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Steps to Implement a Carbon Offset Project
The general steps taken to develop carbon sequestration project depend in large part upon the type of project and/or policy regime that the project developer will follow. As noted, multiple national and regional climate change initiatives and policy regimes are under development that would allow a project developer to benefit from the carbon market.
CDM project cycle
If a project developer seeks to comply with the Kyoto Protocol, they can establish carbon offset projects through afforestation and reforestation activities. This is true whether the project developer chooses to use JI or CDM as their mechanism. As previously noted, JI projects are implemented between developed countries while CDM projects are carried out in developing countries with investors from developed countries. Unlike JI, the CDM sets out a very detailed process for project developers to follow, known as the project cycle. JI does not have to go through such a rigorous process. However, there are many similarities in the course of action. In both scenarios, project documents should be developed.
As national regimes depend on country-specific policies there is no one definitive project cycle, however project developers may want to use the project document guidelines provided for the CDM as a preliminary standard. Since the CDM has the most rigorous process, a project developer following those steps will have a high likelihood of abiding by other regimes, which will tend to be more lenient in approving carbon offsets.
The project cycle established by the Marrakech Accords for the CDM has five fundamental stages: design and formulation, national approval, validation/registration, monitoring, and verification/certification. The first three are performed before the implementation of the project. The last two are performed during the lifetime of the project.
The step-by-step methodology we recommend provides also for a pre-feasibility phase, which serves as an initial screening tool to evaluate if it is worth investing more money into a full feasibility study.
- Project Design and Formulation: Project formulation must follow the format established by the CDM Executive Board and the COP. however, for the meantime the Marrakech accords provide a clear guideline of information that should be included in the Project Design Document (PDD). An overview of those guidelines includes: a description of the project, a presentation of the baseline calculation, an explanation of how the project meets the additionality requirements, an environmental impact assessment, stakeholder comments, and a monitoring plan
- National Approval: Potential CDM projects must be approved by the national authority of the host country through the issuance of a Letter of Approval.
- Validation and registration: Validation is the process of independent evaluation of a project activity by a designated operational entity (a certified third-party agency). The CDM Executive Board assigns the operational entity. Registration is the formal acceptance by the Executive Board of the CDM of a validated project as a CDM project activity.
- Monitoring: Monitoring is the systematic surveillance of the project's performance by measuring and recording performance-related indicators. A monitoring protocol should provide confidence that the emission reductions and other project objectives are being achieved and should be able to monitor the risks inherent to baseline and project emissions.
- Verification and certification: Verification is the independent, periodic review and ex-post determination by the operational entity of the monitored reductions in emissions. Certification is the written assurance by the operational entity that, during a specified time period, a project activity achieved the reductions as verified.
The following methodology outlines general steps for implementing a forestry-based carbon offset project. In this illustrative methodology, land management activities (such as afforestation and reforestation) and forest protection activities (avoided deforestation) are considered viable options given the emerging opportunities of national and regional carbon policy regimes. It is important to note that precise sequencing and implementation of these steps will vary considerably, depending on many circumstances specific to the project. It is also important to note that the steps outlined below (e.g. conducting an in-depth feasibility study) should be integrated into a broader conservation or land management plan. This methodology assumes that the carbon project developer is a conservation practitioner such as a protected area manager or environmental NGO.
Step 1: The project developer, with the help of consultants if necessary, conducts a pre-feasibility study to determine the potential of a carbon offset project proposal.
Approximate time: One month. Approximate Cost: less than US$10,000
- Develop a general project concept by evaluating conservation management goals for overlap with climate change mitigation opportunities.
- Conduct a preliminary project site evaluation and apply first order screening criteria (see Table 2) to the project concept to determine if a full feasibility study is warranted.
- Carry out an approximate desk-study quantification of the project costs and potential carbon credits the project could sell.
- Verify that the host government supports carbon sequestration policy regimes. Identify the authorizing agency /Ministry for host government approval. Identify the requisite legislative process or applicable national policy regimes.
- Begin to gather necessary information for consultant(s) (see Section 2.1) to conduct a full feasibility study including: biological description of project area; land-use and demographic trends; land tenure information; budget estimates
- Carry out an approximate desk-study quantification of the potential carbon credits the project could sell.
IF THE PRE-FEASIBILITY STUDY INDICATES THAT A CARBON OFFSET PROJECT IS POTENTIALLY VIABLE AND RESOUCES AND INTEREST STILL EXIST:
Step 2: Project Developer develops the Terms of Reference for feasibility study (see section 2.4 for detailed Terms of Reference).
- Identify the project development team.
Step 3: Carbon project development team and/or consultant(s) conduct a feasibility study.
Step: Approximate time: 3-6 months. Approximate Cost: US$15,000-US$50,000
- Project Developer provides consultants (or project development team) with descriptions of the project area and proposed project activities.
- Consultant conducts a literature search, expert interviews, and data collection needed to gather additional information necessary for study.
- The feasibility study will assess and document the following factors:
- "Without project" baseline (a first-order baseline to estimate carbon benefits to be generated by the proposed project)
- Estimate growth rates and prepare initial carbon offset estimates
- Estimate project costs
- Estimate cost/ton of carbon sequestered
- Identify strategies for leakage prevention and quantification
- Co-benefits - environmental services
- Opportunities to contribute to sustainable development
- Research land tenure situation
- A proposed monitoring protocol
- Investment potential
IF CARBON OFFSET PROJECT DETERMINED FEASIBLE:
Step 4: Project Developer or broker markets project to potential investors.
- Identify key GHG emitters and other potential investors with ties to the project area.
- Prioritize potential investors (Do they work in your region? Do they have an immediate or future need for carbon credits? Does your organization have an existing relationship with them?)
- Develop project term sheet (see sample in the Appendix, section 2) and/or business plan as a marketing tool for investors.
- Meet with potential investors to sell the project.
- Obtain commitment for investor to fund project development phase.
IF FUNDING IS AVAILABLE INTIATE PROJECT DEVELOPMENT:
Step 5: Project Development
Approximate time: 10-14 months. Approximate Cost: US$50,000-US$500,000
- Identify funds for project start-up and secure commitments of purchase for carbon offsets
- Secure funding for project implementation.
- Conduct first full-scale carbon inventory.
- Develop a detailed project plan, including initial fieldwork activities and a monitoring plan.
- Consultations with community representatives to introduce project, solicit input for project design
- Negotiate with landowners/sellers where land acquisition is a project activity (conduct a thorough title check on lands suitable for acquisition).
- Evaluate the legal system to identify the appropriate legal framework for proposed project activities (land acquisition, easements, etc.).
- Draft and sign an initial Memorandum of Agreement between project partners
- Draft project contract/agreement among parties.
- Draft sub-agreements for various project components.
- Finalize all negotiations and contracts and sign a comprehensive legal agreement among all parties
- Obtain government clearances/approvals.
- Prepare operating protocols.
- Set up financial systems.
- Train staff for long term project implementation.
Step 6: Project Implementation
Approximate time: 30-70 years. Approximate Cost: US$1 -15 million
- Transfer initial funds from project investor / buyer to project developer.
- Begin project implementation as per detailed project plan (e.g. take actions to reduce or prevent emissions - begin reforestation activities, acquire appropriate properties, etc.).
- Carbon offsets begin to accrue once proven emissions reductions occur and leakage prevention is assured (potentially 1-5+ years after beginning of implementation).
- Stay abreast of relevant approval and/or registration processes and submit a Project Plan to the appropriate agency or agencies as required.
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