Specific methodological issues
The Executive Board has provided specific guidance on a number of methodological issues, as set out below.
"Transparent and conservative"
3/CMP.1, Annex, paragraph 45(b) clarifies that a baseline must be established in a "transparent and conservative manner". The Executive Board has clarified the meaning of 'transparent and conservative' in the context of baseline methodologies. 'Transparent' means:
... that assumptions are explicitly explained and choices are substantiated (EB 41, Annex 12, Part III, paragraph 4).
'Conservative' means that:
In case of uncertainty regarding values of variables and parameters ... the resulting projection of the baseline does not lead to an overestimation of emission reductions attributable to the CDM project activity (that is, in the case of doubt, values that generate a lower baseline projection shall be used) (EB 41, Annex 12, Part III, paragraph 4).
Baseline values shall be linked to output, unless it can be demonstrated that this is not appropriate:
An output- or product-linked definition of baseline values (i.e. CO2e per unit of output) shall be applied, unless the project participants can demonstrate why this is not applicable and provide an appropriate alternative (EB 41, Annex 12, Part III, paragraph 4).
Using life-cycle analysis
Where lifecycle analysis (LCA) is intended to be used to estimate emission reductions from a project activity using the methodology, project participants must provide all equations, parameterisations and assumptions used to calculate baseline and monitoring methodologies:
When referring to and/or making use of lifecycle analysis (LCAs) and/or LCA tools, project participants shall in a transparent manner provide all equations, parameterizations and assumptions used in the LCA and/or LCA tools to calculate baseline and monitoring methodologies. For example, this could be accomplished by highlighting the relevant sections in an attached copy of the referenced LCA and/or tool (EB 41, Annex 12, Part III, paragraph 4).
Ex post calculation of baselines
Baselines are typically calculated ex ante, as a forecast of hypothetical future greenhouse gas emissions. Ex post calculation of baselines, that is after the period represented by the baseline has occurred, is permitted in some circumstances:
The ex post calculation of baseline emission rates may only be used if proper justification is provided. Notwithstanding, the baseline emission rates shall also be calculated ex-ante and reported in the draft CDM-PDD in order to satisfy the requirements for identification of the elements of a baseline methodology agreed by the Executive Board at its eighth meeting (EB 41, Annex 12, Part III, paragraph 4).
Life-cycle and retrofitting
Specific guidance is offered on the treatment of the lifetime of plant and equipment and the potential for retrofitting:
- 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 the extent 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, a different baseline shall apply. (EB08)
- Where a project activity involves the replacement or retrofit of existing equipment or facilities, project participants should take into account that the existing equipment could have been replaced, retrofitted or modified in the absence of the project during the crediting periods. In this case, a baseline methodology should provide a methodological approach to assess whether the existing equipment would in the absence of the CDM be replaced and, if this is the case, to reflect this in the calculation of emission reductions the replacement, retrofit or modification of the equipment in the absence of the CDM.
- For a number of project types, it is reasonable to assume that after replacement or retrofit of the existing equipment in the absence of the project activity, the emission level would be similar to that of that of the project activity.
- In this case, emission reductions resulting from a specific equipment replacement shall only be accounted from the date of replacement until the point in time when the existing equipment would have been replaced in the absence of the project activity or the end of crediting period, whatever is earlier.
- In order to estimate the point in time when the existing equipment would need to be replaced in the absence of the CDM, a new methodology may consider the following approaches:
- A sector and/or activity specific method or criteria to determine when the equipment would be replaced or retrofitted in the absence of the CDM;
- The typical average technical lifetime of the type equipment may be determined and documented, taking into account common practices in the sector and country, e.g. based on industry surveys, statistics, technical literature, etc.;
- The practices of the responsible entity regarding replacement schedules may be evaluated and documented, e.g. based on historical replacement records for similar equipment.
- The point in time when the existing equipment would need to be replaced in the absence of the project activity should be chosen in conservative manner.
- In case of project activities that involve several replacements or retrofits, project participants may consider, inter alia, the following generic approaches:
- Determination of the technical lifetime on a case by case basis, for each equipment or equipment type that is being replaced. This approach may be appropriate if different types of existing equipment are involved; or
- Assuming a conservative default technical lifetime for all equipment involved; or
- For projects involving a large number of individual equipment installations, methodologies may use a baseline that reflects the expected improvements in emission characteristics (for the equipment type within the sector or industry in question) as a result of replacements or retrofits of equipment in the absence of the project activity (EB 41, Annex 12, Part III, paragraph 4).
Where multiple regression analysis is used to estimate baseline emissions or project emissions, the Executive Board has clarified that certain safeguards must be used in order to ensure the conservativeness and rigour of the fitted regression model:
- In the process of fitting the regression, assumptions and requirements for regression models should be considered e.g. testing for multicollinearity;
- Independent variables that are likely to influence the dependent variable in question should be accounted for. Technical background information that may support the selection of such variables should be provided with the methodology for the review of the panel;
- Testing for statistical significance for all independent variables should be done. Independent variables which are statistically significant at 95% confidence level should be selected in the regression model;
- If the time series data is used to fit the regression, autocorrelation should be tested. In case autocorrelation is found to be statistically significant, time series analysis should be used instead of regression (EB 41, Annex 12, Part III, paragraph 4).
Negative emission reductions
Project activities may temporarily result in "negative emission reductions", as a result of under-performance or greater than expected leakage. The Executive Board has provided the following guidance on this circumstance:
In some cases and for some methodologies, project activities may temporarily result in "negative emission reductions" in a particular year, for example due to poor performance or due to leakage effects outweighing emission reductions. In these cases, proposed new methodologies should stipulate that if a project activity temporarily results in "negative emission reductions", i.e. baseline emissions minus project emissions minus leakage effects are negative, any further CERs will only be issued when the emissions increase has been compensated by subsequent emission reductions by the project activity (EB 41, Annex 12, Part III, paragraph 4).
Changes in carbon pools
The following approaches towards changes in carbon pools due to CDM project activities should be adopted:
- Where a project activity, which does not seek to obtain tCERs or lCERs from afforestation or reforestation project activities, may directly or indirectly results in a net decrease of carbon pools compared to what would occur in the absence of the project activity, such changes should be taken into account in the calculation of emission reductions subtracting the corresponding quantities from emission reductions;
- Where a project activity, which does not seek to obtain tCERs or lCERs from afforestation or reforestation project activities, may directly or indirectly results in a net increase of carbon pools compared to what would occur in the absence of the project activity, this increase should not be taken into account in the calculation of emission reductions;
- Where a project activity does seek to obtain tCERs or lCERs from afforestation or reforestation project activities, this activity should be treated as a separate project activity and shall fulfil the modalities and procedures for afforestation and reforestation activities under the CDM (EB 41, Annex 12, Part III, paragraph 4).
Treatment of uncertainty
Where there is uncertainty in relation to assumptions and procedures, this should be explicitly stated:
State clearly which assumptions and procedures that have significant uncertainty associated with them, and how such uncertainty is to be addressed. Describe the uncertainty of key parameters and, where possible, provide an uncertainty range at 95% confidence level for key parameters for the calculation of emission reductions. Methodology developers are also encouraged to refer to chapter 6 of the IPCC Good Practice Guidance and Uncertainty Management in National Greenhouse Gas Inventories for more Guidance on analysis of uncertainty (EB 41, Annex 12, Part III, paragraph 4).
This approach has been specifically affirmed for methodologies employing sampling:
Methodologies employing sampling to derive parameters in estimating emissions reductions shall quantify these parameter uncertainties at the 95% confidence level. In addition, the choice of the upper or lower bounds to be used in estimating emission reductions shall be conducted in a manner that ensures conservativeness (EB 41, Annex 12, Part III, paragraph 4).
Leakage is defined as the net change of anthropogenic emissions by sources of greenhouse gases (GHG) emissions occurring outside the project boundary that is measurable and attributable to the implementation of the CDM project activity. Identify the sources of leakage. Explain which sources of leakage are to be calculated, and which can be neglected (EB20 Annex 2). Even if the calculation of the leakage is to be performed ex post, the procedure should include the calculation of an ex ante estimate (EB 41, Annex 12, Part III, paragraph 4).
Avoiding double-counting in biofuel projects
At EB 26, the Executive Board provided guidance on how to avoid the double-counting of emission reductions that could occur in project activities if both biofuel production and biofuel use are eligible to generate CERs. Eligible biofuels projects include:
- The consumption (end-use) of biofuels where this displaces fossil fuel consumption; and
- The production of biofuels, provided that:
- the consumers, to whom the biofuel is sold, are included in the project boundary; and
- the emissions reduction from use of biofuel are estimated based on monitored consumption by the consumers included within the project boundary.
EB 26, Annex 12 clarifies that:
- Biofuel production, where the biofuel is exported to Annex I countries, is not eligible to claim CERs under the CDM.
- Emissions associated with the production of the biomass used to produce the biofuel must be accounted for when calculating emissions achieved by the project activity, unless it is using biomass originating from a registered afforestation/reforestation project activity.
- For producers, the methodology must provide a monitoring framework (e.g. electronic logs) that can verify without doubt the actual amount of biofuel consumed by the end user for displacement of fossil fuels. The monitored consumption by the end-user is then the basis for calculating emission reductions.
For consumers, the methodology must provide an estimate of leakage which is measurable and attributable to the project activity.
Apportioning emissions from production processes between main product and co- and by-products
The Executive Board has provided specific guidance on the apportioning of emissions from a production process between the main product, the co-products, the by-products and the residues (waste) where the main product is produced and/or consumed/used in a CDM project activity. This guidance is contained in EB 56, Annex 9 and can be accessed here.
For example, the production of renewable biomass/biofuels often involve generation of co-products, by-products or residues (waste). In such cases, a procedure to apportion emissions, associated with the production of renewable biomass/biofuels, between the renewable biomass/biofuels, the co-products, and the by-products needs to be provided (EB 56, Annex 9, paragraph 2).
Executive Board has restricted the applicability of this document to the approved methodologies ACM0017 and AM0089 until further revisions are done by the Methodologies Panel (EB 50, paragraph 22, and EB 56, paragraph 27).
The guidelines provide that one of the following approaches to apportion emissions shall be used in the methodologies:
- Apportioning by market prices;
- Allocation by energy content;
- Attributing all emissions to the main product.
Criteria for each of the approaches are set out in the guidelines.
The Executive Board has requested the Meth Panel to provide further guidance on upstream emissions, and in particular:
- the definition of upstream emissions;
- the boundary for consideration of upstream impacts;
- definition of significance;
- the double accounting of emissions due to CDM project activities upstream of the project activity; and
- a clear definition of "causality" in identifying the relevant emission sources upstream of the project activity (EB 33, paragraph 28).
The Meth Panel is expected to report back on these issues in the near future.