saving

• Internal Rate of Return (IRR) without accounting for CERs
• IRR with CERs
• Liquidity, N.P.V., cost/benefit analysis, cash flow etc establishing that the project has good probability of eventually being implemented
• Agreements reached with the Stakeholders, if any, including power purchase agreements, Memorandum of Understanding etc.

• Inclusion of indicative costs related to validation, approval, registration, monitoring and verification, certification, share of proceeds

• Proposal should indicate funding available, financing agency and also describe as to how financial closure is sought to be achieved

5. Technological Feasibility:

• The proposed technology/process
• Product/technology/material supply chain
• Technical complexities, if any
• Preliminary designs, schematics for all major equipment needed, design requirement, manufacturers name and details, capital cost estimate
• Technological reliability
• Organizational and management plan for implementation, including timetable, personnel requirements, staff training, project engineering, CPM/PERT-Chart etc.

6. Risk Analysis

The project proposal should clearly state risks associated with a project including apportionment of risks and liabilities; insurance and guarantees, if any.

7. Credentials: The credentials of the project participants must be clearly described.