Offset Project Eligibility
Table 3 shows offset eligibility requirements for each offset system or program. These requirements reflect the specific context and objectives of each system. Restrictions on project location or type are usually defined as to direct offset investments to favored regions, project types or technologies. Some offset programs and standards also include environmental and social objectives – commonly referred to as co-benefits or secondary benefits -- as project eligibility criteria.
In general, offset programs tend to focus on either encouraging regional investment in developed nations or supporting sustainable development and providing financial flows to developing economies. While sustainable development and technology transfer to developing countries was an explicit design goal of the CDM and the Kyoto Protocol, many of the regional and provincial mandatory compliance programs outside the Kyoto Protocol prefer to maintain benefits and build support through investment in local or regional communities and enterprises.
Project Location
Table 3 shows the eligible project locations but not the distribution of offset project activities to date under each program. The distribution of project locations and project types reflects not only where market opportunities lie (e.g. the supply of low-cost emission reductions), but also the capacity of national and local institutions to engage in the offset market, as well as the transaction costs and other barrier they may face. For instance, in the CDM 84% of offset project transactions in 2008 were for projects located in China, but only 4% in India, 5% in Latin America, 2% in Africa and 4% in the rest of Asia (Capoor and Ambrosi, 2009). China has an increasingly well-developed infrastructure for developing and approving offset projects and and also had abundant low-cost opportunities to reduce the emission of so-called high global warming impact ‘industrial gas’, in particular HFC-23 and N20 produced as the unwanted by-products of refrigerant and chemical manufacturing, respectively. In recent years, China increasingly has added renewable energy projects to its CDM portfolio: of the 800 Chinese projects entered the CDM pipeline since January 2008, the largest volumes of annual emission reductions have come from hydro and wind projects. Yet, wind and hydro project in China face increasing scrutiny over their additionality claims.
In the voluntary market, 45% of all offsets sold in 2008 originated from projects located in Asia and 28% from projects located in North America (Hamilton et al, 2009).
Project Type
Whereas offsets from industrial gas projects have dominated the CER market up until 2006, their market share has dropped significantly in 2007 and are now virtually absent from the primary markets. With 45% of CER volumes renewable energy is currently the largest project type in the CDM, followed by energy and fuel switching (37%) (see Figure 2.3). Less common offset project types include, among others, methane capture and biological carbon sequestration – ranging from forestry and agricultural activities to avoided land use change (Capoor and Ambrosi, 2009).
In the voluntary market (excluding CCX transactions), offsets from renewable energy projects also dominated the market in 2008 with over half the market share, followed by, landfill methane (16%) and bio-sequestration projects (16%) (see Figure 2.4) (Hamilton et al 2009).
Figure 2.3 CDM Market: Total Volume traded in 2008: 552 MtCO2e
(Capoor and Ambrosi, 2009)
Figure 2.4 Voluntary Market: Total Volume traded in 2008 (excluding CCX): 54 MtCO2
(Hamilton et al, 2009)
Bottom-up or Top-down Approaches
In addition to the relative cost of implementing projects, the availability of program-approved methodologies for quantifying emission reductions or removals is a key determinant of the mix of project types in the market today. In general, offset programs have developed two different approaches to determining offset project-type eligibility. At one end is the bottom-up approach used under the CDM, where project types are considered, as submitted by the project developers, and approved if deemed adequate by the administrative body or program authority (CDM Executive Board, CDM EB). At the other end is a top-down approach, such as that taken by RGGI which spelled out in its ‘Memorandum Of Understanding and Model Rule’ precisely which project types would be eligible, and which methodologies applicable, from the outset of the project (although other project types would be considered).
Project Start Date
The project start dates listed in Table 3 refer to the cut-off date for project commencement. In principle, a project type that has commenced prior to the start date would be considered ineligible, although precise definitions of start-up vary among programs. The typical rationale for setting a start date is to help to ensure that offset programs actually lead to a project happening, that is, that they are additional. Therefore, the project start date is generally linked to the timing of the launch of the overall offset program. The start dates of some programs, such as the CCX, predate the start of the offset program launch and reflect the grandfathering of offset credits created through other certification programs (e.g., RECs).