BSP and Clean Development Mechanism (CDM)

BSP has been the first CDM Project in Nepal. Two CDM Projects of 19,396 plants constructed under BSP Phase- IV, have been registered with and approved by the CDM Executive Board. An Emission Reduction Purchase Agreement (ERPA) for the 2 projects has been signed with the World Bank for trading of the Emission Reductions from the two Projects for first seven years starting 2004/05 as the first crediting year. Annual reporting and verification for the two Projects for crediting years 2004/05 and 2005/06 have been completed and payment will follow soon.

From these two Projects, the annual carbon revenue (net of Project development and verification expenses) would be around NPR 42,000,000.00 (or around US$ 607, 000).

At least 2 more CDM Projects can be registered. But it cannot be done so as the methodology used in the above two projects has been scrapped and new one is still under discussion and the approval by the CDM Executive Board has been postponed till end of 2007. There have been serious debates over development of a new methodology for biogas and other projects that replace use of non-renewable biomass. There are two other methodologies approved for CDM Project on biogas but they are not appropriate for the baseline case of Nepal.

On one hand, materialisation of CDM projects for biogas opens up a new venue of opportunity for further promotion of the technology in Nepal. On the other, it adds new challenges to BSP in terms of more stringent quality assurance and monitoring that are in line with the CDM requirements. Furthermore, there are other requirements on community development and environmental mitigations for of the CDM Projects done with the Community Development Carbon Fund (CDCF) with the World Bank.

The expected revenues from CDM Projects will be utilised to fill the fund gap in the Phase IV, resulting from the additional activities planned due to revised programme objective as well as due to the additional requirements of CDM. The surplus revenue, from the Phase IV period,will be used for extension of BSP beyond Phase IV. A MoU has been signed with KfW recently, to develop biogas CDM Projects and trade the Emission Reduction. This has also been put on halt due to the same reason that a methodology does not exist. Besides these, the AEPC and BSP-Nepal are also exploring other CDM markets, including the voluntary carbon market.