Can CDM uplift cogeneration project development

Based on a series of market mechanisms designed for the creation and trade of emission reduction credits, the carbon market was valued at over US$60 billion in 2007. One of these mechanisms, the Clean Development Mechanism (CDM), allows industrialised nations, such as UK, Germany, Japan, to purchase emission reductions which arise from sustainable development projects located in countries including India, China, Indonesia and Brazil. The carbon credits that are generated by a CDM project are termed Certified Emissions Reductions (CERs), expressed in tonnes of CO 2 equivalent (tCO 2 e). This article looks at how carbon financing for CDM projects can uplift cogeneration project development throughout the developing world. Registration as a CDM project can increase the financial attractiveness of a project in two ways: CER revenue can simply increase the project IRR, and also mitigate risks by virtue of providing a relatively long-term revenue stream denominated in hard currency (Euro or US$), often backed by a highly rated counterparty. In order for a project to generate CERs, it must undergo a rigorous process of documentation and approval by a variety of local and international stakeholders. The key stages in the CDM project cycle include the initial feasibility assessment, development of a Project Design Document (PDD), host country approval, project validation, emission reduction verification and credit issuance. We explore the cogeneration projects currently navigating their way through the CDM cycle, including the Lucelia bagasse project located in Sao Paulo Brazil. For a project to achieve CDM certification for the emission reductions it achieves, it must be developed using an approved methodology. Each methodology has a set of applicability conditions and guidelines that dictate whether or not it may be applied for a specific project. Certain projects encounter difficulties in matching project conditions with methodology applicability requisites. Others stumble in calculating and proving their emission baseline scenario from which they will be generating emission reductions. This article explores the challenges faced by project developers in developing methodologies for cogeneration projects. Finally, we analyse where the current market prospects exist for developing cogeneration projects, including the petroleum industry.