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Project Cycle

The time it takes for a project to go through the entire Carbon Finance Unit (CFU) project cycle varies greatly, reflecting the variety of project types, their novelty, sizes, circumstances, and countries, and the complexities of establishing a baseline as well as the preparedness of the sponsor and project.

However, the CFU is now beginning to see some repitition in project types and baselines, monitoring and other project cycle issues. It has also developed a better understanding of concepts and procedures, which leads to a more rapid drafting of project documents and a faster overall processing of such projects.

Project Idea Note (PIN) - Project sponsors/proponents submit potential projects for consideration to the CFU in the form of a Project Idea Note (PIN). This is a short form (about 6 pages) that provides the basic information about the project. A financial analysis model is requested from the project sponsor. This PIN is quickly evaluated and if it falls within the project eligibility criteria, the CFU will contact the project sponsor for further information.

Early Notification and Letter of Endorsement (LoE) - If the PIN was submitted by a third-party project sponsor, and the CFU decides to develop it further, the Host Country (e.g. the UNFCCC National Focal Point) will be notified of the project. The CFU will ask the Host Country for a letter of endorsement for the project, to ensure that the Host Country approves of the project and understands its follow-up responsibilities under the Kyoto Protocol.

Host Country Committee Memorandum of Understanding (HCC MOU) - If a Host Country becomes interested in learning about and participating in the CFU, it may sign a MOU with the CFU and become a member of the HCC. This will allow the Host Country representatives to attend meetings of the HCC.

Carbon Finance Document (CFD) - CFU experts will investigate further and evaluate particular aspects of the project in discussions with the project proponent and prepare a CFD, formerly known as the Project Concept Note (PCN). The CFD is an intermediate document that provides enough information on the project to allow the Fund Management Committee (FMC) (and the Participants Committee (PC) if required) to review and clear the project and its further development. The CFD notes areas that need further study after clearance.

Letter of Intent (LoI) - The CFU formally signals its intention to purchase emission reductions generated by a specific project under terms agreed in return for the exclusive right to contract for the purchase of emission reductions. By signing this letter the project entity commits itself to repay project preparation costs if it decides not to proceed to negotiate an Emission Reductions Purchase Agreement with the CFU Trustee in relation to the project.

World Bank Due Diligence - All projects must comply with World Bank Group Operational Policies and Procedures, including those on environmental assessment. An Integrated Safeguard Policies review and Environmental Assessment (EA) is performed as a standard part of the appraisal of World Bank Group projects.

Baseline Study (BLS) and Monitoring Plan (MP) - Once the CFU has decided to include the project in the Portfolio, it will commission a Baseline Study and Monitoring Plan, if the project is not applying an approved methodology. The Baseline Study investigates the project-based creation of ERs and explains how those ERs are 'additional' to what would have happened 'anyway' without the project. First, it defines the 'without project' scenario as the baseline. Next, it quantifies the number and timing of ERs created by the project. The MP defines how project operation will be monitored, how achieved ERs are calculated, and how the ERs will be independently verified on a periodic basis throughout the project operational phase.

Letter of Approval (LoA) - With the issuance of a Letter of Approval the Host Country formally approves the project for the purposes of Article 6 or 12 of the Kyoto Protocol, and confirms that the project assists the Host Country in achieving sustainable development. A Letter of Approval is a requirement for all JI and CDM activities under the Kyoto Protocol and is therefore a prerequisite for the signing of an ERPA with the CFU Trustee.

Project Design Document (PDD) - A project-specific document required under the CDM which will enable the Operational Entitiy (OE) to determine whether the project (i) has been approved by the parties involved in a project, (ii) would result in reductions of greenhouse gas emissions that are additional, (iii) has an appropriate Baseline and Monitoring Plan. The PDD is prepared by the CFU and project sponsor.

Validation - After the BLS, MP, and PDD have been satisfactorily developed, the CFU engages an Independent Validator (Designated Operational Entity, DOE) to validate them. This means that the Validator agrees that the ERs are additional to the baseline, the MP is sufficient, and that the ERs have a high chance of being certified under the Kyoto Protocol.

Registration - The Designated Operational Entity (DOE) contracted to undertake validation, upon the request of the CFU, submits the validation report and validation opinion to the Executive Board, along with a request for registration, together with the PDD, Baseline Study, MP, stakeholder consultation documentation and LoA, plus any other appropriate supporting documentation.

Pre-Negotiations Workshop / Consultations - At about the time of validation, the CFU team may arrange a Pre-Negotiations Workshop and/or intensive Consultations on the project. This event brings together the project sponsor(s), the Host Country representatives, and the CFU team assigned to that project. The workshop is an instrument to ensure fairness in the process of negotiating and concluding. During the Workshop, the Host Country representatives are appraised of all important issues which might affect their position in negotiating a Host Country Agreement and an Emissions Reduction Purchase Agreement (ERPA) with the CFU.

Negotiations / Host Country Agreement / ERPA - After the Workshop or Consultations, the CFU legal team prepares a 'term sheet' and/or a draft ERPA for further discussion with the Host Country representatives. During the negotiations, the final terms of the ERPA are agreed between the CFU, the project sponsor, and the Host Country. The project sponsor signs the ERPA and the Host Country signs the parallel Host Country Agreement.

Post-Negotiations Workshop - If the finalized CF project is unique and the project preparation process has been a 'best practice' experience, the CFU may share the lessons learned from this project with a wider audience of CFU constituents. Host Country representatives from the region or from countries with similar technology barriers are invited for presentations by the Project Host Country, project sponsor, and the CFU. Discussion of lessons learned is encouraged.

Initial Verification / project commissioning - After the project's construction and before its commissioning to produce ERs, the CFU contracts an Independent Third Party (a Verifier) for the project (different from the Validator). The Verifier will establish contact with the project and undertake an Initial Verification, which should confirm that the project is ready to generate verifiable and certifiable ERs. This will trigger the CFU acceptance of ERs from the project.

Monitoring - As part of project implementation, the project operator must implement the MP, which provides a methodology and a tool for measuring and calculating the emission reductions generated by the project. Once the project starts to generate emission reductions, the project entity monitors the project in accordance with the MP.

Verification and Certification - Verification and certification of the emission reductions will be undertaken periodically in accordance with the MP and other applicable guidelines by an Independent Third Party (the Verifier), who is contracted for the project by the CFU. The verifier will issue a certificate, which will confirm that the ERs have been achieved in the verification period in compliance with applicable CDM/JI rules.

Transfer of emission reductions - Once the ERs are certified, the CFU will pay for the amount of ERs as agreed in the ERPA and the ERs are transferred to Participants in accordance with the ERPA and/or Host Country Agreement and applicable UNFCCC or other rules.

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