Carbon Market Watch

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CDM Project Cycle

Many different stakeholders are involved in implementing a CDM project. Below we outline the steps a project needs to go through in order to get registered, and to receive and sell credits:

  1. Project Design
  2. Validation
  3. Registration
  4. Implementation
  5. Monitoring
  6. Verification
  7. Credit Issuance
  8. Commercialisation

1. Project Design

The Project Design stage includes developing a project concept, choosing or developing a baseline and monitoring methodology, and stakeholder consultations. All of these elements are documented in the project design document (PDD).

Methodology An offset project methodology defines the rules that a project developer needs to follow to establish a project baseline and to determine project additionality, to calculate emission reductions and to monitor the parameters (e.g. electricity produced by the project) used to estimate actual emission reductions.Small-scale methodologies have different requirements to large-scale methodologies. If no approved methodology exists for a specific project type, a project developer can submit a new methodology for approval to the CDM.There are currently over 80 small scale and over 90 large scale methodologies approved under the CDM. For an up-to-date list of methodologies go here (external link). Project Design Document (PDD) The PDD serves as the basis for evaluating all carbon credit transactions and contract proposals for an offset project.The PDD describes the project activity in detail and forms the basis for all future planning and administrative procedures.It contains a description of the chosen technology and explains the methodology used to define the baseline scenario, to confirm additionality and to calculate emission reductions.It includes information on the monitoring of all relevant technical parameters (e.g. temperature, gas flow rates, electricity production, etc.) and on how monitoring procedures will be established, measurements made, quality controlled, and records kept. It contains an estimate of the volume of emission reductions achieved by the project.It documents how the project contributes to sustainable development. Local Stakeholder Consultation(s) CDM projects are required to provide evidence that the project’s activities will not adversely impact local populations and other relevant stakeholders.The developer must inform all relevant stakeholders about the project through appropriate channels. The developer must respond to all stakeholder comments, and describe a course of action to minimise negative impacts.The outcomes of the stakeholder consultations must be documented in the project design document (PDD).Very often these stakeholder consultations are not carried out adequately. Learn more

2. Project Validation

After the project developer has written the PDD, UN-approved third-party auditor conducts the project validation. These auditors are called Designated Operational Entities or DOEs. The process of CDM project validation includes the following steps:

  • A desk review of the PDD and other documents including the letter of approval from the host country (see box)
  • On-site visits and follow-up interviews with project stakeholders
  • A 30-day public comment period (Global Stakeholder Process) after the PDD has been made available on the internet
  • Resolution of outstanding issues, and the issuing of the final validation report and written by the DOE.

After completion, the validation report and the PDD are submitted to the CDM Secretariat for review and registration.  For a list of projects currently at validation click here (external link).

Global Stakeholder Process The PDD of a project is posted on the UNFCCC or DOE’s website for 30 days, during which time Parties, stakeholders and UNFCCC accredited observers can submit comments.  These comments are also made publicly available. The GSP is distinct from the local stakeholder consultation. Learn more Host Country Approval Final acceptance of a CDM project by the CDM Executive Board is not possible without the approval of the project’s host country. The project documentation must be submitted to the host country’s Designated National Authority (DNA), which checks the project activity against national rules and regulations and confirms the project’s compliance with the host country’s sustainability criteria. The host country then issues a letter of approval (LoA).The screening process and host country requirements vary from country to country. The sustainability requirements are often general and weak. Learn more

3. Project Registration

Project registration involves several steps: a completeness check done by the UNFCCC Secretariat; a review by the UNFCCC Secretariat and the Registration and Issuance Team; and either final approval, request for review or rejection by the CDM Executive Board. Decisions about project registration or rejection by the CDM EB are final and cannot be appealed. However, once rejected, a project can often reapply for registration.

  • For a list of projects currently at completeness check click here (external link).
  • For a list of projects currently seeking registration click here (external link).
  • For a list of project currently under review click here (external link).
  • For a list of rejected projects click here (external link).
Completeness check
After the Secretariat has received the request for registration it will do the completeness check within 7 days and then make the result publicly available on the UNFCCC CDM website.Information and reporting checkAfter the completeness check the secretariat will review the project documentation within 23 days. If the secretariat does not find any problems, the project is then officially listed for registration.
Review by the Secretariat and the Registration and Issuance Team (RIT)
After the information and reporting check, the Secretariat publishes the request for registration on the UNFCCC CDM website.Two members of the RIT team prepare an appraisal of the request for registration. The Secretariat will prepare a summary note of the appraisal and forward it to the CDM EB for consideration.
Registration, request for review or rejection
The CDM EB receives the request for registration and for the next 28 days members of the CDM EB can request a review. If there is no request for review, then the project will automatically be registered.Request for review
If at least three members of the CDM EB request a review of a project, it then has to undergo additional scrutiny. Two members of the RIT team will then prepare an assessment of the request for review. The CDM EB then deliberates on the project at its next meeting.

4. Project Implementation

Project implementation can begin at any time during the project cycle. However, if the project is implemented before it is registered by the CDM EB, the project developer must supply evidence proving that it considered CDM revenues at the time of planning the project. If evidence is not supplied, then the project is likely to be rejected on the grounds that it is not additional.

5. Project Monitoring

Project developers are required to maintain records measuring the emission reductions achieved during a project’s operation phase. These records, maintained in a monitoring report, must be in accordance with the parameters and procedures laid out in the original PDD that was validated by the DOE and registered by the CDM EB. Emission reductions are issued based on the monitoring report. There are no requirements as to how long or short a monitoring period must be, because they range from a few weeks to several years.

6. Project Verification

The monitoring that the project developer has done is then evaluated and approved by a DOE. To minimise conflict of interest under the CDM, the validating auditor cannot also conduct project verification – a different auditor must be chosen for the task of project verification. The auditor undertakes a desk review of the report to ensure that the monitoring has been carried out in accordance with the procedures laid out in the original PDD. The auditor may also undertake a site visit. The auditor prepares a draft verification report, highlighting any issues in the process. Once the project developer resolves these issues, the auditor prepares the final verification and certification report, which also quantifies the actual emission reductions achieved by the project. Verification is done at time intervals freely chosen by the project developer or owner, usually determined by consideration for cost-saving (longer intervals) vs. frequent sales revenues (shorter intervals).

7. Credit Issuance

The verification report is submitted to the CDM EB for certification and issuance of CERs. The issued CERs are then transferred to the CDM registry account of the relevant project participant after the mandatory fees are paid to the UNFCCC Secretariat.

  • For a list of projects currently seeking credit issuance click here (external link).

8. Commercialisation

At the commercialisation stage, a project developer sells the carbon credits from a project to a buyer. The credits can either be sold directly to a company that uses them to meet its legally binding or voluntary emission reduction obligations, or they can be sold to a trading company that facilitates the transaction between the seller and the end user of the credits.