Decision 9/CMP.7 taken in Durban requested the Executive Board to implement the concept of materiality in the Clean Development Mechanisms.
It is often said that the Durban Conference had not taken decisive steps in fighting climate change. Deliberations over the issue would probably last long, however, it is useful to note that the said conference clarified certain minor points having their significance for carbon market participants, especially CDM project developers.
Among such decisions having practical (and presumably beneficial) bearing on the market is the Decision 9/CMP.7 titled ‘Materiality standard under the clean development mechanism’ (Decision) which – as could be guessed – was intended to protect CDM developers from discretionary powers of CDM bodies regarding the approach to and concrete assessment of potential omissions, misstatements or erroneous reporting.
There is no doubt that if the concept of materiality were to be applied to some extent in approved baseline and monitoring methodologies and in the assessment of project activities under the clean development mechanism, it should be applied in a consistent and precise manner. The Decision serves for this purpose.
Definition of ‘Material Information’
Decision defines material information as a ‘piece of information the omission, misstatement or erroneous reporting of which could change a decision by the Executive Board of the clean development mechanism’.
Scope of the Concept of Materiality
The said legal instrument decides that the scope of materiality initially covers:
(a) The stage of verification by designated operational entities;
(b) The assessment of requests for issuance by the Executive Board of the clean development mechanism and its support structure;
(c) Non-prescriptive and prescriptive requirements;
(d) Quantitative information.
Materiality Thresholds
Decision states that information related to a clean development mechanism project activity should be considered material if its omission, misstatement or the non-compliance with a requirement might lead, at an aggregated level, to an overestimation of the total emission reductions or removals achieved by a clean development mechanism project activity equal to or higher than:
(a) 0.5 per cent of the emission reductions or removals for project activities achieving a total emission reduction or removal of equal to or more than 500,000 tonnes of carbon dioxide equivalent per year;
(b) 1 per cent of the emission reductions or removals for project activities achieving a total emission reduction or removal between 300,000 and 500,000 tonnes of carbon dioxide equivalent per year;
(c) 2 per cent of the emission reductions or removals for large-scale project activities achieving a total emission reduction or removal of 300,000 tonnes of carbon dioxide equivalent per year or less;
(d) 5 per cent of the emission reductions or removals for small-scale project activities other than project activities covered under point e below;
(e) 10 per cent of the emission reductions or removals for the type of project activities up to 5 megawatts that employ renewable energy as their primary technology and for energy efficiency project activities that aim to achieve energy savings at a scale of no more than 20 gigawatt hours per year.
Reviews
The scope of the concept of materiality, and the materiality thresholds, according to the Decision will be reviewed, based on data reported, by the Executive Board no later than one year after their implementation.