Table of contents:Module1 Introduction

1.1. Value of the international carbon markets1.2. Five reasons why carbon trading is here to stay in South Africa

Module 2 Carbon taxes, policies and legislation in South Africa

2.1 Carbon taxes defined2.2 Current carbon taxes in South Africa2.3 Future environmental taxes2.4 Pending legislation on carbon tax2.5 Allied legislation2.6 Reporting

Module 3 Carbon Footprinting

3.1 Global warming3.2 The six greenhouse gases3.3 What is a carbon footprint?3.4 How is a carbon footprint reported and what are the standards for reporting against?3.5 Greenhouse gas protocol (GHG) process3.6 Six reasons why calculate and report your carbon footprint?

Module 4 Carbon Trading

4.1 What is carbon trading?4.2 United Nations mechanisms for carbon emissions trading4.3 The Voluntary and Mandatory (Compliance) markets4.4 Financial legislation relevant to carbon trading in South Africa

Module 5 Carbon Projects

5.1 Definition of a carbon project5.2 Examples of carbon projects5.3 Legal and policy framework for mandatory carbon projects5.4 Main steps for carbon projects in the mandatory markets5.5 Main steps for carbon projects in the voluntary markets5.6 Current situation in the South Africa carbon project arena5.7 Verification and Validation organizations5.8 Schedule and Transaction costs for carbon projects

Module 6 International Exchanges, verification and job opportunities

6.1 International Exchanges6.2 Employment opportunities in the South African carbon industry

This module covers the following:• Definition of what constitutes a carbon project;• Examples of different types of carbon projects;• Main elements of the legal and policy framework for carbon projects;• Overview of the main steps for carbon projects for the mandatory and voluntary markets;• The current situation in the South African carbon project arena;• Verification and validation organizations; and• Estimate of schedule and transaction costs for the establishment and maintenance of a

notational carbon project;

5.1 Definition of a Carbon Project

In the context of this course, a carbon project is an enterprise that is undertaken for the purposeof generating carbon emissions reduction credits for sale on any of the mandatory or voluntarymarkets that exist. (Refer to Module 4 – Carbon Markets - for an overview of the current carbonmarkets).

5.2 Examples of Carbon Projects

Activities that are typically deemed suitable• Renewable energy generation infrastructure utilizing biomass,

geothermal, solar, wind, tidal, hydro and wave energy sources• Energy efficiency measures• Switching fuels to one with lower carbon emissions• Re-afforestation and reduction of deforestation• Geo-sequestration• A range of initiatives including hydrofluorocarbon replacement, cogeneration, water

management, methane capture (from landfill sites) and nitrous oxide amongst others.

5.3 Legal and Policy framework for Mandatory Carbon Projects

Carbon projects yielding carbon credits for the mandatory markets are regulated by the KyotoProtocol under the UNFCCC. Refer to Module 4 – Carbon Markets – which provides an overviewof the UNFCCC, the Kyoto Protocol and the three pursuant mechanisms for managing carbonemissions reduction credits via the mandatory markets. The mechanisms are:• Emissions Trading;• Joint Implementation; and the• Clean Development Mechanism.

Quick reference:Module 1:Introduction1.1. Value of the international carbon markets1.2. Five reasons why carbon trading is here to stay in

South Africa

Module 2:Carbon taxes, policies and legislation in South Africa2.1 Carbon taxes defined2.2 Current carbon taxes in South Africa2.3 Future environmental taxes2.4 Pending legislation on carbon tax2.5 Allied legislation2.6 Reporting

Module 3:Carbon Foot-printing3.1 Global warming3.2 The six greenhouse gases3.3 What is a carbon footprint3.4 How is a carbon footprint reported and what are

the standards for reporting against?3.5 Greenhouse gas protocol (GHG) process3.6 Six reasons why calculate and report your carbon

footprint?

Module 4:Carbon Trading4.1 What is carbon trading?4.2 United Nations mechanisms for carbon emissions trading4.3 The Voluntary and Mandatory (Compliance) markets4.4 Financial legislation relevant to carbon trading in

South Africa

Module 5:Carbon Projects5.1 Definition of a carbon project5.2 Examples of carbon projects5.3 Legal and policy framework for mandatory carbon projects5.4 Main steps for carbon projects in the mandatory markets5.5 Main steps for carbon projects in the voluntary markets5.6 Current situation in the South Africa carbon project arena5.7 Verification and Validation organizations5.8 Schedule and Transaction costs for carbon projects

Module 6:International Exchanges, verification and job opportunities6.1 International Exchanges6.2 Employment opportunities in the South African carbon

industry

Since South Africa is a Non-Annex Country and therefore is not subject to legally-bindingemissions reduction targets, only the third mechanism for the mandatory markets (CDM) isapplicable locally and the other two shall not be addressed any further in this module.

The Clean Development Mechanism (CDP) allows emission-reduction projects in developingcountries to earn certified emission reduction (CER) credits, each equivalent to one tonneof CO2. These CERs can be traded and sold, and contribute to industrialized countriesmeeting their emission reduction targets under the Kyoto Protocol.

In South Africa, the CDM is the way for projects to be listed under the Kyoto Protocol. Projectsare verified under the United Nations Framework for Climate Change.

More and more projects are coming on line. Standard Bank will kick off an energy efficientlighting programme aimed at replacing the estimated 40-million inefficient light-bulbs theiroffices across South Africa, by early 2012.

Trevor Manuel, South Africa’s Minister of National Planning who has been appointed asthe co-chair of an international green fund, urges Africa to start identifying Climate FundProjects. His comment is that “Africans didn’t go and fetch the money”. The $100bn GreenClimate Fund was set up after the Cancun climate summit in December 2010.

5.4 Main steps for carbon projects in the Mandatory Markets

The key steps for CDM/Mandatory Market carbon projects and the responsible partiesare set out in the table below:

Quick reference:Module 1:Introduction1.1. Value of the international carbon markets1.2. Five reasons why carbon trading is here to stay in

South Africa

Module 2:Carbon taxes, policies and legislation in South Africa2.1 Carbon taxes defined2.2 Current carbon taxes in South Africa2.3 Future environmental taxes2.4 Pending legislation on carbon tax2.5 Allied legislation2.6 Reporting

Module 3:Carbon Foot-printing3.1 Global warming3.2 The six greenhouse gases3.3 What is a carbon footprint3.4 How is a carbon footprint reported and what are

the standards for reporting against?3.5 Greenhouse gas protocol (GHG) process3.6 Six reasons why calculate and report your carbon

footprint?

Module 4:Carbon Trading4.1 What is carbon trading?4.2 United Nations mechanisms for carbon emissions trading4.3 The Voluntary and Mandatory (Compliance) markets4.4 Financial legislation relevant to carbon trading in

South Africa

Module 5:Carbon Projects5.1 Definition of a carbon project5.2 Examples of carbon projects5.3 Legal and policy framework for mandatory carbon projects5.4 Main steps for carbon projects in the mandatory markets5.5 Main steps for carbon projects in the voluntary markets5.6 Current situation in the South Africa carbon project arena5.7 Verification and Validation organizations5.8 Schedule and Transaction costs for carbon projects

Module 6:International Exchanges, verification and job opportunities6.1 International Exchanges6.2 Employment opportunities in the South African carbon

industry

Typically, it is best to request a trained consultant provide a pre-feasibility study to see ifthe development is worth submitting as a CDM project.

In order to be submitted for registration, a project should be developed in accordance witha methodology approved by the CDM Executive Board. Methodologies typically addressmonitoring and baselines, both of which are crucial for determining the actual emissionsreductions realised by the project in question. The CDM has well over 138 approvedmethodologies for a wide range of different activities (project types and scales) as well aslocales under which projects have been registered with the UNFCC. These can be downloadedfrom the UNFCC website. If a methodology does not exist for a proposed project then oneis required to be developed and approved – a process which is time-consuming and cancost up to EUR250,000 if developed from scratch.

A project registered with the under the Clean Development Mechanism will require that aProject Idea Note (PIN) and Project Development Document (PDD) be completed as partof the process.

A PIN is like a scoping document (typically ten pages in length) that maps out the roughidea and plan. The PDD on the other hand is a detailed business plan which contains moredetails about the project and its execution. Although not formally required as part of theCDM project process there is definite merit in undertaking a feasibility study investigatingwhether the project fulfils the requirements such as the different types of Additionality andis likely to attract financing and generate sufficient income to cover the transaction and othercosts. The feasibility study is positioned somewhere between the PIN and PDD in terms oftiming, detail and cost and is an effective means of reducing project risk. It yields a yes/nodecision about whether to proceed with the project without going to the additional expenseof producing a PDD only to discover the project may not be viable.

Monitoring is a crucial component of any carbon project and it must be able to adequatelydetermine the volume of emissions reduction attributable to the project. This is essential forproject validation. Validation and verification are undertaken by an independent auditor orDOE approved by the CDM EB. CDM projects may apply to the Gold Standard for certification.

5.5 Main Steps for Carbon Projects in the Voluntary Markets

The key steps for Voluntary Market carbon projects and the responsible parties are set outin the table below:

Quick reference:Module 1:Introduction1.1. Value of the international carbon markets1.2. Five reasons why carbon trading is here to stay in

South Africa

Module 2:Carbon taxes, policies and legislation in South Africa2.1 Carbon taxes defined2.2 Current carbon taxes in South Africa2.3 Future environmental taxes2.4 Pending legislation on carbon tax2.5 Allied legislation2.6 Reporting

Module 3:Carbon Foot-printing3.1 Global warming3.2 The six greenhouse gases3.3 What is a carbon footprint3.4 How is a carbon footprint reported and what are

the standards for reporting against?3.5 Greenhouse gas protocol (GHG) process3.6 Six reasons why calculate and report your carbon

footprint?

Module 4:Carbon Trading4.1 What is carbon trading?4.2 United Nations mechanisms for carbon emissions trading4.3 The Voluntary and Mandatory (Compliance) markets4.4 Financial legislation relevant to carbon trading in

South Africa

Module 5:Carbon Projects5.1 Definition of a carbon project5.2 Examples of carbon projects5.3 Legal and policy framework for mandatory carbon projects5.4 Main steps for carbon projects in the mandatory markets5.5 Main steps for carbon projects in the voluntary markets5.6 Current situation in the South Africa carbon project arena5.7 Verification and Validation organizations5.8 Schedule and Transaction costs for carbon projects

Module 6:International Exchanges, verification and job opportunities6.1 International Exchanges6.2 Employment opportunities in the South African carbon

industry

There are fewer steps, activities, documents and parties involved in carbon projects for thevoluntary markets. Several Standards exist for certification of voluntary carbon projectsincluding the Climate, Community & Biodiversity Alliance, Verified Carbon Standardand VER+ for example.

The voluntary carbon market is starting to mature and democratize and is becoming morediscerning. Purchasers are prepared to pay a premium for carbon credits from high qualityprojects such as those certified to the CCBA standard.

Overseas companies such as SceptreCo2 specialize in trading carbon credits in both thevoluntary and mandatory markets.

5.6 Current situation in the South African carbon project arenaJust like any other commercial venture, a carbon reduction project or commercial venturedesigned to reduce greenhouse gases from entering the environment will require time,money and resources and should be well planned within the planning and legal requirementsof that country i.e. feasibility studies or environmental impact assessments (EIA’s).

In South Africa, there are 174 projects listed with the Department of Energy. Of these projects,140 are still Project Idea Notes (PIN’s) and 34 are at the Project Design Document stage.

Of the 34 more advanced projects 17 have been registered with the CDM Executive Boardas CDM projects. Seventeen are at different stages of the CDM project registration cycle,i.e. DNA approval, validation stage and/or the request for review stage. To date only 4 havebeen issued with CER’s.

Project statistics in South Africa:

Case study: - Red Cap Investments have been given the green light by EnvironmentalAffairs to go ahead with the development of a 300MW wind power plant near St Francis Bayand Oyster Bay. 350 000 tons of carbon dioxide emissions will be avoided with this projectand it is being developed under the Clean Development Mechanism (CDM) of the UnitedNations Framework Convention on Climate Change.

Quick reference:Module 1:Introduction1.1. Value of the international carbon markets1.2. Five reasons why carbon trading is here to stay in

South Africa

Module 2:Carbon taxes, policies and legislation in South Africa2.1 Carbon taxes defined2.2 Current carbon taxes in South Africa2.3 Future environmental taxes2.4 Pending legislation on carbon tax2.5 Allied legislation2.6 Reporting

Module 3:Carbon Foot-printing3.1 Global warming3.2 The six greenhouse gases3.3 What is a carbon footprint3.4 How is a carbon footprint reported and what are

the standards for reporting against?3.5 Greenhouse gas protocol (GHG) process3.6 Six reasons why calculate and report your carbon

footprint?

Module 4:Carbon Trading4.1 What is carbon trading?4.2 United Nations mechanisms for carbon emissions trading4.3 The Voluntary and Mandatory (Compliance) markets4.4 Financial legislation relevant to carbon trading in

South Africa

Module 5:Carbon Projects5.1 Definition of a carbon project5.2 Examples of carbon projects5.3 Legal and policy framework for mandatory carbon projects5.4 Main steps for carbon projects in the mandatory markets5.5 Main steps for carbon projects in the voluntary markets5.6 Current situation in the South Africa carbon project arena5.7 Verification and Validation organizations5.8 Schedule and Transaction costs for carbon projects

Module 6:International Exchanges, verification and job opportunities6.1 International Exchanges6.2 Employment opportunities in the South African carbon

industry

5.7 Verification and Validation Organizations

To prove whether a project will result in actual reductions in GHG emissions, it must be validatedand verified by an independent third party that is approved for performing such a role.

There are just over 50 companies world-wide that are accredited by the UN as DOEs. Thelatest list can be found HERE. (http://cdm.unfccc.int/DOE/list/index.html)

To date there are only a few companies in South Africa undertaking third party validationand verification of locally-generated carbon credits. Det Norske Veritas (DNV) have officesin Durban and Cape Town and as is one of the worlds leading certification bodies, canundertake the third party verification work required. ERM consulting in Johannesburg isregistered as a DOE by virtue of it’s London office.

5.8 Schedule and Transaction Costs for Carbon Projects

Experience in South Africa has shown that the process of registering a CDM projectwith the United Nations is long and costly. It can take between 14 and 24 monthswith transaction costs ranging between R1M and R2.5M. If required by the project’s hostcountry, an environmental impact assessment (EIA) may add up to R1M or moreto the project cost and extend the lead time for completion. EIA is not a de facto requirementof the CDM process. A voluntary project requires less time and, by implication, lowertransaction costs. However, this is tempered by the lower carbon prices and less liquidityin the voluntary markets.

Useful websites, resources and conferences or courses:

In South Africa:

Green Business Guide - for the latest on events in South Africa and environmental, carbonand energy news. To stay connected read the Green News daily, or sign up for a newsletterthat summarizes the week’s news – including CDM news.

South Africa’s Clean Development Project Profile as at November 2010. The pdf documentlists all projects listed with the Department of Energy that are going through the CDM process.Not all projects are approved.

International resources:

Clean Development Mechanism – Download the Clean Development Mechanism ExecutiveBoards 2010 report on the state of the CDM internationally.

http://cdm.unfccc.int/Statistics/index.html - Useful statistics about the CDM process andprojects.

http://cdmrulebook.org/home - The CDM Rulebook is the definitive online database ofthe CDM rules

SceptreCO2 – Has useful resources such as short video’s on carbon trading, CDM projects.

Quick reference:Module 1:Introduction1.1. Value of the international carbon markets1.2. Five reasons why carbon trading is here to stay in

South Africa

Module 2:Carbon taxes, policies and legislation in South Africa2.1 Carbon taxes defined2.2 Current carbon taxes in South Africa2.3 Future environmental taxes2.4 Pending legislation on carbon tax2.5 Allied legislation2.6 Reporting

Module 3:Carbon Foot-printing3.1 Global warming3.2 The six greenhouse gases3.3 What is a carbon footprint3.4 How is a carbon footprint reported and what are

the standards for reporting against?3.5 Greenhouse gas protocol (GHG) process3.6 Six reasons why calculate and report your carbon

footprint?

Module 4:Carbon Trading4.1 What is carbon trading?4.2 United Nations mechanisms for carbon emissions trading4.3 The Voluntary and Mandatory (Compliance) markets4.4 Financial legislation relevant to carbon trading in

South Africa

Module 5:Carbon Projects5.1 Definition of a carbon project5.2 Examples of carbon projects5.3 Legal and policy framework for mandatory carbon projects5.4 Main steps for carbon projects in the mandatory markets5.5 Main steps for carbon projects in the voluntary markets5.6 Current situation in the South Africa carbon project arena5.7 Verification and Validation organizations5.8 Schedule and Transaction costs for carbon projects

Module 6:International Exchanges, verification and job opportunities6.1 International Exchanges6.2 Employment opportunities in the South African carbon

industry

Quick reference:Module 1:Introduction1.1. Value of the international carbon markets1.2. Five reasons why carbon trading is here to stay in

South Africa

Module 2:Carbon taxes, policies and legislation in South Africa2.1 Carbon taxes defined2.2 Current carbon taxes in South Africa2.3 Future environmental taxes2.4 Pending legislation on carbon tax2.5 Allied legislation2.6 Reporting

Module 3:Carbon Foot-printing3.1 Global warming3.2 The six greenhouse gases3.3 What is a carbon footprint3.4 How is a carbon footprint reported and what are

the standards for reporting against?3.5 Greenhouse gas protocol (GHG) process3.6 Six reasons why calculate and report your carbon

footprint?

Module 4:Carbon Trading4.1 What is carbon trading?4.2 United Nations mechanisms for carbon emissions trading4.3 The Voluntary and Mandatory (Compliance) markets4.4 Financial legislation relevant to carbon trading in

South Africa

Module 5:Carbon Projects5.1 Definition of a carbon project5.2 Examples of carbon projects5.3 Legal and policy framework for mandatory carbon projects5.4 Main steps for carbon projects in the mandatory markets5.5 Main steps for carbon projects in the voluntary markets5.6 Current situation in the South Africa carbon project arena5.7 Verification and Validation organizations5.8 Schedule and Transaction costs for carbon projects

Module 6:International Exchanges, verification and job opportunities6.1 International Exchanges6.2 Employment opportunities in the South African carbon

industry