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This section is directed at those who believe they may want to develop a climate change project outside of the UK, it provides a brief overview of the factors to be considered.
For more information on typical eligible climate change projects, and the concepts of carbon credits and emissions trading, please refer to the Opportunities section. Our Country information has information on potential host countries.
For project enquiries, the CCPO offers a bespoke service of free initial advice for UK businesses. If you are interested in this service, please go to How the CCPO can help and complete the form to submit your project details.
Dependent on the project type, over a reasonable crediting period, about 10-20% of the total investment (and even up to 40%) can be reimbursed in the form of carbon credits. However, when the credits are bought on delivery (e.g. on an annual basis), the impact on the internal rate of return (IRR) of the project can be between 2-7%. This percentage is dependent on a number of factors including the terms in the credit purchasing contract; the technology used; the amount and type of the greenhouse gas reductions; the country where the project is implemented (and any perceived financing risks); the capital costs; and the costs to ensure eligibility (initial project validation, on-going monitoring and third party verification of the reductions). For CDM projects, a registration fee will also be payable, and some host countries are considering levying a tax on the carbon credits as well.
The specific processes involved in developing a CDM or JI project are outlined in our Business guides. This may seem somewhat daunting, and we recommend that once you have read the guides and have an initial understanding of the processes involved, you carry out a quick assessment of the potential financial benefits that could accrue from carbon credits associated with the project. This will enable you to assess whether or not you should invest more time in developing the project as a climate change project. We are happy to assist in this 'back of the envelope' calculation.
The first step is to make a quick calculation of the number of carbon credits accruing from your project, to see if the potential impact of the carbon credits on your project finance justifies any further action.
It is essential that your project goes beyond normal practice from a greenhouse gas emissions point of view. If this is not the case, the project will be ineligible. So it is vital to determine whether your project will emit less greenhouse gases than the normal practice in the country/area in which you are planning to implement it. This condition or test is referred to as additionality. The extent to which a project performs better than the normal practice determines the amount of carbon credits that can be attributed to it. This normal practice i.e. what would have happened in absence of your project, is called the project 'baseline'. In some cases, there will be reasonably good information on the baseline emissions, and for other countries and sectors, establishing the baseline will be the responsibility of the project developer.Bear in mind, the baseline methodology and assumptions will be subject to third party assessment if and when the project is validated, prior to international approval as a CDM or JI project.
We have developed a simple spreadsheet tool which assists in carrying out an initial assessment of the potential contribution of carbon financing to a project. Please Contact us for details.
Currently, there is a significant difference in the value of carbon credits depending on whether they are Kyoto compliant (from a CDM or JI project) or non-Kyoto compliant, the former having a greater value. Furthermore, CDM credits are possible for projects from 2000, whereas projects can only accrue JI credits from 2008. JI projects can only be hosted by developed, or Annex I, countries with a Kyoto emissions reduction target. All developing countries can host CDM projects, if they have ratified the Kyoto Protocol. The current status of a country can be confirmed via the UNFCCC web site.
If your project is based in a country that has not signed the Kyoto Protocol, you cannot obtain CDM or JI credits, unless the country signs and ratifies before the commitment period starts. The commitment period is the period when the targets need to be met; the first period is 2008-2012. As an alternative, the non-Kyoto market still offers the opportunity to sell emissions credits but at a lower price.
Setting up and implementing any project in a developing country can be difficult, and climate change projects are no different. However, the potential income stream from carbon credits can help to improve the long-term economics. A number of insurance products are currently being developed specifically for the carbon finance market.
Project uncertainties include:
When the Kyoto Protocol will enter into force, necessary to enable projects to start accruing Kyoto compliant carbon credits
Capability and willingness of countries to host climate change projects, and the nature and duration of obtaining the necessary approvals
Determination of the project baseline, and hence the amount of emissions reduction credits which can be assigned to the project - improvements are easier to quantify than new projects which adopt an alternative course of action
The market price for carbon credits
Every project is different - the financial benefits of turning it into a climate change project, and the potential hurdles, will be specific to your circumstances. These are dictated by the host country, current practice, the technology to be applied etc.
We are available to assist you in the initial evaluation of some of these issues, and the UK has a number of companies with particular expertise to assist you through the full process. At the CCPO, we can continue to assist you with the Government relations required as a project progresses.
If you are a UK business and you wish to submit details of your project so that we can offer some bespoke advice, please complete the Project Advice Form in the section 'How the CCPO can help'. The information you provide will be regarded as confidential and the details will not be placed in the public domain.
The UK has a broad range of experienced companies who can offer climate change related services to UK and overseas project developers and other clients. To facilitate access to these UK companies, we have developed a UK climate change service providers database.
You can search for companies that meet your requirements using the following criteria:
Company name
Products and services offered
Regions where services are offered
Once the initial search results have been displayed it is possible to view the full company details.
Please note that whilst we are happy to facilitate such searches, we cannot directly endorse or recommend any of the companies listed, nor can we take responsibility for the services they provide.
If you are in a UK company and would like to be added to our database, please complete and submit the form in the section 'How the CCPO can help'