CDM – Executive Board
If there are still several alternative scenarios
remaining, but which do not include
the proposed project
activity undertaken without being registered as a CDM project activity, explain – using qualitative or
quantitative arguments – how the registration of the CDM project activity will alleviate the barriers that
prevent the proposed project activity from occurring in the absence of the CDM. If the CDM alleviates
the identified barriers that prevent the proposed project activity from occurring, project participants may
choose to either:
Option 1: Go to Step 3 (investment analysis); or
Option 2: Identify the alternative with the lowest emissions (i.e. the most conservative) as the
baseline scenario, and proceed to Step 4.
If the CDM does not alleviate the identified barriers that prevent the proposed project activity from
occurring, then the project activity is not additional.
Step 3: Investment analysis
This Step serves to determine which of the alternative scenarios in the short list remaining after Step 2 is
the most economically or financially attractive. For this purpose, an investment comparison analysis is
conducted for the remaining alternative scenarios after Step 2. If the investment analysis is conclusive, the
economically or financially most attractive alternative scenario is considered as the baseline scenario.
Identify the financial indicator, such as IRR, NPV, cost benefit ratio, or unit cost of service (e.g., levelized
cost of electricity production in $/kWh or levelized cost of delivered heat in $/GJ) most suitable for the
project type and decision-making context.
Calculate the suitable financial indicator for all alternative scenarios remaining after Step 2. Include all
relevant costs (including, for example, the investment cost, the operations and maintenance costs), and
revenues (including subsidies/fiscal incentives,
ODA, etc. where applicable), and, as appropriate, non-
market costs and benefits in the case of public investors.
Present the investment analysis in a transparent manner and provide all the relevant assumptions, preferably
in the CDM-PDD, or in separate annexes to the PDD, so that a reader can reproduce the analysis and obtain
the same results. Refer to critical techno-economic parameters and assumptions (such as capital costs, fuel
prices, lifetimes, and discount rate or cost of capital). Justify and/or cite assumptions in a manner that can
be validated by the DOE. In calculating the financial indicator, the risks of the alternative scenarios can be
included through the cash flow pattern, subject to project-specific expectations and assumptions (e.g.
insurance premiums can be used in the calculation to reflect specific risk equivalents). Assumptions and
input data for the investment analysis shall not differ across alternative scenarios, unless differences can be
Note that according to guidance by the EB (EB 22, Annex 3), subsidies and incentives may be excluded from
consideration in certain cases.
In the case that (a) there are only two alternatives remaining after Step 2, which include the proposed CDM project
activity and one other alternative, (b) both scenarios do not incur any revenue other than CDM related revenue or
incur exactly the same revenue other than CDM related revenue and (c) the project incurs costs and the other
remaining alternative does not incur costs, then a simply cost analysis can be applied. In this case it is sufficient to
document that the proposed project activity undertaken without being registered as a CDM project incurs costs.