Registering a carbon reduction project

In the concluding article on carbon trading, Sonja Burger finds out how agribusinesses can register carbon emission reduction projects and earn carbon credits.
Issue Date: 28 September 2007

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In the concluding article on carbon trading, Sonja Burger finds out how agribusinesses can register carbon emission reduction projects and earn carbon credits.

For most South Africans the concept of carbon trading is a mystery. How can something as ethereal as the tons of carbon dioxide (CO2) you do not release into the atmosphere be worth R150? can you spin the manure in your milking shed or rotting apricot waste at the co-op into gold?

How the system works
Carbon trading is regulated by the Kyoto protocol, which divides countries into Annex 1 and non-Annex 1 countries. Between developed Annex 1 countries, which include EU and non-countries that have ratified the Kyoto protocol, carbon credit trading takes place through the Joint Implementation (JI) mechanism. Should these countries’ industries emit more greenhouse gases than their allocated share, they have to buy credits (1 credit = 1t CO2 equivalent) from other Annex 1 countries, who pollute less than their share, to offset their carbon emissions. But Annex 1 polluters have another option: they can trade carbon credits with non-Annex 1 countries such as South Africa, China and India, who don’t have carbon caps because their economies are still developing. This trade takes place through the Clean Development Mechanism (CDM). The currency on the CDM is the certified emission reduction (CER). Thus, 1CER equals 1t of CO2 equivalent, worth some R150 on the market. It’s referred to as “equivalent” because there are other greenhouse gases, whose global warming potential is much higher than CO2. If 1t methane is released, for example, it has a global warming potential equivalent to 21t of I f you manage to capture the methane emitted from one cow’s manure, and use it to produce electricity, you’ll save roughly 3t of CO2 equivalent annually – worth about R450 at current CER market prices.

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The difference between CERs and VERs
But before you run for the nearest muck shovel, understand that getting CDM project certification for your carbon reduction activities is a time-consuming, administratively daunting process. It requires the advice of expert consultants and validators, whose services aren’t cheap. The process doesn’t end once you’ve gained certification. Annual validation is mandatory.
Every year you’ll have to buy international plane tickets and five-star accommodation for the validator from a designated operational entity (DOE) – Kyoto-accredited auditing firms who, bar one, are all based overseas.

Fortunately there’s an alternative – voluntary emission reduction projects (VERs). These projects are generally developed with the help of specialised local firms. They audit the business or farm and suggest emission reduction strategies and projects.

These projects are then audited by another VER company to verify their legitimacy. The currency of this system is called a voluntary emission reduction (VER). Like a CER, 1VER equals 1t CO2 equivalent. However, because VERs can’t be traded on the CDM, their monetary value is four times less than CERs, roughly R40 per VER. Yet buyers from all over the world queue up for affordable VERs and the administrative requirements are less demanding than for CERs. Because of the complexity of registering on the CDM, consider economies of scale when choosing this route. It’s definitely not viable for individual farmers, but could be a proposition for cooperatives or large-scale agribusinesses.

Individual farmers or small groups of farmers may prefer to investigate the viability of the VER route.

CDM registration
Companies that go the CDM route have to follow the following procedure:

Step 1:
Getting a PIN Submit a PIN – a project identification note – to the Designated National Authority (DNA) at the Department of Minerals and Energy (DME). The PIN form is available from the DNA in Pretoria or can be downloaded from their web site ( dna_documents2.stm). When you fill in the form, you’ll have to give a technical summary of the project and explain how it addresses the government’s sustainable development criteria, in terms of social and economic development, while conforming to the requirements of the National Environmental Management Act. PINs are sent to the DME, because CDM registration in terms of the Kyoto protocol can’t take place unless the host country gives approval. PINs are part of the initial screening process.

Step 2:
PIN evaluation The DNA evaluates the PIN against the sustainable development criteria (see each host country draws up. In terms of the Kyoto definitions these criteria should have two aims: to reduce emissions and promote sustainable development. For example, if you can show that your project captures methane, which is converted to electricity and used to light workers’ homes, you are fulfilling both aims. Alternatively, you could choose an indirect method, like allocating 20% of the money you earn from CERs to building a crèche on your farm.

Step 3:
PIN approval If the DNA is satisfied that your PIN meets with sustainable development criteria, it’s sent to the steering committee, which consists of members from different government departments, for example, trade and industry, agriculture and environment and tourism. The steering committee checks the PIN and, if satisfied that it’s viable, sends a letter to the director general recommending it be registered as a CDM project. An approved project is given the green light in a letter of “no objection” from the DG within 30 days.

Step 4:
Submitting a methodology Now the project design document (PDD) has to be filled in. This is a detailed document detailing the exact methodology the project will follow to reduce emissions. It’s important to understand the function of a methodology. No CDM project may be registered without a scientific methodology for cutting a specific activity’s emissions. This methodology is like a recipe that must be followed to the letter. Writing it for the first time can cost hundreds of thousands of rand, but once a methodology has been developed, it’s in the public domain and may be copied. Since the methodologies for small-scale projects relevant on farms have already been developed, that aspect of developing a CDM project doesn’t cost money. The PDD must include a report from a DOE who must verify the carbon emission reduction potential of the project. It should also include an environmental impact assessment report from the province in which the project will run.

Step 5:
Public comment The PDD lies for public comment on the DNA web site for 30 days.

Step 6:
Host country approval If the CDM Executive Board approves the PDD, host country approval is given.

Step 7:
UNFCCC approval The PDD is submitted for approval to the United Nations Framework Convention on Climate Change (UNFCCC’s) CDM Executive Board. If approved, it becomes an official CDM project.

Step 8:
Financial structuring The CDM allows industrialised countries with emission-reduction commitments to partially meet them by investing in projects in developing countries. These projects must reduce greenhouse-gas emissions while contributing to local sustainable development needs. Therefore, if finance is required, investors provide capital investment in the form of debt or equity at this stage. These investors may or may not be the carbon buyers who’ll pay for certified credits on delivery.

Step 9:
Implementation and operation The project is built, commissioned and begins operation.

Step 10:
Monitoring Project performance is measured by the project developer in the commissioning process and during on-going operation.

Step 11:
Third-party verification of project performance As an independent third party, a DOE verifies project performance against the validated design and baseline, in order to approve certification.

Step 12:
Certification and issuance Based on host country approval, the validated project design and baseline, and the verified project performance, CERs are certified by a DOE and issued by the CDM executive board.

The alternative: VERs
VER or voluntary emission reduction projects don’t go through the process of host country approval. In South Africa they therefore don’t have to be approved by the DME, although all country-specific legal requirements still apply. If you have an idea for a VER project, you should contact a VER project developer. These are usually the same people who facilitate CDM registration, and often CDM application and VER development run simultaneously.

While a project is waiting for CDM approval, it may reap the benefits of the VER process in the interim. VER projects also require an approved methodology. VER prices are negotiated per individual project with overseas buyers. The average price per VER ranges from R40 to R80 per ton of CO2 emission reduction. For more information contact Marco Lotz or Harmke Immink of Promethium on 086 122 7266, or e-mail [email protected] or [email protected]a. Contact the DNA 012 317-8227 or visit For a list of all registered agricultural CDM projects across the world, go to Click on “project search” and choose the “agricultural” category. |fw

CDM – Clean Development Mechanism
CER – Certified Emission Reduction.
DOE – Designated Operational Entity
DME – Department of Minerals and Energy
DNA- Designated National Authority
PIN – Project Identification Note
PDD – Project Design Document
UNCFFF – United Nations Framework Convention on Climate Change
VER – Voluntary Emission Reduction