Assessing Offset Quality in the Clean Development Mechanism

• Author: The Offset Quality Initiative
• Pages: 25-36

25 SUSTAINABLE DEVELOPMENT LAW & POLICY

aSSeSSing offSet Quality in the clean

Development mechaniSm

by The Offset Quality Initiative*

* The Offset Quality Initiative consists of the following member organizations:

The Climate Trust, founded to manage a portfolio of compliance-grade carbon

projects as a result of Oregon’s leadership in passing the nation’s f‌irst legisla-

tion to limit carbon dioxide emissions, spearheads and leads the Offset Quality

Initiative; The Pew Center on Global Climate Change, established in 1998 as

a nonprof‌it, nonpartisan, and independent organization dedicated to providing

credible information, straight answers, and innovative solutions in the effort to

address global climate change; The Climate Action Reserve, a private nonprof‌it

organization addressing climate change and bringing together participants from

the government, environment and business sectors, d irects the California Cli-

mate Action Registry, Climate A ction Reserve and Center for Climate Action;

The Environme ntal Resource Tru st, co-founder of the American Carbon Reg-

istry, which in 2008 was the most widely used voluntary carbon market regis-

try in the world; Greenhouse Gas Management Institute, a registered nonprof‌it

organization, trains, certif‌ies, and networks a global community of experts that

account, audit and manage GHG emissions based on world-class training and

professional standards; and The Climate Group, an independent nonprof‌it orga-

nization that wor ks with government and busi ness leaders to accelerate the

transition to a low-carbon economy, founded in 2004 with off‌ices in the United

Kingdom, the United States, China, India, and Australia.

INTRODUCTION

The Clean Devel opment Mecha nism (“CDM”) , created

under the Kyoto Prot ocol, generates offset s th rough

invest ments in gree nhouse gas (“ GHG”) reduct ion,

avoidance, and sequestr ation projects in developi ng countries

(referred to as “non-Annex I Parties”). These offsets, called Cer-

tif‌ied Emission Reduction credits (“CERs”), are equivalent to a

reduction in one metric ton of carbon dioxide (“CO2”)1 emitted

to the at mosphere. Developed countries (ref erred to as “Annex

I Parties”) can use CERs to cost-effectively achieve their Kyoto

Protocol GHG reduction targets.

Over the past several years, the CDM has been subject to a

number of critiques, many of which call into qu estion the pro-

gram’s ab ility to generat e high quality offsets. While the Off-

set Quality Initiative (“OQI”) neither endorses nor opposes the

CDM, this paper seeks to provide an impartial description of the

CDM and analyze its ability to ensure offset quality in the future.

Specif‌ically, this paper analyzes the CDM through the prism of

the core criteria for offset quality outlined in OQI’s white paper

titled Ensuring Offset Quality: Integrating High Quality Green-

house Gas Offsets Into North American Cap-and-Trade Policy.2

OQI considers the CDM process for addressing each criterion,

assesses whethe r the process is suff‌icient to ensure quality,

responds to related critiques of the CDM, and provides recom-

mendations for improvement where appropriate.

Overall, OQI f‌inds that the CDM’s processes perform suf-

f‌iciently against most of our core offset quality criteria, and with

further ref‌inement should be capable of performing suff‌iciently

against all cri teria. The most signif‌icant qu ality issues in the

CDM historically have had to do with additionality and the reli-

ability of independent third party verif‌ication. These issues a re

common across all GHG offset programs and, in the case of the

CDM, can be addressed through streamlining and standardizing

the ad ditionality tools and signif‌icantl y restructuring the third

party verif‌ication system. On all other criteria, OQI f‌inds that

the CDM, with some modif‌ication, can suff‌iciently ensure offset

quality.

KEY OFFSET QUALITY CRITERIA

OQI’s “Offset Policy Design Principles and Recommenda-

tions”3 establishes a set of eight offset quality criteria. Offsets

should (1) be additional, (2) be based on a realistic baseline, (3)

be accurately quan tif‌ied and monitored, (4) be independently

validated and verif‌ied, (5) be unambiguously owned, (6) address

leakage, (7) address permanence, and (8) do no net harm.

For e ach of th ese criteria, OQI has evaluated the CDM’s

performance, related critiques, and future abili ty to satisfy the

criteria. The table at the end of this article summarizes the results

of this analysis.

oQi cRiteRia #1: offSetS ShoulD be aDDitional

Emission reductions resultin g from offse t projects s hould

be “in addition” to reductions that would have occurred without

the incentives provided by the existenc e of the offset program.

To determine if a project is “additional,” project developers,

auditors, and regulators generally rely on a series of tests, which

identify the regulatory, f‌in ancial, technical, institutional, com-

mon practice, and/or other barriers to a project’s implementation.

CDM Process for Assuring Additionality

To ensure that off sets are additiona l, the CDM requires

project partici pants t o apply three additi onality tests:4 (1) a

Regulatory Test, (2) either a Barrier Test or an Investment Test,

and (3) a Common Practice Test. Project participants must apply

these tests on a project-by-project basis to assess the unique cir-

cumstances of each proposed activity.

The Regulatory Test identif‌ies realistic and credible alterna-

tives to the CDM projec t that are i n compliance with all man-

datory and enforceable legal and regulatory requirements, even

if those laws and regulations have objectives other than GHG

reductions. If th e proposed project a ctivity is the only viable

alternative, amongst all the practical alt ernatives that comply

with enforced regulations, then the proposed CDM project is not

additional.5

The Barr ier Test examin es whether ther e are hurdles pre-

venting the project’s implementation in the absence of the CDM.

Barriers must be signif‌icant, realistic, credible, conservative, and

based on transparent and documented evidence. Examples could

26WINTER 2010

include barriers relate d to sec uring investment or risk associ-

ated with unfamiliar technology.6 These same barriers must not

affect, or must affect less strongly, reasonable alternatives to the

project activity.

The Investment T est determines whether a CDM project

would occu r without offset revenue. In the CDM, project par-

ticipants typically make inv estment-related additionalit y argu-

ments based on the internal rate of return (“IRR”) of a project,

both with and without CER income. If the project activity gen-

erates no revenue aside from the sale of CERs, then the project

participant applies a simple cost analysis to document project

costs and to dem onstrate that there is at least one less ex pen-

sive alternative to the project activity. If the act ivity does gen-

erate rev enue in addition to CER sales, the pro ject participant

must apply either (1) an investment

comparison analysis, which uses

a project- appropriate f‌inanc ial

indicator to compare the proj-

ect’s performance to alternative

activiti es; or ( 2) a benc hmark

analysis, which compares a stan-

dardized market indicator to the

CDM activity. If either analysis

indicat es that there is a more

f‌inancially attractive option than

undertak ing th e CDM proje ct,

the project passe s thi s te st. A

Sensitivity Tes t is also required

to ensur e that the analyt ical

assumptions used are robust.7

Finally, the Common Prac-

tice Test measu res the sectoral

and/or regi onal penetration of

the prop osed C DM acti vity

(i.e., tec hnology or practic e). If

activit ies similar to the CDM

project activ ity are c ommon, the

project participant must demonstrate that the project-specif‌ic cir-

cumstances are somehow uniqu e; otherwise, the project is not

additional.8

If a project fails any of these tests (i.e., it is legally required,

is the most economically attractive approach and/or barrier-free,

or is common practice) the project is not additional and cannot

generate offsets under the CDM.9

Critique: The CDM Does Not Adequately Ensure

Additionality

A number of past critiques have q uestioned the effe ctive-

ness of these tests, or at least the consistency and adequacy of

their application by regulators. Of these, perhaps the most well

known critique was the November 2007 paper written by Lam-

bert Schn eider on behalf of the Wor ld Wildlife Fund, titled Is

the CDM Fulf‌illing its Environmental and Sustainable Develop-

ment O bjectives? An Evaluation of the CDM and Options for

Improvement.10 The media, academic literature, and trade press

cited Schneider’s paper widely for its assertion that up to twenty

percent of CERs—repre senting forty percent of CDM pr oj-

ects—may h ave been non-additi onal.11 Schneider’s paper also

argued that the additionality guidance provided under the CDM

with respect to barriers, investment, and common practice tests

was too subjective and/or insuff‌iciently specif‌ic.12

The 2008 paper by Stanford University Professors Michael

Wara and David Victor titled A Realistic Policy on International

Carbon Of fsets is another notable critique of the C DM’s abil-

ity to ensure project additionality.13 Wara and Victor largely

focused their criticism on the applications fo r CERs mad e by

nearly all new Chinese re newable energy capacit y at the time ,

despite the Chinese government’s national policy goals that

focused on increasing investment in renewable energy.14 The

implication of their argument was

that i t would have been impos-

sible fo r all these projec ts to

meet the CDM’ s add itional-

ity test, since a t least some of

the rene wable en ergy cap ac-

ity brought onlin e at the time

must have been at tributable to

China’s energy policy, not t he

CDM.15 T hey claimed tha t if

the CDM’s ad ditionality te sts

could not sift out the additional

from non-additional proje cts in

this exampl e, t hen they could

not s ufficientl y ensure offse t

quality.16

Wara and Victor also criti-

cized the conc ept of offset s

in gen eral by as serting th at

increas ingly burdensome te sts

woul d be r equired to su ffi-

ciently ensure additionality to an

acceptable level of off set quality ,

and that such stringency would make the CDM too cumbersome

to function effectively.17 Ultimately, they declared that “enthusi-

asm [for offsets] is misplaced because any offset market of suff‌i-

cient scale to provide substantial cost-control for a cap-and-trade

program will involve substantial issuance of credits that do not

represent real emissions reductions.”18

OQI Findings & Recommendations

Finding(s): OQI f‌inds that there have been valid concerns

about the eff‌icacy of both the design and implementation of the

CDM’s me asures to ensur e additionality. However, the r ecent

rejection of a number of proposed C hinese renewable energy

CDM projects by the Executive Board (“EB”) (the body respon-

sible for oversight of the CDM) on additionality grounds indi-

cates that CDM executive lead ership and staff have begun to

address at least some of the aforementioned quality critiques.

Furthermore, OQI believes that issues cited in the past con-

cerning CDM additionality determinations are neither endemic

Overall, OQI f‌inds that

the CDM’s processes

perform suff‌iciently

against most of our core

offset quality criteria, and

with further ref‌inement

should be capable of

performing suff‌iciently

against all criteria.

27 SUSTAINABLE DEVELOPMENT LAW & POLICY

nor irreparable. Improvements in the past few years include

the introduction of both the Registration and Issuance Teams

(“RITs”) and additional secretariat staff that provide multipl e

layers of project review, summarize submissions , and make

recommendatio ns, all of which facilitate the CDM Executive

Board’s review and decisio n making process. The Executive

Board review and rejection rate for projects has increased sig-

nif‌icantly over the past two years.19 As the Executive B oard

undertake s reform s to incorporat e more objectiv e, stan dard-

ized criteria into additionality determinations, it will be possible

to creat e a program that both e nsures offset qua lity and is not

overly burdensome or administratively complex.

Recommendation(s): Broadly speaking, CDM projects fall

into one of two categories, which largely dictate how diff‌icult it

is to assess their addit ionality. For projects where CDM i s the

sole or primary source of revenue, additionality is less challeng-

ing to determine because there are no other expected economic

incentives for the project besides the CDM.

Projects with multiple revenue streams are more challeng-

ing. For this category, the CDM could improve by implement-

ing a more rigorous and standardized approach for determining

additional ity, cons istent w ith the recommenda tions ma de by

Lambert Schneider.

Standardized a pproaches determine addition ality based on

a set of objective eligibility criteria, which consider the regula-

tory, f‌inancial, institutional, and technical conditions for a par-

ticular project type. Generally, standardized approaches involve

the establishment of perf ormance benc hmarks for both addi-

tionality and baselines. However, while a more standardized

approach to additionality can also help to promote offset qual-

ity, an entirely standardized approach would be challenging, if

not impossible, because of the diversity of develop ing country

contexts. Theref ore, “hybrid” additionality assessments, which

combine elements of the current tests-based approach with more

project-type-specif‌ic standardized criteria, can help balance the

strengths and weaknesses of these respectiv e processes. As the

CDM grows to meet increased global demand for international

offsets, a hybrid approach to additionality can help stream-

line th e project cyc le, increasing eff‌iciency while maintaining

quality.

Providing more detailed guidance to both project partici-

pants an d independent th ird party projec t auditors (ref erred to

as “ Designated Opera tional Entities, ” or “ DOEs”) about how

to determine additionality for ea ch project type, a nd providing

standardized investment and analysis tools, will improve the

quality of the CDM while also reducing transac tion costs an d

administrative burden. As the f‌irst large-sca le GHG offset pro-

gram in the world, the CDM is already incorporati ng some of

these recom mendations as program administrators and partici-

pants learn through experience.

oQi cRiteRia #2: offSetS ShoulD be baSeD on a

RealiStic baSeline

High quality offsets should be measured a gainst a realis-

tic basel ine in order to achieve a transparent and conservative

estimation of a project’ s GHG emission reduction, avoida nce,

and/or removal. A baseline is an estimate of the GHG emissions

that would occur in the absence of the offset project. W hereas

additio nality involves demo nstrating that a proje ct activity

would not have occurred in the absence of the CDM, baselines

establish the plausible GHG emissions scenari o witho ut the

project.

CDM Process for Establishing Baselines

Under the CDM, pro ject part icipants establish baselines

according to guidelines set forth in an approved project method-

ology. A methodology def‌ines the likely emissions sources and

sinks in the absence of a project. The CDM specif‌ies the follow-

ing three approaches for establishing baselines:

1. Determining that the most likely activity in the

absence of the project would be continuance of the

existing activity.

2. Determining if an economically attractive alternative

exists that is neither the existing activity nor the CDM

project. In this case, the emissions associated with the

most economically attractive alternative to the CDM

project would constitute the baseline.

3. In the absence of a clear economically attractive

alternative, the baseline is based on the average

emissions of other commonly implemented and high

performing projects in the sector. Projects must have

been undertaken in the past f‌ive years and have similar

geographic, economic, environmental, political, social,

and other characteristics.20

For example, the baseline scenario for a CDM project that

proposes to capture and f‌lare landf‌ill gas might involve a plau-

sible expectation that the landf‌ill owner would normally take no

action to reduce or capture meth ane at the site.21 In this case,

baseline emissions would equal the amount of methane released

from the site without any gas capture . However, this is a fairly

straightforward example and it is possible that a given project

will have multiple plausible baseline scenarios from which the

project participant must choose.

Critique: CDM Project-by-Project Baseline

Determinations Are Administratively Burdensome

Some mark et participants b elieve the CDM’s approach to

baseline determination is ina dequately str eamlined and deem

the process to be overly burdensom e. Project participants ha ve

argued that a more eff‌icient alternative a pproach would be to

establish generic benchmarks or default emission factors for par-

ticular project types, which would allow for streamlined estima-

tion of baseline emissions.

Recently, the CDM has begun t o address th is concern b y

moving away from project-specif‌ic baseline sce narios, towards

a hybrid app roach that combine s b oth project-spe cif‌ic and

standardi zed evalu ations. For exam ple, the Executiv e Board

approved a methodology in 2008 for the manufacture of energy-

eff‌icient refriger ators, which t akes a benchmar ked app roach

to establishing project baselines. As opposed t o other meth-

odologie s that would requ ire di rect measurement of energy

28WINTER 2010

consumption, this methodology (“AM0070”) sets the baseline as

the manufacturing of “refrigerators with the specif‌ic electricity

consumption corresponding to the calculated benchmark for the

respective storage volume class.”22 In other words, the method-

ology provides a standardized baseline with a default factor for

calculating the energy savings of various refrigeration devices.

A degree of standa rdization is also underway for renewable

energy and energy eff‌iciency projects, th rough the compilation

of standard baseline emission factors for electricity grids in sev-

eral developing countries, such as India and South Africa.

OQI Findings & Recommendations

Finding(s): OQI f‌inds that the CDM’s approac h to base -

line establishment is generally suff‌icient to ensure offset quality,

although a transition towards more standardized, benchmarked

baselines, where appropriate, could help increase administrative

eff‌iciency. At the same time, OQI acknowledges that develop-

ing benchmark baselines requires a signif‌icant amount of data,

research, and wo rk, particularly to ensure that they are current,

as well as contextually and regionally appropriate.

Recommendation(s): Standardization of baselines through

benchmarking for so me types of projects may be appropriate

and more eff‌icient in the CDM moving forward. The CDM trend

towards benchmarking baselines—as in the case of the AM0070

with eff‌icient refrigerators—can streamline the project develop-

ment process and reduce transaction costs and investor risk.

Similar to addi tionality, standa rdized baselines are not

appropria te for activit ies and /or re gions w ith het erogeneous

characteristics that make accurate generalization diff‌icult. Dis -

advantages to standardized baselines can include the signif‌icant

time and cost associated with deve loping rigorous benchmarks

across a broad ra nge of proj ect types, limits to t he amount o f

appropriate project types, and diff‌iculties in accounting for dif-

ferent t echnological and market conditions across regions and

regulatory systems. In other words, while standardized baseline

scenarios may be appropriate in certain countries or sectors and

for certain project types, th ey may b e inappropriate for those

with substantial project-specif‌ic considerations.

offSet cRiteRia #3: offSetS ShoulD be accuRately

QuantifieD & monitoReD

Offsets should be accurately quantif‌ied and monitored to

ensure that only real, hi gh-quality emission red uctions receive

credits. T o achieve accuracy , projects should have monitoring

plans that def‌ine how, when, and by whom data will be collected

and emissions quantif‌ied, using established standards.

CDM Process for Offset Quantif‌ication and

Monitoring

The CDM requires th at an approve d monitoring plan

for each proje ct be included in its Project Design Do cument

(“PDD”).23 CDM methodologies lay out detailed rules and guid-

ance on quant if‌ication and monitoring requirements for each

project type. Each project’s monitoring plan must specify moni-

toring and quality control procedures, necessary data for collec-

tion, measurement accuracy and calibration procedures, the type

of measurement instruments, and who is responsible for moni -

toring. P lans must also address the monitoring of leakage and

be available to the public online.24 Prior to project registration,

independent auditors must validate monitoring plans.

Critique

In c ertain instances, there have been individual te chnical

issues or other problems wit h methodologies. However, revi-

sions to methodologies have corrected these issues and, broadly

speaking, there have been no signif‌icant critiques of the CDM’s

ability to ensure quality offset quantif‌ication and monitoring, to

date.

OQI Findings & Recommendations

Finding(s): O QI f‌inds that t he CDM has str ict criteria for

emission quantif‌ication and monitoring that suff‌iciently ensures

offset quality. Indeed, the CDM has served as a model for emis-

sions quantif‌ication a nd monitoring procedures in subsequent

GHG offset programs and standards.

Recom mendatio n(s): T he CDM ha s a s trong e xist-

ing library of methodologies that include accepted monitor-

ing and quantif‌ication formulas, and that have preceded most

other regional and international standards. In certain instances,

requiring the application of internationally recognized technical

standards to CDM monitoring plans could support greater stan-

dardization of data across proje cts and p roject types. Explicit

references to these standards also will give project participants

and auditors greate r cla rity o n the requ irements for project

implementation.

offSet cRiteRia #4: offSetS ShoulD be

inDepenDently valiDateD & veRifieD

An independent and qualif‌ied third party , free from con-

f‌licts of interest, should aud it (i.e., validate project s or ve rify

project performance ) all offset projects to ensure accuracy and

impartiality. To avoid conf‌licts of interest, auditor compensation

should not depend on whether the project receives CER credits.

Regulatory offs et systems should have accredited auditors and

procedures in place to revi ew and re-accredit, suspend, or dis-

qualify audit organizations on an ongoing basis.

CDM Process for Offset Validation and Verif‌ication

Independent third party auditors in the CDM are called Des-

ignated Operational Entities (“DOEs”) and are accredited by the

CDM Executive Board based on criteria relating largely to size,

technical competency, and management ability. DOEs are sub-

ject to random spot-checks and periodic review by the Executive

Board, an d substandard work can lead to f‌ines, suspen sion, or

revocation of a DOE’s accreditation.25

An independ ent auditor must validate the PD D (i.e., proj-

ect validation) prior to registration of the project by the CDM.

Prior to CER issuance by the CDM, an independent auditor must

verify the emission reductions ba sed on ex post dat a on proj -

ect performance. Project participants contract DOEs to perform

these audits, and pay the DOEs for services directly. The use of

different DOEs26 at the validation and verif‌ication stages in the

29 SUSTAINABLE DEVELOPMENT LAW & POLICY

project cyc le is intended to ensure that the second audit is not

biased by f‌indings of the earlier audit.27

Critique: Some Independent Third Party Verif‌iers

(DOEs) Have Not Suff‌iciently Evaluated, Validated,

and Verif‌ied Projects to Date

Some third party verif‌iers under the CDM have been criti-

cized for a la ck of cap acity and competency to undertake the

level of quality checks required to ensure offset quality. In addi-

tion, because DOEs compete with one another for business, there

has been concern that they could be driven to lower the quality

of their audits to remain competitive and prof‌itable. Questions

surrounding p otential conf‌licts of interest for DOEs also exist,

because project participants hire and then pay DOEs themselves.

One example of the issues surrounding third party verif‌ica-

tion emerged in November 2008, when the largest CDM project

auditor, Norway’s Det Norske Veritas (“DNV”), had its accredi-

tation susp ended by the Executive Board for f‌ive alleged non-

conformities related to its validation and verif‌ication practices.28

The suspension meant that DNV could not submit projects for

registration or request issuance of CERs for clients. At leas t in

part, the suspension ref‌lected a move by the Executive Board to

tighten rules and ensure that CDM projects meet more stringent

offset quality standards. A second verif‌ier suspension, this time

of the f‌irm SGS Uni ted Kingdom Limited (“SGS”), signif‌ies

continued vigilance by the Executive Board.

OQI Findings & Recommendations

Finding(s): DNV’s suspension and later reinstatement, as

well as SGS’ recent suspension, indicate that pr ocedures fo r

spot-chec ks and period ic eva luation as we ll as oversig ht of

DOEs by the Executive Board is improving. However, more

training, guidance, experience, and the developm ent of stan-

dardized protocols for auditing are needed, as well as consensus

on what constitutes validation and/or verif‌ication best practices.

Some progress has been made in this regard, with the adoption

of the Validation and Verif‌ication Manual (“VVM”) by the

CDM Executive Board in 2008.29

Recommend ation(s): Signif‌icant reforms are needed to

better train DOE staff, to align the incentive structures of third

party validation and verif‌ication, and to ensure greater oversight

of DOEs by the Executive Board.

Individuals employed by DOEs should be required to meet

a minimum level of training, modeled after the existing training

program for Expert Review Team members that review national

inventor ies su bmitted under the United Nations Framework

Convention on Climate Change and th e Kyoto Protocol. To be

on a verif‌ication team, individual auditors should have to com-

plete this training and pass an exam, supplementing this training

with their own training on internal systems and procedures.

To align incentives and avoid potential conf‌licts of interest,

a neutral party could assign DOEs to projects instead of project

participants hir ing DOEs themselves. F or example, the Execu -

tive Board could assign DOEs, operating under a predetermined

fee structure, to projects.

In addition, the ab ility of the CDM Ac creditation Panel

(which oversees DOEs) to assess whether DOEs have the capac-

ity and competency to justify accreditation could be strengthened

through mandatory training and testing for Accreditation Panel

members and support personnel. To accomplish this, employees

must be specif‌ically hired and trained to achieve this goal.

Finally, continual updates and improvements to the Valida-

tion and Verif‌ication Manual are essential to ensure that DOEs,

project participants, and the Executive Board have a clear under-

standing of the materiality of each requirement to the quality of

a project’s validation and verif‌ication.30

offSet cRiteRia #5: offSetS ShoulD be

unambiguouSly owneD

Offsets should have a single owner with clear rights to the

credits so that the emi ssion reduction s they represent are not

claimed twice. “Double-counting” can be further prevented by

ensuring credits are serialized an d accounted for in a registry

where transfer of ownership can be clearly documented.

CDM Process for Ensuring Unambiguous Ownership

Before any offset project activity c an move forward, t he

Designated National Authority (“DNA”)31 of the host country

must approve the project on behalf of that nation’s sovereign

governme nt. Th e DNA is thereby respon sible for a ssigning

unambiguous ownership rights to emission reduc tion credits to

project participants.

Furthermore, all CDM credits have individual serial num-

bers and a UN re gistry that meets international best pra ctice

standards for accounting and transa ctions, like those used i n

f‌inancial banking systems. The registry uses un ique accou nt

numbers for all partic ipants, and participan ts may hold each

CER in one account at a time. Information in the registry is pub-

licly available on the Internet.32

Critique

No signif‌icant critiques exist to date on the CDM’s ability to

ensure unambiguous ownership.

OQI Findings & Recommendations

Finding(s): OQI f‌inds that the CDM is generally suff‌icient

to ensure that offset credits are unambiguously owned. In partic-

ular, because the CDM gives developing countries the ultimate

power to approve offset issuance, th e system is struct ured to

respect domestic sovereignty and ensure clear ownership under

domestic law, while simultaneously ensuri ng that international

ownership transactions are clear and credible. Furthermore, the

serialization and registry accounting system promotes unambig-

uous ownership by allowing credit transfers and retirements in a

transparent fashion.

Recommendation(s): Requiring ho st country re cognition

of CER ownership creates a robust mechanism for esta blish-

ing unam biguous credit ownership and f or prevention o f dou-

ble-counting . Improving national-lev el governanc e structures

through training and capacity-building would help DNAs do an

even better job of avoiding any ambiguous ownership issues that

may occur in the future.

30WINTER 2010

offSet cRiteRia #6: offSetS ShoulD aDDReSS

leakage

Leakage is an increase in e missions out side of an of fset

project’s boundaries that occurs as a direct result of the project’s

implementation. To a ccount for leakage, methodologies should

def‌ine a “project bo undary” which specif‌ies the GHG sources

and sinks for which project partic ipants are responsible. Met h-

odologies also should explain how the project will quantify any

signif‌icant changes in emis sions outside the project boundary.

Offset programs should require that project participants evaluate

potential leakage effects, and that monitoring plans account for

actual effects over the life of a project.

CDM Process for Addressing Leakage

In general, project participants must either demonstrate that

leakage is unlikely to occur, or monitor and quantify unavoid-

able leakage and deduct it from the total credited emission reduc-

tions by using procedures and formulas prescribed by the project

methodology. For example, projects that use wood waste instead

of fossil fuel in thermal boilers can cause leakage if wood waste

is in short supply, and other local wood-f‌ired boilers switch back

to f ossil fuels. The CDM methodology (“AM-0036”) f or this

kind of project requires project participants to demonstrate that

wood waste is abundant. If such a demonstration is not possible,

project participants must calculate the incr ease in fossil fuel

emissions l ikely to occur at other boilers as a result, and must

deduct this from the total creditable reductions.33

Critique

No signif‌icant critiques exist to da te on the CDM’s ability

to address leakage.

OQI Findings & Recommendations

Finding(s): OQI f‌inds that the CDM has methodologies that

estimate leak age conservatively for most project type s, and its

approach to addressing leakage is generally suff‌icient to ensure

offset quality.

Recomme ndation(s): OQI rec ommends that the CDM

continue to use a conservative approach in identifying and miti-

gating leakage issues, that it require all project types to address

leakage, and that it provide methodological guidelines for esti-

mating leakage at a level commensurate with the project type’s

complexity and risk.

offSet cRiteRia #7: offSetS ShoulD aDDReSS

peRmanence

For certain project types, there is a risk that emission reduc-

tions generated are subject to reversal, and therefore could fail to

offset emissions permanently. For example, a forest f‌ire, weather

event, or pest attack could release into the at mosphere carbon

stored by a fores try project. Therefo re, regulatory regim es

should address permanence to ensure the minimization of loss in

the event of a reversal.

CDM Process for Addressing Permanence

In th e case of afforestation/refore station (“AR”) projects,

the CDM addresses permanence concerns by issuing temporary

credits that expire at a predetermined time. Once a credit expires,

the owner must replace it with another valid credit or emission

allowance unit.34 For example, if a country uses a reforestation

credit to comply with its obligations under the Kyoto protocol

in 2 010 and the credit expires in 2020, the country will have

to submit a replacement credit or allowance in 2020 to remain

in compliance with its 2010 obligations. A signif‌icant disadvan-

tage of temporary c rediting is t hat it treat s all forest ry carbon

as short-lived, even where reve rsals may not have o ccurred.

The result is increased f‌inancial risk and uncertainty for buyers,

which creates a disincentive for project participants to invest in

forestry projects.

Critique

No signif‌icant critiques exist to date on the CDM’s ability to

ensure permanence. However, critiques do exist about the eff‌i-

cacy of temporary cre diting with r espect to prom oting invest-

ment in carbon sequestration projects.

OQI Findings & Recommendations

Finding(s): OQI f‌inds that, while temporary c rediting is

suff‌icient to ensure offset quality, the CDM’s current approach

may b e overly conservative, as it create s investor uncertainty

and has led to minimal investments in forestry projects under the

CDM to date.

Recom mendation (s): OQ I recomm ends in vestigati ng

alternat e ways to address perma nence. For example, policy

mechanisms that address reversal risk could provide more mar-

ket certainty than temporary crediting mechanisms. Some GHG

programs in voluntary and pre-compliance markets are explor-

ing and t esting buffer pools and the use of insurance and other

f‌inancial products as alternatives to temporary crediting. Buffer

pools, for instance, address reversal risk by evaluating the risk

prof‌ile of a project, and then requiring project participants to set

aside a portion of the offsets, based on the res ults of applying

a methodology to determine risk and buffer size, into a shared

buffer pool . In the eve nt of a reve rsal, project partici pants use

credits from this pool to account for negated sequestered tons.

As another example, insurance products work much like other

traditional types of insuran ce, addressin g risk by making the

project whole by g uaranteeing a replacement price for offsets

equivalent to the loss. Although a pplying these mechanisms i n

many developing countries may be challengi ng, from a market

and investment perspective they could provide a more eff‌icient,

certain, and cost-effective approach than temporary crediting.

offSet cRiteRia #8: offSet pRoJectS ShoulD Do no

net haRm

Offset projects shou ld not cause or contribute t o adverse

effects on human health or the environm ent, and should seek

to provid e h ealth and environ mental co-benef its whenever

possible.

CDM Process for Ensuring No Net Harm

To ensure that offset projects do no net harm, the CDM

requires project participants to sponsor a stakeholder consultation

process during the project design phase. During the consultation

31 SUSTAINABLE DEVELOPMENT LAW & POLICY

process, submissions of public comments on the project activity

must be solicited, and in-person stakeholder meetings must be

held in the local community.35 Project participants are required

to undertake good faith efforts to publicize the event and make

materials available in the language of local constituents. The

PDD must in clude a summary of an y stakeholde r comments

received during t he public comment period and describe any

anticipated environmental, economic, and/or social impacts. The

project must then be approved by the host country government

and be found consistent with its sustainable development goals,

as well as environmental and other regulations.36

Critique: CDM Projects Sometimes Cause Local

Environmental and/or Social Harm, and/or Fail to

Promote Sustainable Development

A small number of CDM projects have come under criticism

for causing local environmental o r social harm. For example,

a number of environmental non-gove rnmental organizations

(“NGOs”) including Int ernational Rivers, the Center for Bio-

logical Diversity (“CBD”), and the Natural Resources Defense

Council (“NRDC”) submitted comments to oppose the validation

of a hydroelectric project in Panama sponsored by AES Corpo-

ration. The NGOs claimed the project would have threatened a

biologically rich World Heritage Site and the indigenous Ngobe

tribe.37

Another related critique frequently levied against the CDM

is that it has failed to meet one of its primary objectives: to assist

developin g co untries in achieving sustainabl e de velopment.

While failing to promote sustainable development is not neces-

sarily equivalent to doing net harm, it is worth mentioning in this

paper because of the prevalence of this criticism in debates over

the CDM to date.

According to Schneider:

The actual impact of CDM projects on sustaina ble

development is diff‌icult to asse ss because it depends

on the def‌inition of su stainable development which is

def‌ined by most countries in very broad terms. Many

countries have establishe d and publishe d crite ria to

assess wheth er a project contributes to sus tainable

development. However , they are often very general

. . . [F]ew [projects] comply with criteria that are related

to the ac hievement o f the Millennium Development

Goals. For example, many CDM proje cts, directly or

indirectly, reduce air pollution or contribute to the dif-

fusion of environmentally sound technologies, whereas

only very few projects dire ctly contribute to pover ty

alleviation.38

OQI Findings & Recommendations

Finding(s): OQI f‌inds that the CDM’s approach to prevent-

ing net harm is generally suff‌icient t o ensure offset quality by

creating opportunities for public participatio n and giv ing host

countries recourse to reject projects if they fail to consider and

incorporate stakeholder concerns and sustainable development

goals. H owever, OQI ac knowledges that ensuring absolute no

net harm of all offset projects is diff‌icult, since in all cases some

trade-offs are likely to exist. For example, a landf‌ill gas capture

system may reduce a number of trace pollutants that can cause

unpleasant odor and smog due to ground-level ozone. However,

it may also displace impoverished people who rely on scaveng-

ing the landf‌ill as the basis of their livelihood.

On the question of whether the CDM suff‌iciently contributes

to sustainable development, OQI generally concurs with Lambert

Schneider that such a determination is diff‌icult to make because

definit ions of sus tainable dev elopment dif fer significa ntly

between countries, and are often broad, vague, or multifarious.

Recommendation(s): The CDM Executive Boar d should

continue to work towards ensuring that offset projects do no

net harm. Programs to engage and ed ucate local stakeholders

so the y understand the purpose and impacts of offset projects

will improve the CDM’s ability to prevent net harm. Improving

national-level governance structures, through training and capac-

ity-building, would further help DNAs develop and apply their

own sustainable development criteria and evaluation processes.

CONCLUSION

OQI f‌inds that, with some improvements, the CDM can pro-

vide an acceptable assurance of project additionality and base-

lines. Recent trends towards standardization and benchmarking

of both additionality and baselines should continue to i mprove

quality. It is important to note that while standardized approaches

are often advocated in principle, in reality some project types are

less amenable to standardization, and variations across regions

and contexts r equire consid eration and f‌lexibility. OQI notes

that exp ert judgment wi ll remain an important complem ent to

standardized approaches.

There ar e still challeng es to address and further improve-

ments to make. Project-by-project add itionality determinations

remain administratively burdensome and susceptible to subjec-

tivity a nd inconsistency; as such, m ovement towards a hybrid

approach would help str eamline the proc ess and increas e eff‌i-

ciency while maintaining quality. Signif‌icant improvements to

the third pa rty verif‌ica tion proce ss are needed, and pote ntial

conf‌licts of interest could be minimized if DOEs are not selected

by project part icipants. New policy mechanisms that addres s

reversal risk can ensure perm anence without constraining the

market.

On the whole, based on the assessment criteria established in

Ensuring Offset Quality: Integrating High Quality Greenhouse

Gas Offsets Into North American Cap-and-Trade Policy,39 OQI

f‌inds that the CDM is generally able to ensure suff‌icient offset

quality. As our recommendations continue to be addressed, par-

ticularly those regarding additionality de termination and third

party validation/veri f‌ication, t he CDM could provide quality

international offset credits for use in a future U.S. cap-and-trade

program.

32WINTER 2010

APPENDIX 1: The CDM Project Cycle

The CDM process involves two stages: project design and project implementation. The CDM requires a number of documents at

various points in both stages to demonstrate that a project meets the CDM’s requirements.

Stage I: Project Design Stage II: Project Implementation

Stage I begins with the project planning phase, where proj-

ect participants prepare a document describi ng the project, and

get written approval from each country involved.40 Among other

things, the written approval mu st show that the CDM project

supports the host country’s sustainable development goals.

In the project document preparation phase, project partici-

pants complete a Project Design Document (“PDD”). The PDD

is a comprehensive document that explains how the project meets

the CDM’s additionality tests for the activity in questio n. The

PDD also describes the project’s geographic boundary, how the

GHG reductions will be monitored and estimated, and the period

of ti me the p roject participant seeks to receive credits.41 Fur-

ther, the PDD summarizes any stakeholde r comments received

during the pu blic commen t period, describes any a nticipated

environmental, economic, and/or social impacts, and shows the

average annual reductions and total CER volume expected over

the project’s creditable lifetime. In general, project participants

develop projects according to standardized project “methodolo-

gies,” or blueprints, which the CDM Executive Board approves.

These methodologies outline the steps for undertaking a variety

of creditable GHG reducing activities.

Before the project can be off‌icially “regist ered” by th e

Executive Board (“EB”), an indepen dent third party auditor,

called a Designated Operational Entity (“DOE”), 42 must review

the project activity and documentation against the requirements

of t he CDM. The DOE checks all information in the PDD to

ensure transparency and rigor in data, calculations, and addition-

ality argum ents, and may come back to the project pa rticipant

with re quests for c larif‌ications. The DOE also conducts a site

visit to the proje ct to groun d-truth the project documentation ,

and i f they f‌ind that the project m eets all e stablished require-

ments, they submit a validation report to the EB, which may reg-

ister or reject the project, or request clarif‌ications if necessary.

Once the EB registers the project, the implementation stage

begins with the monitoring phase. Project participants must col-

lect an d analyze da ta from the project, accor ding to stan dard-

ized proce dures established in the project’s methodology. The

project participant must continually monitor the project over its

creditable lifetime and calculate the GHG reductions the project

has achieved to successfully receive CER credits.

In th e verif‌ication and certif‌ication phase, p roject partici-

pants again retain a DOE, this time to verify the project’s GHG

reductions as documented by the data acquired during the proj-

ect monitoring process. Once the DOE reviews and verif‌ies the

data, they submit paperwork certifying the accuracy of the GHG

reductions to the EB, and request issuance of CER credits to the

project participant.

33 SUSTAINABLE DEVELOPMENT LAW & POLICY

OQI Quality

Offset Criteria

CDM

PROCESS

CRITIQUES OF CDM OQI FINDINGS OQI RECOMMENDATIONS

1. Offsets Should Be

Additional

Regulatory, Barrier

or Investment, and

Common Practice

Tests

Does not ensure offset

quality

• Additionality

guidance too

subjective and

vague; applied

inconsistently

Processes for determining additionality in

projects where there are multiple revenue streams

should be improved

• Valid concerns exist about the design and

implementation of measures to ensure

additionality

• Recent rejection of certain project types

indicate improvement in implementing these

measures

• It is possible to modify the CDM so that it

ensures suff‌icient offset quality, while not also

being overly burdensome or administratively

complex

• It is easier to determine additionality where

CDM is the sole/primary source of revenue to

the project

Streamline existing process, standardize tools,

provide more detailed guidance

• For projects with multiple revenue streams,

implement a more rigorous and standardized

approach to determining additionality

• For all projects, provide more detailed

guidance to project participants and

independent third party project auditors

• Provide standardized investment and analysis

tools

• Develop “hybrid” additionality assessments,

which combine elements of the current

tests-based approach with more project-type-

specif‌ic benchmarks, to help balance the

strengths and weaknesses of the standardized

processes recommended above

2. Offsets Should Be

Based on a Realistic

Baseline

Transparent/

conservative

project-specif‌ic

assessment

Inadequately

streamlined;

administratively

burdensome

Generally suff‌icient to ensure offset quality

• Administrative burden is being reduced where

possible, but more streamlining is necessary

• Development of benchmark baselines requires

a signif‌icant amount of data, research, and

work to ensure they are current as well as

contextually and regionally appropriate

Benchmark baselines in appropriate sectors

• Transitioning towards more standardized,

benchmarked baselines, where appropriate,

would streamline project development and

promote administrative eff‌iciency

Table 1: Summary of Analysis Results

34WINTER 2010

OQI Quality

Offset Criteria

CDM

PROCESS

CRITIQUES OF

CDM

OQI FINDINGS OQI RECOMMENDATIONS

3. Offsets Should

Be Accurately

Quantif‌ied &

Monitored

Monitoring plan

must be included

in Project Design

Document (“PDD”)

No signif‌icant critiques Generally suff‌icient to ensure offset quality but

could be improved

• CDM has strict criteria for emission

quantif‌ication and monitoring

• The CDM predates, and has served as a model

for, emission quantif‌ication and monitoring

under other offset programs

In certain instances, monitoring could be

improved by requiring application of recognized

technical standards to CDM monitoring plans

• Monitoring and quantif‌ication requirements

must retain some degree of f‌lexibility and

diversity across different methodologies

• In certain instances, requiring the application

of internationally recognized technical

standards to CDM monitoring plans could

improve data quality

• Explicit references to recognized technical

specif‌ications and standards will also reduce

ambiguity for project participants and

auditors

4. Offsets Should

Be Independently

Validated &

Verif‌ied

Independent third

party auditors

called Designated

Operational

Entities (“DOEs”)

are contracted to

validate and verify

all projects

To date, DOEs have

not suff‌iciently audited

projects due to:

• Lack of capacity

• Conf‌licts of interest

• Competition

Validation and verif‌ication processes should be

signif‌icantly restructured to ensure offset quality

• Procedures for spot checks and periodic

evaluation have been taken seriously and

oversight of DOEs by the CDM Executive

Board (“EB”) is progressing, but still needs

improvement

• Standardized protocols on the practice

of auditing are needed. Adoption of the

Validation and Verif‌ication Manual (“VVM”)

marks progress in this regard

Align incentive structure, improve training for

auditors, and improve Executive Board oversight

• Require a mandatory training and testing

program for individuals employed by DOEs

• Auditors could be assigned to projects

instead of selected and contracted by project

participants

• Train and test DOE accreditation assessors

before they evaluate the capabilities of an

audit organization

• Enhance resources for DOE oversight under

the CDM

• Continual updates and improvements to

the VVM are essential to ensure DOEs,

project participants, and the CDM Executive

Board have a clear understanding of what is

material to the quality of PDD validation and

verif‌ication

35 SUSTAINABLE DEVELOPMENT LAW & POLICY

OQI Quality

Offset Criteria

CDM

PROCESS

CRITIQUES OF

CDM

OQI FINDINGS OQI RECOMMENDATIONS

5. Offsets Should Be

Unambiguously

Owned

Serialization on

registry; offset tons

issued approved

by Designated

National Authority

(“DNA”), i.e., the

host country

No signif‌icant critiques Generally suff‌icient to ensure quality

• The system is structured to respect domestic

sovereignty and ensure clear ownership under

domestic law, while simultaneously ensuring

that international ownership transactions are

clear and credible

• Serialization and a registry accounting system

promote unambiguous ownership by allowing

credits to be transferred and retired in a

transparent fashion

Improve national level governance structures

through training and capacity-building to help

DNAs do an even better job of addressing any

ambiguous ownership issues that may occur

6. Offsets Should

Address Leakage

Project boundary,

description, and

monitoring of

potential leakage

required in PDD

and deducted from

issuable credits

No signif‌icant critiques Generally suff‌icient to ensure offset quality but

could be improved

• Methodologies to estimate leakage are

conservative for most project types

Continue to use conservative approach in

estimating leakage

7. Offsets Should

Address

Permanence

Temporary

credits issued

for afforestation/

reforestation

(“AR”) projects

“Temporary”

designation creates

investment uncertainty

Generally suff‌icient to ensure offset quality, but

possibly too stringent

• Temporary nature of credits discourages

investment in forestry projects

Explore possible alternative approaches to

address reversal risk

• Decrease use of temporary crediting to

encourage investment in forestry projects

• Allow for a range of policy mechanisms

(e.g., pooled risk in a buffer account, project

insurance) to address reversal risk, which

will help promote greater certainty and avoid

constraining the market

8. Offsets Should Do

No Net Harm

Required public

comment period;

description

of potential

environmental/

economic/social

impacts in PDD

Some projects

do harm; not all

projects contribute

to CDM goal of

promoting sustainable

development

Generally suff‌icient to ensure offset quality

• Trade-offs mean achieving 100% no net harm

is diff‌icult in practice

• National sustainable development goals can be

varied and/or vague

• It is diff‌icult to determine whether CDM

suff‌iciently contributes to sustainable

development

Various approaches exist to ensure more

projects contribute to sustainable development

• Improve national-level governance structures

through training and capacity-building to

help DNAs develop their own sustainable

development criteria and evaluation processes

• Educate local stakeholders to promote

empowerment and understanding of offset

projects

• Provide clearer guidance on how to meet

sustainable development requirements

36WINTER 2010

1 The Kyoto Protocol applies to f‌ive other greenhouse gases besides CO2,

each with a different “warming power.” So that all the gases can be represented

by a common unit, each is converted into a “carbon dioxide equivalent.” For

example, methane (CH4) has a global warming potential 21 times that of CO2

over a 100-year time horizon.

2 offSet Quality initiative, enSuRing offSet Quality: integRating high

Quality gReenhouSe gaS offSetS into noRth ameRican cap-anD-tRaDe

policy 1 (2008) [hereinafter enSuRing offSet Quality], http://www.offsetquali-

tyinitiative.org/pdfs/OQI_Ensuring_Offset_Quality_Exec_Sum_7_08.pdf.

3 Id.

4 United Nations Framework Convention on Climate Change, Clean Develop-

ment Mechanism–Executive Board, Methodological Tool: Tool for the Dem-

onstration and Assessment of Additionality 1, EB 39 Annex 10 v.5.2 5 (2008)

[hereinafter Methodological Tool], available at http://cdm.unfccc.int/method-

ologies/PAmethodologies/tools/am-tool-01-v5.2.pdf.

5 See id.

6 See id.

7 See inStitute foR global enviRonmental StRategieS, cDm in chaRtS 84,

V.7.0 78 (2009), http://enviroscope.iges.or.jp/modules/envirolib/upload/970/

attach/charts7.0.pdf (last visited Mar. 1, 2010).

8 See Methodological Tool, supra note 4, at 10.

9 Id. at 11.

10 lambeRt SchneiDeR, iS the cDm fulfilling itS enviRonmental anD SuS-

tainable Development obJectiveS? an evaluation of the cDm anD optionS

foR impRovement (Öko-Institut 2007), available at http://www.oeko.de/

oekodoc/622/2007-162-en.pdf.

11 Id. at 44.

12 Id. at 45.

13 Michael W. Wara & David G. Victor, A Realistic Policy on International

Carbon Offsets, (Program on Energy and Sustainable Development at Stanford

University, Working Paper No. 74, 2008), available at http://iis-db.stanford.

edu/pubs/22157/WP74_f‌inal_f‌inal.pdf.

14 Id. at 12-14.

15 See id. at 14.

16 See id.

17 See id. at 16-17.

18 Id. at 17.

19 See lambeRt SchneiDeR & lennaRt mohR, a Rating of DeSignateD opeRa-

tional entitieS accReDiteD unDeR the clean Development mechaniSm: Scope,

methoDology, anD ReSultS 14 (Öko-Institut 2009), available at http://assets.

panda.org/downloads/wwf_doe_rating___scope_methodology_and_results_

f‌inal.pdf.

20 See Ram m. ShReStha et al., uniteD nationS enviRonment pRogRamme,

baSeline methoDologieS foR clean Development mechaniSm pRoJectS 20-21

(Myung-Kyoon Lee ed., UNEP Riso Center 2005), available at http://cd4cdm.

org/Publications/UNEP_CDM%20Baseline%20Meth%20Guidebook.pdf.

21 Id.

22 United Nations Framework Convention on Climate Change, Clean Develop-

ment Mechanism–Executive Board, Approved Baseline and Monitoring Meth-

odology AM0070: Manufacturing of Energy Eff‌icient Domestic Refrigerators 3,

am0070/V. 01, EB 42 (2008), available at http://cdm.unfccc.int/UserManage-

ment/FileStorage/CDMWF_AM_R9YH4PM0RKNA5RGIF0TUMO47IGZIS2.

23 See Appendix for explanation of CDM Project Cycle and def‌inition of Proj-

ect Design Document (“PDD”).

24 See generally United Nations Framework Convention on Climate Change,

Monitoring Reports, http://cdm.unfccc.int/Issuance/MonitoringReports/index.

html (last visited Feb. 8, 2010) (providing an online listing of all the Monitoring

Reports for the issuance of CDRs and addressing the monitoring of leakage).

25 See United Nations Framework Convention on Climate Change, Clean

Development Mechanism–Executive Board, Procedure For Accrediting Opera-

tional Entities by the Executive Board of the Clean Development Mechanism

4, EB 34, Annex 1, v. 08 (2007), available at http://cdm.unfccc.int/EB/034/

eb34_repan01.pdf.

26 This is true except in the case of small-scale projects, where the same DOE

may be used for both validation and verif‌ication.

27 DOEs and their subcontractors must be able to demonstrate that they have no

existing or potential conf‌lict of interest concerning the project for which they

have a contract to provide validation and/or verif‌ication services to the project

participant (i.e., having consulted for the project participant, having a f‌inancial

interest in the project, etc.).

28 An Assessment Team assembled by the CDM Accreditation Panel found f‌ive

nonconformities relating to DNV’s competence in technical areas, def‌iciencies

in internal audits procedures, lack of evidence of actions considered on the

nonconformities identif‌ied in the internal audits, and a sample of f‌ive project

activities revealed discrepancies, as did the assessment of the technical review

process based on a sample of project activities. See United Nations Framework

Convention on Climate Change, Clean Development Mechanism–Executive

Board, Annex 2: List of Non-Conformities of DNV eb 44, annex 2 (2008),

available at http://cdm.unfccc.int/EB/044/eb44_repan02.pdf.

29 The VVM is a guide designed to assist DOEs with their validation and veri-

f‌ication work, by promoting quality and consistency in all DOE reports, and to

ensure that each project meets all the relevant requirements of the CDM.

30 Materiality is based on the concept that there are certain omissions or errors

in data that are not relevant to the decision of whether or not to issue CERs to a

project.

31 A Designated National Authority (“DNA”) is the national agency that is

responsible for approving CDM projects. For any CDM project to move for-

ward, the DNA from each country involved in the project must give their written

approval in the form of a Letter of Approval (“LoA”).

32 See Conference of the Parties Serving as the Meeting of the Parties to the

Kyoto Protocol, Montreal, Can., Nov. 28–Dec.10, 2005, Appendix D: Clean

Development Mechanism Registry Requirements 27, FCCC/KP/CMP/2005/8/

Add.1 (March 30, 2006) [hereinafter Conference of the Parties], available at

http://cdm.unfccc.int/Reference/COPMOP/08a01.pdf#page=27.

33 See United Nations Framework Convention on Climate Change, Clean

Development Mechanism–Executive Board, Approved Baseline and Monitor-

ing Methodology am0036, v. 3 (2009), available at http://cdm.unfccc.int/

UserManagement/FileStorage/CUOTDYZSL8EV3F0WR96MXKIJA271BQ.

34 See Conference of the Parties, supra note 32, at 61.

35 See id. at 14 (exemplifying the stakeholder consultation process).

36 See id.

37 See Press Release, Center for Biological Diversity, AES Corporation Partici-

pating in the Demise of the Ngobe Tribe of Panama and La Amistad Biosphere

Reserve (Apr. 23, 2009), available at http://www.biologicaldiversity.org/news/

press_releases/2009/la-amistad-04-23-2009.html.

38 See SchneiDeR, supra note 10, at 46.

39 See enSuRing offSet Quality, supra note 2.

40 Projects must be in countries that have approved the Kyoto Protocol.

41 Under the CDM, projects are eligible for either a seven-year crediting period

with the option to renew up to three times, or one ten-year crediting period with

no option for renewal.

42 DOEs are private companies, such as auditing and accounting f‌irms, capable

of conducting credible and independent assessments (i.e., without any conf‌licts

of interest) of emission reduction projects.

Endnotes: Assessing Offset Quality in the Clean Development

Mechanism