Implementation of New Clean Development Mechanism Measures

In October 2005, the National Development and Reform Commission (NDRC), the Ministry of Science and Technology (MOST), the Ministry of Foreign Affairs (MFA) and the Ministry of Finance jointly promulgated the Measures for Operation and Management of Clean Development Mechanism Projects (the Measures). The Measures became effective in December 2005 and replaced the interim measures previously issued. The NDRC, in consultation with MOST and the MFA, is responsible for the interpretation of the Measures.

Domestic approval procedure

Under the Measures, the NDRC is China's designated national authority for the CDM. The National Climate Change Coordination Committee (the Committee) is responsible for reviewing and coordinating important CDM policies. The national CDM board (the Board) has been formed to examine and approve CDM projects.

Only wholly-owned domestic enterprises and those with a majority interest held by domestic entities can be owners and applicants for CDM projects. The documentation required is provided in Article 15 of the Measures. The project design document plays a vital role for both domestic and international approval. A project design document template is available on UNFCCC's official website and a Chinese version can be found on the Committee's official website.

The domestic approval procedure pursuant to the Measures is as follows:

(i) after accepting the application, the NDRC will entrust relevant organizations to provide expert reviews of the proposed project, which should be concluded within 30 days;

(ii) the application reviewed by the experts will then be submitted to the Board, and

(iii) the NDRC will examine the application jointly with other ministries concerned, based on the conclusion made by the Board, and make a decision normally within 20 days of accepting the application (excluding the expert review time).

In practice, the applicant may apply to the Committee for the letter of no-objection as the preliminary opinion of the authority by describing the general information of the relevant project. The general information includes location, total investment and financing of the project, methodology and estimated emission reduction quantity, and the progress up to the application. As of March 7 2006, 22 projects have obtained the NDRC's approval.

Validation & executive board approval

After obtaining the NDRC's approval, the applicant should appoint a designated operational entity (DOE) to evaluate the project design document to validate the proposed CDM projects. The DOEs are independent organizations accredited by the CDM executive board (the Executive Board) and have their respective capacities detailed on the UNFCCC's official website. In accordance with Decision 17/CP.7 adopted by the UNFCCC Conference on the modalities and procedures for a CDM project and referred to in the annex, a proposed CDM project should be validated and subsequently registered with the Executive Board after eight weeks if no request for a review is made. At this stage, the CDM project should be filed with the NDRC. Registration is the formal acceptance by the Executive Board of the applicant's project as a CDM project and the prerequisite for related CERs trading. So far, only the Inner Mongolia Huitengxile Wind Farm Project has been registered with the Executive Board.

After registration with the Executive Board, the project owner should appoint a different DOE to periodically verify and certify reduction emissions, which have occurred in a registered CDM project and report the result to the Executive Board. The CERs should not trade in the international market unless they are formally issued by the Executive Board.

Joint ownership of transfer benefits

The Measures state that the emission reduction resource is owned by the state and the emission reductions generated by specific CDM project belong to the project owner. Therefore, the Measures provide that the revenue from the transfer of CERs is owned jointly by the government and the project owner, with the following allocation ratio:

The government takes 65% of CER transfer benefit from HFC and PFC projects, 30% of CER transfer benefit from N₂O project, and 2% from the areas of energy efficiency improvement, development and utilization of new and renewable energy, and methane and coal bed gas recovery and utilization and forestation projects.

The benefit split provisions do not apply to the projects already approved by the NDRC before October 12 2005.