Project Development Models
As a clean cooking entrepreneur or project implementer, you have several options available to develop a carbon project that can generate carbon credit revenues:
- Develop a project on your own
- Work with a carbon developer to develop your project
- Join an existing PoA
Choosing the appropriate development model depends on your priorities, available resources and risk tolerance. In general, investing up front, as well as taking on more responsibility for project delivery will result in higher returns. However this needs to be balanced by the risk that the project will underperform and fail to return the initial investment.
The project screening tool should be used to assess whether your improved cookstove project is eligible for carbon credits, and if developing a carbon project is likely to be financially viable.
Use the interactive carbon project cycle to learn more about the steps involved developing a carbon project.
Different ways to develop your project
When you start with the development of your carbon project, there are two fundamentally different paths you can take: you can either develop your project from scratch, or join an existing PoA as a so-called CDM Programme Activity (CPA) or Voluntary Programme Activity (VPA).
Joining an existing PoA will likely save you time and money, but your project needs to meet the eligibility criteria of the PoA you want to join, and you need to find a commercial agreement with the Coordinating/Managing Entity (CME), ranging from a fixed fee to a percentage of the carbon revenue, in turn for the benefits of joining their PoA. Try locating registered PoAs in your geographical area (using the project map or the CDM Pipeline Database) and check whether your project meets the criteria and conditions to join one of the existing PoAs.
Developing your project from scratch will usually require a higher up front investment than joining an existing PoA, and it will likely take more time, however it could also allow you to keep most or all of the carbon revenues and have more control over the project. If you choose this path, you’ll likely need help from an experienced carbon developer. Usually, such developers operate under several different business models:
- they develop your project for a fixed fee, and on top of that you have to pay 3rd party costs such as the auditor (DOE) and registration fees; or
- they cover all the carbon development costs in return for a share of the carbon revenues. These shares vary widely and can amount to more than 50%; or
- they cover all the carbon development costs in return for the right to buy the carbon credits at a fixed price,usually at a considerable discount to the market price; or
- non-profit project developers can provide upfront capital to support the full carbon development costs, which is paid back by the project owner only when the carbon revenue is realized. This is typically reserved only for high-impact projects as such project developers typically use grants to enable this level of risk-sharing.
If your project is highly replicable and you want to implement it in several different locations, developing your own PoA is also an option.
The table below gives an overview of the costs and benefits of the different options.
|Join an existing PoA||Develop a standalone project||Develop your own PoA|
|Time until first credits are issued||Joining an existing PoA is usually the fastest route to carbon revenues.|
Usually 1~2 years until first credits are issued (~2-4 months to include project).
|Developing your own project requires more time for approvals, validation and registration.|
Usually 2~3 years until first credits are issued (on average 1-1.5 years to register project).
|Developing your own PoA can take years.
Usually 3~5 years until first credits are issued (on average 1.5 to 2 years to register PoA).
|Development costs||Up to $50,000. |
Joining an existing PoA usually involves the lowest costs.
|$50,000 to $100,000. |
Developing a standalone project requires more resources. There are options to help finance these costs via loans.
|More than $100,000.
Developing your own PoA will involve considerable costs.
|Share of carbon revenue||Varies considerably - |
CME will often take a large share of carbon revenues to get a return on their investment in registering the PoA. There are exceptions, particularly in the case where donors have covered the PoA development costs.
|Varies considerably - |
Depends on agreement with carbon consultant/developer, your share of revenue will typically increase if you take on more of the development costs and risks.
|Medium to high -
Depends on agreement with carbon consultant/developer. If you are the CME, you can collect fees and revenue shares from other projects wishing to join your PoA once it is registered.
|Level of control over project||Low to medium -|
Depends on the CME. There may be monitoring obligations, restrictions on how to use carbon revenues, and other limitations as a condition for joining the PoA.
|Medium to high - |
Depends on agreement with carbon consultant/developer, its possible to retain full control or to make concessions in certain areas (e.g. ownership of credits, monitoring schedule).
|Medium to high -
Depends on agreement with carbon consultant/developer. if you are the CME, you will determine the level of have control you would like to have over other projects wishing to join your PoA once it is registered.
Develop your carbon project: on your own or with a carbon developer?
Unless you are an experienced developer, or you are in a position to hire individual specialists with previous experience to work for you in-house, it is likely that you need the help of a consultant or carbon developer to successfully register your carbon project or PoA.
If you are concerned about the risks and associated costs of developing your carbon project, you may decide to partner with a carbon developer that will take on some or all of the costs in exchange for a share of your future carbon revenues. Sometimes developers will even advance third party fees such as costs of project validation by an auditor (DOE) as well as registration, verification or issuance costs.
The more costs (and therefore risks) the carbon developer takes on, the higher the share they will want in return. The exception to this are non-profit carbon project developers which are able to access grants to support the carbon development of projects, enabling them to share the risk with project owners. In this case, project developers are repaid (if applicable) only after successful carbon revenue is obtained, while requiring none or a low percentage of the carbon revenue. The selection criteria for these carbon project developers are likely to be stringent, to meet the needs of donors, for example requiring any received carbon revenue to be re-invested into project scale up and to benefit project participants, including end-users.
Another option is to hire a consultant on a fee or service basis. Although you will assume more of the costs and risks, you do not have to give up a share of your future carbon revenues and can realize the full earning potential of your carbon credits. You will likely agree on a payment schedule based on certain milestones, such as successful validation of your project, or successful registration and issuance of carbon credits. In some cases, you may need to pay a small success fee or commission for each future credit generated. The business model follows the same logic as above: the more risks you are willing to take on, the less you have to give up from your future revenues from selling your carbon credits, with only some specific exceptions.
The table below provides an overview of the costs, revenues and risks across the spectrum of options.
|In-house development||Hiring a consultant||Partnering with a carbon developer (revenue share)||Partnering with a carbon developer (fixed price offtake)|
|Share of development costs||Medium to high - all 3rd party costs, salary, overhead.||Medium to high - all 3rd party costs, consultancy fee.||Low or zero - developer will work at own risk, sometimes even advance all 3rd party fees.||Low or zero - developer will work at own risk, sometimes even advance all 3rd party fees.|
|Share of carbon revenue||High (100%) - entirety of future carbon revenue.||High (100%) - entirety of future carbon revenue, potentially less a small commission.||Low to medium - developer will take a share of your future revenue, could be as high as 50%.||Low to medium - developer will typically expect a to purchase credits at a significant discount.|
|Non-registration risk||Low to high - depending on your experience.||Low - if you hire an experienced consultant with a track record and make payments based on development milestones.||Low - if you partner with an experienced carbon developer with a track record.||Low - if you partner with an experienced carbon developer with a track record.|
|Market risk||High - you are fully exposed to price volatility of the carbon market.||High - you are fully exposed to price volatility of the carbon market.||High - you are fully exposed to price volatility of the carbon market.||Low to medium - depending on the exact contractual closes, you are partially or fully protected from price volatility.|
|Legal risk||Low - you have no obligations towards 3rd parties.||Low - you will only have minor obligations towards the consultant, apart from payments for service.||Medium - you will have several obligations towards the developer: implementation of the project, maintenance of the project and monitoring obligations to name a few. If you fail to meet your obligations, the contract may be terminated, stranding the project.||High - the likelihood of contract termination for minor nonperformance is very high in case the market price falls below the agreed offtake price.|
|Access to buyers & marketing||Your responsibility - you will be fully responsible to market your carbon credits. Can be challenging depending on your project type, location, and whether you have contacts to potential buyers.||Your responsibility - you will be fully responsible to market your carbon credits. Can be challenging depending on your project type, location, and whether you have contacts to potential buyers.||Shared responsibility or with the developer - under a revenue sharing agreement, your developer usually has access to a broad range of buyers and will do his best to sell your credits at the best possible price to maximize his own share of the revenues. Usually you are free to introduce buyers on your own.||Responsibility of the developer - you are usually paid upon issuance of the credits and do not need to worry about selling the credits.|
|Ownership of the carbon credits||Full ownership - you have full ownership over all carbon credits from your project.||Full ownership - you have full ownership over all carbon credits from your project.||Shared or no ownership - it is likely that the developer will request joint or sole instruction rights. If you grant the developer sole instruction rights, then all transactions of your credits can only be initiated by the developer. If joint instruction rights are selected, the carbon standard will require authorization from both parties.||No ownership - for almost all fixed price offtake contracts, the developer will require sole instruction rights. You remain the legal owner of the credits up to the transaction, but you are not able to initiate any transaction|
Choosing a project developer or carbon consultant
If you do decide to partner with a carbon developer or hire a carbon consultant, here is a list of some key questions to consider when making your selection;
- Carbon project experience – how many carbon projects and PoAs have they executed? And how many are successfully registered and issued credits?
- Carbon standard experience – do they have adequate experience in the carbon standard(s) your project is being developed in (like CDM and/or GS)?
- Cookstove carbon experience – do they have sufficient experience in clean cookstove carbon projects and PoAs? Do they have sufficient understanding of the requirements of clean cookstove carbon methodologies?
- Execution team – do they have the right mix of carbon and clean cookstove experts in their carbon project execution team?
- Carbon market and other financing exposure – do they have sufficient networks or access to buyers for selling the carbon credits? Do they have any experience in developing and/or implementing other financing mechanisms?
- Regional experience – do they have experience working in your country/region or similar countries/regions?
Joining an existing PoA
When joining an existing carbon programme of activities (PoA) you should evaluate the obligations, risks and rewards that come with associating with a particular PoA. PoAs vary substantially not only in their eligibility criteria but also in their commercial terms and conditions. Often there are trade-offs between the level of engagement in the carbon certification process, the share in carbon revenues and the fees for joining an existing PoA. Before joining a PoA, you should have a close look at the various characteristics of the programme to ensure that it fits your project, asking questions like:
- Is my project eligible to be included? Eligibility can depend on criteria such as technology, geographic boundary, user group, standard (CDM, Gold Standard, others)
- How much income from carbon credits can I expect and what are the risks?
- How much will it cost me to join the programme?
- How much time and resources will I need to commit annually to comply with carbon certification rules and carbon transactions?
- How are the carbon revenues used?
- Does the programme have provisions in place to ensure its long-term success?
There are typically trade-offs between the level of support and services provided by the Coordinating/Managing Entity (CME) and the proportion of the revenues going to the project developer. Before joining an existing PoA it is important to understand your obligations and ensure you are adequately compensated for your contribution to the programme.
The table below captures some of the options to consider when joining an existing PoA.
|Share of revenues to project developer||Type of revenues||Financial contributions from project develoepr|
|Low – Majority of carbon revenue go to the CME;|
Medium – Revenues are shared between both parties;
High – Majority of carbon revenues go to project developer (non profit model).
|Fixed – CME guarantees payments per installed stove;|
Variable – Revenues depend on carbon market prices.
|None – No cost to join;
Medium – Fee covers costs to join but not PoA development costs (non profit model);
High – Fee covers costs to join and PoA development costs (for profit model).
|CME support for selling credits||Support for monitoring||CME requirements on use of carbon revenues|
|None – Credit sales are sole responsibility of project developer; |
Available if needed – CME makes sales services available, perhaps for a fee;
Required – CME owns and sells the carbon credits.
|None – Monitoring is the sole responsibility of the project developer;|
Tools provided – CME makes tools available (e.g. smart phone app);
Required – CME organizes monitoring.
|No – Discretionary use, carbon revenues not earmarked;
Yes – CME has strict requirements on percentage of carbon revenues for social purposes or activities identified for success of the programme.
The following case studies show programmes on different ends of the spectrum related to the above criteria.
- The African Ethanol Stove Program strives to make carbon finance simple for its project implementation partners and is an example of low revenue risk, low financial obligations and very limited engagement of project developers in the carbon certification process.
- Improved Cookstoves for East Asia (ICSEA) provides project developers with useful tools and assistance but does not take ownership over the carbon credits. In its model, project developers take charge of the sales process and have full discretion over the use of carbon revenues.
- Microsol’s Qori Q’oncha Programme in Peru invests in the long term sustainability of the program by committing project developers to use carbon revenues for activities that benefit the long term success.
- Impact Carbon’s cookstove programme allows for a wide range of technologies to be included in the programme and invests carbon revenues in various activities that foster market penetration.
- MicroEnergy Credits particularly targets microfinance institutions in developing countries and assists them to expand their clean energy lending including for cookstoves through carbon finance.