Clean Development Mechanism Handbook for Armenia Handbook for Armenia October 2006 September 2006
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The European Union’s TACIS programme for Eastern Europe, the Caucasus and Central Asia Clean Development Mechanism Clean Development Mechanism Handbook for Armenia Handbook for Armenia October 2006 September 2006 A project implementedA project implementedby by A project implemented by Fichtner-FraunhoferFichtner-Fraunhofer ISI-Linden -CESI ISI-Linden Consortium -CESI Con CDM Handbook Armenia_FINAL Oct 2006_English.doc Fichtner-Fraunhofer ISI-Linden -CESI Consortium Contact details For Part I Sarweystraße 3 • 70191 Stuttgart Postfach 10 14 54 • 70013 Stuttgart Germany Tel.: ++49 (0) 7 11 89 95 - 0 Fax: ++49 (0) 7 11 89 95 - 459 Contact person: Simone Ullrich Extension: -327 E-mail: [email protected] For Part II Ministry of Nature Protection of the Republic of Armenia Government Building #3, Republic Square Yerevan 375010, Republic of Armenia Tel.: ++ 37 410 - 521099, 583934 Fax.:++ 37 410 - 583933 E-mail: [email protected] Web: www.mnp.am Contact person: Artem Kharazyan Extension: + 37410 58 39 34 E-mail: [email protected] CDM Handbook Armenia_FINAL Oct 2006_English.doc Published October 2006 Copyright 2006 by EuropeAid, European Commission Enquiries concerning reproduction should be sent to the Tacis Information Office, European Commission, 170 Rue de la Loi, B-1049 Brussels This report has been prepared by the Fichtner/Linden/Fraunhofer ISI/CESI Consortium. The findings, conclusions and interpretations expressed in this document are those of the Consortium alone and should in no way be taken to reflect the policies or opinions of the European Commission. The images on the cover page: top left: Ararat-mountain; top right: Mika-Cement Plant (CDM Project in planning); bottom left: Yerevan HPP (CDM Project in planning); bottom right: Afforestation Project in Armenia (in planning). CDM Handbook Armenia_FINAL Oct 2006_English.doc FOREWORD This CDM Handbook compiles internationally available and recent information regarding the implementation of Clean Development Mechanism (CDM) projects. It has brought together leading CDM political, technical, financial and legal expertise from the project Consortium team members. The intention of the CDM Handbook is to provide project developers in the Republic of Armenia with information and advise on how to identify, develop and manage CDM projects. This handbook was developed by Fichtner - Fraunhofer ISI - Linden - CESI Consortium in close cooperation with the Armenian Office in the framework of the EuropeAid project on «Technical Assistance to Armenian, Azerbaijan, Georgia and Moldova with respect to their Global Climate Change Commitments» Regional Project. The Armenian project team would like to express its gratitude to the following experts who provided a number of articles to the development of the second part of the handbook: Astghine Pasoyan, Mikhail Vermishev, Norik Manoukyan, Artur Gevorgyan, and Ruzanna Ghazaryan. We would like to specially thank Ms. D Harutyunyan for her assistance in coordination of efforts directed towards the handbook development, provision of information support, contribution to editing and proofreading of all the manuscripts. We would like to express our gratitude to Mr. Aram Gabrielyan, Head of Environmental Protection Department of the Ministry of Nature Protection of Armenia and UNFCCC National Focal Point, for his valuable comments and recommendations which have made this handbook an informative tool introducing project developers, investors, stakeholders, decision makers and the general public to the process of CDM development in Armenia, as well as informing on legislative and institutional norms that promote and regulate this process. The present CDM Handbook for the Republic of Armenia is available in English and Armenian language. The Handbook is divided into two major parts. Part I : General Information on CDM Projects Part I comprises general information on the legal framework and operational climate change issues such as the United Nations Framework on Climate Change Convention, the Kyoto Protocol, the Marrakech Accords, and the CDM. It further elaborates on the CDM project cycle, stakeholders involved and their mutual interactions. Further, information is provided on how to develop a CDM project for both broad project categories: greenhouse gas mitigation projects in the energy, waste and industrial sector and carbon sequestration projects. Most of the guidance for CDM project development refers to the modalities and procedures for the CDM that were drafted by the Conferences of Parties (CoP) of the United Nations Framework Convention on Climate Change (UNFCCC) and have been CDM Handbook Armenia_FINAL Oct 2006_English.doc adopted by the MoP. Further guidance is made available through the CDM Executive Board. Relevant reference material for CDM project developers is explained in more detail and sources for receiving further information are provided. Finally, Part I provides also a discussion on the current Carbon Market, CER prices, risks and legal issues such as Emission Reduction Purchase Agreements (ERPAs), CER registries and transfer possibilities. Part II: Country Information for the Republic of Armenia Part II provides the reader with rather country specific information regarding the greenhouse gas situation in various sectors. CDM project potentials are identified in the country. The section also elaborates on the institutional arrangements of the CDM to receive governmental CDM project approval. In addition, CDM projects that are currently under development in the Republic of Armenia are included to illustrate practical experience with the CDM to date. Annexes The CDM Handbook includes a Glossary that contains explanation of commonly used terminology in the CDM and that is referred to in the Handbook. Further, two example ERPAs are included (in English version only) for information. Finally reference for further readings and contact details of the DNA are provided. CDM Handbook Armenia_FINAL Oct 2006_English.doc Table of Contents Part I: General Information on Developing a Clean Development Mechanism Project 1. The Clean Development Mechanism 1-1 1.1 The purpose of CDM projects 1-1 1.2 Legal background 1-1 1.2.1 The Climate Change Convention 1-1 1.2.2 The Kyoto Protocol 1-1 1.2.3 The Marrakech Accords 1-2 1.2.4 The CDM Executive Board 1-2 1.3 CDM participation & project cycle 1-7 1.3.1 Key participants in CDM projects 1-7 1.3.2 Designated Operational Entity 1-9 1.3.3 Applicant entities (AE) 1-11 1.3.4 The CDM Project Cycle 1-11 1.3.4.1 Stage 1: Project development (PIN and PDD) 1-12 1.3.4.2 Stage 2: Host country project approval 1-13 1.3.4.3 Stage 3: Project validation and registration 1-13 1.3.4.4 Stage 4: Project implementation and monitoring 1-14 1.3.4.5 Stage 5: Verification, certification and issuance of CERs 1-14 1.4 Project categories 1-16 1.5 Contribution to sustainable development 1-18 1.5.1 Sustainable development criteria 1-18 1.5.2 Applying sustainable development criteria to projects 1-19 1.5.3 Steps to evaluate projects towards sustainable development 1-20 1.6 Project Additionality 1-21 1.6.1 The “Tool for the assessment of additionality” (for mitigation projects) 1-21 1.6.2 The Tool for the assessment of additionality (for afforestation/reforestation projects) 1-23 1.6.3 Tips for successful argumentation of additionality 1-27 1.7 Official Development Assistance (ODA) 1-27 1.8 Project and CDM Risks 1-28 1.8.1 Overview of risks 1-28 CDM Handbook Armenia_FINAL Oct 2006_English.doc 1.8.2 Risk mitigation measures 1-29 2. Calculation of greenhouse gas emission reductions and project monitoring 2-1 2.1 GHG mitigation projects to reduce sources of GHG 2-1 2.1.1 Small-scale CDM mitigation projects 2-1 2.1.2 Large scale CDM mitigation projects 2-2 2.2 GHG sequestration projects 2-5 2.2.1 Small scale afforestation and mitigation projects 2-6 2.2.2 Large scale afforestation and reforestation projects 2-7 2.3 Proposing a new baseline and monitoring methodology 2-8 2.3.1 New methodologies for mitigation projects 2-8 2.3.2 New methodologies for A/R projects 2-9 2.4 Quantifying GHG emissions by sources 2-9 2.4.1 Project boundary 2-9 2.4.2 GHG emission factors 2-10 2.4.3 Global Warming Potential 2-11 3. Project financing, costs and value of CERs 3-1 3.1 Transaction costs 3-1 3.2 Securing project & carbon finance 3-3 3.2.1 Project financing 3-3 3.2.2 International Carbon financiers 3-4 3.2.3 Private Carbon buyers 3-4 3.3 Impact of CER sales on project financing 3-9 3.4 The Value of CERs and price evolution 3-9 4. Legal Issues in the CDM 4-1 4.1 The international legal framework 4-1 4.1.1 Legal Status of the Kyoto Protocol 4-1 4.1.2 Compliance with the Kyoto Protocol (Marrakech Accords) 4-2 4.2 Domestic law Issues 4-4 4.3 Legal Issues in the development of a CDM Project 4-4 4.4 Legal Arrangements 4-7 4.4.1 The entitlements to create legal ownership of CERs 4-7 4.4.2 Legal Nature of CERs 4-8 CDM Handbook Armenia_FINAL Oct 2006_English.doc 4.4.3 Taxation 4-11 4.5 CER Transactions 4-11 4.5.1 Contractual Arrangements 4-12 4.5.1.1 Emission Reduction Purchase Agreements (ERPAs) 4-12 4.5.1.2 Comparison of ERPAs – Lessons learnt 4-14 4.5.1.3 Risk sharing and CER price determination 4-18 4.5.2 The CDM Registry 4-19 4.5.2.1 Trading/transfer arrangements 4-21 4.5.2.2 The International Transaction Log 4-22 4.5.2.3 The case of unilateral CDM projects 4-22 4.5.2.4 The European Union Emissions Trading Scheme (EU-ETS) 4-22 5.