Companies that are interested in developing projects that reduce their greenhouse gas (GHG) emissions can also benefit from registering their projects on a carbon market. By registering a carbon project on a carbon market companies can earn carbon credits that can be sold to other organisations that want to offset their emissions. The income earned from selling the credits can be invested back into the company. This article will provide an overview of how to register a carbon project in South Africa.
Carbon projects are projects in developing countries that aim to reduce carbon emissions and sell carbon credits that result from the savings made. In order for a carbon project to earn carbon credits, the project must be registered on either a mandatory market, such as the Clean Development Mechanism (CDM) or voluntary market. This article will provide an overview of how to register a carbon project on the mandatory market.
There are two different markets that carbon projects can be registered in, the mandatory market and the voluntary market. Carbon projects within the mandatory market are regulated under the Kyoto Protocol. The mechanism for managing carbon credits in the mandatory market in South Africa is the Clean Development Mechanism (CDM). The voluntary market allows for companies and individuals to trade carbon offsets on a voluntary basis and is targeted at smaller projects that do not have the capital to register on the mandatory market.
Registering a project in the mandatory market is a longer process but higher prices can be obtained for the carbon credits.
Types of carbon projects that can be registered
The types of carbon projects that can be registered on the mandatory market include carbon sequestration projects, renewable energy, energy efficiency, methane recovery and fuel switching. More information on the types of projects that can be registered can be found here.
Process for CDM Project Registration
The following parties are involved in the registration process of a CDM project in South Africa as required by the United Nations Framework Convention on Climate Change (UNFCCC):
The CDM Executive Board:
The CDM Executive Board oversees the operation of the CDM and is responsible for the following:
a. Approval and registration of CDM projects
b. Issuing carbon credits in the mandatory market
c. Approval of new baseline methodologies
d. Maintaining a CDM project registry
e. Accrediting Designated Operational Entities
The Designated Operational Entity (DOE):
The DOE is an independent verification/validation party whose role is to check that the project meets the CDM requirements. DOE’s must be accredited by the UNFCCC and a list of accredited DOE’s can be found on the UNFCCC’s CDM website. A list of South African DOE’s can be found here.
The Designated National Authority (DNA):
All countries that participate in the CDM are required to allocate a national authority, a DNA. The DNA’s role is to assess and approve CDM projects prior to the registration of the project with the UNFCCC. In South Africa the DNA is the Department of Energy. The Department of Energy has a number of useful guideline documents and application forms on its website for the South African context. The Department of Energy can be emailed on DNA@energy.gov.za
The Project Developer:
The Project Developer is the initiator of the carbon project.
The CDM Project Cycle
In order to register a CDM carbon project on the mandatory market the following steps, also known as the project cycle, need to be followed in South Africa:
1. Prepare a Project Idea Note (PIN): A PIN is not a requirement by the CDM but is useful as any issues with the project idea can be spotted early by the DNA (The Department of Energy in South Africa). The PIN is a voluntary document that outlines the carbon project and includes information on the anticipated emission reductions, additionality, contributions to sustainable development and the financials of the project. The PIN is submitted to the DNA (The Department of Energy in South Africa) for voluntary screening and assistance. An application form can be found here.
2. Prepare a Project Design Document (PDD): The development of a PDD is the first required step in the CDM process. The PDD is a more detailed description of the carbon project and includes the volume of emission reductions that are expected over a set period. The PDD should include an approved baseline, an approved methodology for calculating emission reductions, the project’s duration and credit period, the environmental impact of the project and any comments made by stakeholders. The methodology identified in the PDD must be a methodology approved by the CDM Executive Board. A list of approved methodologies can be found on the UNFCCC website. New methodologies can be added to this list but are extremely costly to develop. The PDD is submitted to the DNA (The Department of Energy in South Africa) for authorisation. An application form can be found here.
3. Submit the PDD to the DNA: The PDD must be submitted to the DNA (The Department of Energy in South Africa) for authorisation. The DNA places the PDD on its website for public consultation for 30 days. The DNA then evaluates the PDD and the comments and sends its recommendations to a steering committee for further comments. Once recommendations are collected the DNA makes a final recommendation to the Director General regarding the approval of the project. If approved the Project Developer will receive a letter of approval. The timeframe for this step should not exceed 45 working days. If the project is not approved the project developer may appeal the decision.
4. Submit the PDD to a DOE: At the same time that the PDD is submitted to the DNA, it should be submitted to a DOE that has been accredited by the United Nations for validation. A list of South African DOE’s can be found here.
5. Register the project with the CDM: Once the carbon project has been approved by the DNA and validated by an accredited DOE, the project developer applies to register the project with the CDM Executive Board. The CDM Executive Board makes a decision whether to officially register the project or not.
6. Monitoring the carbon project: After the project has been registered on the CDM registry the implementation and monitoring of the project begins. The Project Developer needs to prove that the carbon savings predicted in the PDD are valid for the period identified. Effective record keeping is necessary to enable projects to be audited.
7. Verification by a DOE: After a set period, usually a year, a DOE will conduct an audit of the carbon project to determine the carbon emission savings that have been made for the period.
8. Issuing of Certified Emission Reduction Credits: Once the verification has been completed the CDM Executive Board will issue the certified emission reduction credits in the form of certificates that can be traded under the CDM.
A number of forms required for the above process can be found on the UNFCCC’s CDM website and on the Department of Energy’s website. Registering a CDM project can be costly and time-consuming. Furthermore if an Environmental Impact Assessment is required, this can add on more costs. Therefore it is advised that a pre-feasibility study is done by a consultant to determine whether the carbon project will in fact achieve carbon savings, if it will be able to cover costs, and if it is worth submitting. More information on the CDM process can be found on the UNFCCC’s website and on the Department of Energy’s website.
Process for Voluntary Market Project Registration
Registering a carbon project in the voluntary market involves fewer steps, fewer parties and lower costs. The down side is that lower prices for the carbon credits are achieved. In addition it is difficult for a buyer to determine whether the carbon emission reduction stated has taken place. Therefore many sellers of carbon credits get their credits verified by a third party or subscribe to a voluntary standard. More information on the different voluntary standards can be found here.
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