The utilization of CDM and JI mechanisms for reducing greenhouse gases in commercial projects

With the Kyoto Protocol coming into effect in 1997 and the Marrakech Agreement in 2001, the international community of states has initiated concrete steps for organizing climate protection since the “United Nations Framework Convention on Climate Change” (UNFCCC) of 1992 has been established.

Countries ratifying the Kyoto Protocol and committing themselves to reduce their greenhouse gas emissions (Annex B countries) are, according to article 6 and 12 of the Kyoto Protocol, given the opportunity to invest in other countries’ climate protection projects (JI = Joint Implementation) or in developing countries’ climate protection projects (CDM = Clean Development Mechanism) apart from getting the chance to introduce an emissions trade on a national and regional level.

The first phase of the emissions trade in Germany from 2005 to 2007 is characterized by decreasing certificate prices. This is going to change in the second phase of the emissions trade owing to a more restrictive allocation of certificates and the new adjustment of the National Allocation Plan (NAP). Companies falling under the German Greenhouse Gas Emission Allowance Trading Act (TEHG) are free to decide in what way they fulfil the requirements concerning their greenhouse gas emissions. When the CO2 discharge is exceeded there is the possibility to purchase certificates, to improve plant efficiency or to invest in foreign greenhouse gas reducing projects.

CDM and JI projects are particularly attractive. With the certificate prices increasing, the marginal abatement costs will in the future be below the prices of the certificates traded in the emissions trade, depending on the project. Since the NAP II legally makes it possible to obtain 20 % of the certificates required for a plant from CDM or JI projects and the number of projects executed by German investors is very low so far, there is a high development potential here.

In fact, the purchase of emissions certificates in the emissions trade is the easier way to compensate a shortage of certificates; however, it is worth thinking about investing in an emissions-reducing project in a foreign industrial country (JI) or a developing country (CDM), in particular for companies that act on an international basis.

For the realisation of a DCM or JI project it is necessary to identify a project in an industrial or developing country with a rather favourable ratio of investment volume to greenhouse gas reduction. In case of a CDM project it is possible to make a short check which is the basis for the Project Design Document (PDD). Once the PDD has been prepared with all required parts such as baseline study, monitoring and additionality check it will be presented to the competent authorities in the host country and the investor’s country. After a validation performed by an external examiner (DOE) it will be presented to the Executive Board of the UNFCCC. If the Executive Board approves the project, so called CERs (Certified Emission Reductions) can be issued which are nationally accounted for tradeable emissions certificates after verification / registration has taken place at regular intervals and continuous monitoring by the UNFCCC has taken place.

Due to the complex project procedure it is useful to have a qualified partner at one’s side. Therefore, AGO AG supports their clients when it comes to CDM and JI projects in connection with specialized and experienced cooperation partners for the whole of the project development, starting with the project idea to the emissions trade:

We offer the following services:

• Consulting
• Evaluation of project ideas
• Profitability analyses for the entire project period
• Development of plant engineering approaches
• Preparation of technical solutions
• Preparation of the required PDD
• Coordination of a project’s approval as CDM/JI
• Trading the purchased certificates

About AGO AG Energie + Anlagen

AGO AG Energie + Anlagen, with its registered office in Kulmbach, was founded in 1980 and is specialized in the area of innovative and efficient energy supply facilities for industrial customers and municipalities. Main focus of AGO AG Energie + Anlagen is laid on the following business divisions: plant development and implementation, as well as service and consulting. The core competence of the company mainly commits to thermal power stations, to heating, cooling and ventilation technology plant construction, biomass cogeneration plants and trigeneration. Site studies and development, consulting in energy efficiency, resource and fossil fuel management as well as emission trade management – these factors complete the business model. AGO symbolizes efficiency, security and technological competence of your energy supply facilities.