BENEFITS OF THE NEW GS PRE-CDM VER TOOL
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Credit Issuance and Emissions Reductions under the Current Rule
If 10 CDM projects are generating 100,000 CERs each per annum during a ten-year crediting period, and each project also claims one year of pre-CDM VERs, this will result in the issuance of a total of1.1 million carbon credits over the entire 11-year period. Assuming that each project has a lifetime of 30 years, the total units of emissions reduction that will be generated by the 10 projects will be 30 metric tons of CO2e (100,000*10 projects *30 years).
Credit Issuance and Emissions Reductions under the New Rule
If 10 CDM projects are generating 100,000 CERs each per annum during a ten-year crediting period, each project must retire an amount of CERs equivalent to any pre-CDM VERs that are issued by the Gold Standard Foundation prior to the project's registration with the CDM. Assumimg as before that each project has a lifetime of 30 years, the total units of emissions reduction that will be generated by the 10 projects will still be 30 metric tons of CO2e, but the total number of carbon credits available on the market will be 1 million rather than 1.1 million. To generate 1.1 million CERs, an 11th project would be needed, and this 11th project would generate an additional 3 metric tons of emissions reductions.
Special Focus
GOLD STANDARD LAUNCHES NEW TOOL FOR CREDITING PRE-CDM VERS
The Gold Standard has developed an innovative tool to ensure that the practice of claiming credits from projects prior to registration by the UNFCCC maintains environmental integrity. Launched on 22 May, the rule contains a sunset clause that gives project developers until 31 December 2009 to align their portfolios with the rule change.
In announcing the new rule, Liam Salter, Chairman of the Gold Standard Technical Advisory Committee, sais, "we are keen to tighten up rules on pre-CDM VERs because we are concerned about the potential long-term impact of these extended crediting periods on new VER projects." Pre-registration credits, known as pre-CDM VERs, are a major source of credit supply to the voluntary carbon markets because they provide an early revenue stream crucial for project development. Still, these same pre-CDM VERs may actually lead to lower overall emission reductions. This is because crediting periods are typically shorter than the period in which the installation is reducing emissions. Extending the crediting period by granting additional credits as pre-CDM VERs means the same actual emission reductions result in a larger number of carbon credits issued. While it boosts the revenue from carbon credits for an individual project, it does not stimulate new projects or further emission reductions.
Structured as an Emissions Purchase Acquisition Agreement (ERAA), the Gold Standard tool allows project developers to kickstart projects by having VERs issued now, but requires them to make a repayment in the form of CERs to the Gold Standard at a later stage.
"The CERs need to be delivered to the Gold Standard after a grace period of two years following CDM registration, in annual installments spread over the remainder of the first CDM crediting period," says Rutger de Witt Wijnen, partner of law firm De Brauw, who has helped develop the ERAA and also serves as a member of the Gold Standard Technical Advisory Committee. "The CERs will be cancelled by the Gold Standard upon receipt."
"We know that crediting periods are arbitrary and simply balance the need for sufficient incentive and certainty to stimulate projects development," says Meinrad Burer, Technical Director of the Gold Standard Foundation, "but arbitraily increasing crediting periods for certain projects may undermine the environmental integrity of both the CER and VER markets."
If project developers would like to make use of the old rule, which allows for one additional year of pre-CDM VERs on top of the regular crediting period, then the project must be submitted for CDM validation (i.e. the UNFCCC web-hosting must have started) prior to 31 Dec 2009, and project developers must inform the Gold Standard via email by 31 Dec 2009 that they want to make use of the old rule. After this date, the new rule will apply.
For further information, contact Michael Schlup, The Gold Standard Foundation, Email, Tel. 0041-22-788-7080.