In order to better understand the different standards and their goals we distinguish between the following types of offset standards:
Full-fledged carbon offset standards offer all three components:
Project Design Standards (PDS) include accounting standards and some monitoring standards or guidelines, but do not offer certification of offsets or a registry. These PDS are useful for project developers in the initial phase of project development and may help secure upfront funding. But the project developers must use the PDS in conjunction with a full-fledged standard in order to get certification and access to a registry once the project starts producing credits.
Offset Standard Screens are not full-fledged standards by themselves but accept projects that were implemented under other standards and that adhere to their screening standards (e.g an offset screen that accepts all CDM credits, except those from large hydro and industrial gas projects.)
Offset Accounting Protocols provide definitions and procedures to account for GHG reductions from offset projects but have no associated regulatory or administrative bodies. They have programme-specific rules and procedures for reviewing, validating, and registering GHG projects, as well as verifying and certifying GHG reductions. Yet protocols do not define eligibility criteria or have procedural requirements. Many of the full-fledged standards are based on such protocols (for example, the VCS uses ISO-14064 methodologies).
Other Standards Types. Some standards don’t quite fit any of the above mentioned categories. These are usually less widely used standards that have been developed for very specific project types. Some of these standards, such as Plan Vivo, sell ex-ante credits. In other words, they sell carbon offsets that are projected to be produced in the future. The standards discussed in this paper fit into the following categories:
| Full-Fledged Carbon Offset Standards | Project Design Standards | Offset Standard Screens | Offset Protocols | Other Standard Types |
|
CDM VER+ CCX Once they have established their registries: Gold Standard (GS) Voluntary Carbon Standard (VCS) |
Climate, Community & Biodiversity Standards (CCBS) | Voluntary Offset Standard (VOS) |
ISO 14062-2 WRI/WBCSD's GHG Project Protocol |
Plan Vivo |
The following sections describe each standard in more detail. To facilitate cross comparisons, we have followed the same order of topics and the same layout for all standards. The only exceptions to this are the bio-sequestration rules for CDM and VCS, which are discussed in more detail in chapter 7.4 on forestry standards. In these sections, the numbering system is slightly different.
The standards are summarized as objectively as possible. Editorial comments and opinions about the standards can be found in the Authors’ Comments at the end of each standard description. Their brief comments focus on what they consider the main strengths and weaknesses of each standard.
Full-fledged carbon offset standards offer all three componenets:
1. Accounting Standards; 2. Monitoring, Verification and Certification Standards and; 3. Registration and Enforcement Systems. In the following sections we describe these full-fledged standards: CDM, Gold Standard, Voluntary Carbon Standard, VER+, and CCX.
http://cdm.unfccc.int/index.html
The Clean Development Mechanism (CDM) is a fullfledged offset standard and is a part of the international legally binding Kyoto Protocol and its related accords. It is administered by the United Nations Framework Convention on Climate Change (UNFCCC). CDM enables industrialized countries to achieve emissions reductions by paying developing countries for certified emission reductions (CERs).
Recognizing the need for stronger action to combat climate change, the parties of the UNFCCC negotiated and adopted the Kyoto Protocol in 1997. At the time of its adoption, the treaty only sketched out the basic features of the GHG trading mechanisms like the CDM. The rulebook detailing how the mechanisms would operate was fleshed out over the next four years, culminating in the Marrakech Accords. The treaty came into force on 16 February 2005, making the trading mechanisms operational.
Conference of Parties serves as the Meeting of Parties to the Kyoto Protocol (COP/MOP): The COP/MOP is the ultimate decision-making body of the UNFCCC. It is comprised of representatives from each member state that has ratified the Kyoto Protocol. The COP/MOP reviews and approves the CDM EB’s recommendations, thereby providing guidance and direction to the EB in administering the CDM.
CDM Executive Board (CDM EB) supervises the CDM under the authority and guidance of the COP/MOP, and is fully accountable to the COP/MOP. The EB has 10 members from parties to the Kyoto Protocol including one representative each from the five UN regions, two each from the list of industrializing countries with emission reduction targets and those without targets, and one from the Small Island Developing States.
The responsibilities of the CDM EB include:
Accreditation Panel reviews applications from prospective DOEs, reports conclusions and prepares recommendations to the EB for accrediting and designating operational entities.
Methodologies (Meth) Panel reviews proposed new or amendments to existing baseline and monitoring methodologies, and makes recommendations to the EB regarding their approval or amendments. The Meth Panel also makes recommendations to the EB regarding changes to the guidelines for methodologies for baselines and monitoring plans. The Meth Panel is co-chaired by two members of the EB and is composed of an additional 15 members who serve as technical experts on the panel.
Afforestation and Reforestation (A&R) Working Group prepares recommendations to the EB on submitted proposals for new baseline and monitoring methodologies for CDM A&R project activities in cooperation with the Meth Panel.
Small-Scale (SSC) Working Group prepares recommendations to the EB on submitted proposals for new baseline and monitoring methodologies for CDM small scale project activities.
CDM Registration and Issuance Team (RIT) assists the CDM EB by appraising requests for registration of project activities and requests for issuance of CERs. It is chaired by a member of the EB on a rotational basis. The RIT was established in 2006 (before that, in 2004-5, projects were assessed by individual Board members).
Designated National Authorities are agencies designated by each party to the Kyoto Protocol to act as a nodal agency for administering CDM involving parties within its jurisdiction.
Designated Operational Entities (DOEs) are the accredited auditors who validate and verify CDM projects. There are currently 19 registered DOEs, of which 18 are authorized to validate projects and 7 of the 18 are also authorized to verify projects. Only one of 19 is designated solely as a verifier. DOEs are not allowed to do the validation and the verification for the same project, and the sectors that each of them can cover also varies.
The CDM is financed through the CER issuance fees and through start-up donations from Annex I countries.
The CDM does not recognize any other standards. However, many of the regulated and voluntary carbon offset schemes recognize CDM and accept CERs as eligible offsets under their respective schemes. These schemes include the EU ETS, the VOS, VER+, CCX, and the VCS.
As of September 2007, there are 827 registered projects with a further 154 in the registration process, 2,647 projects in the CDM Pipeline, 46 projects have been rejected and 8 withdrawn. 85,9 million CERs have been issued to date.1
CDM accepts projects that reduce the emissions of, avoid the release of or sequester any one of the six gases covered by the Kyoto Protocol with the exception of nuclear energy projects, and sequestration projects other than afforestation and reforestation projects (REDD).
CDM only accepts projects in non-Annex I countries.
There are no restrictions on the size of projects. Projects may be classified as small-scale CDM projects.2 Small-scale projects use simpler documents and are subject to a simpler approval process than other projects.
Originally: 1 January 2000
This rule has lapsed. Currently, the start date is the date of registration.
The crediting period options for CDM projects are the same for all project types, except afforestation and reforestation projects. In the case of the former, project developers can choose between: (i) a seven-year crediting period with the option of up to two seven-year renewals, , provided the project baseline is still valid or has been updated to take new data into account or (ii) a maximum period of 10 years with no renewal option. For afforestation and reforestation projects, the choice is between: (i) a 20-year period with up to two 20-year renewals or (ii) a maximum of 30 years with no renewal.
N/A
CDM projects cannot accept any Official Development Assistance (ODA).
While there are no explicit guidelines laid out for the environmental or social impacts of CDM projects, the Kyoto Protocol requires that CDM projects enable developing countries to achieve sustainable development. Each country sets the policies for the sustainable development criteria by which it can assess CDM projects. Social criteria may include improvements in the quality of life, alleviation of poverty, and greater equity, while environmental criteria may include the conservation of local resources, removing pressure on local environments, health benefits, and compliance with domestic environmental policies.
An analysis of the environmental impacts of the project, including trans-boundary impacts, must be provided in the PDD. If an Environmental Impact Assessment (EIA) is required by the host country, the project developer must also include conclusions of the EIA in the PDD. Similarly, the project developer must also describe the process of inviting comments from local stakeholders likely to be affected by the project, summarize their comments and document the action taken to address their concerns.
The PDD is published for commenting for 30 days on the CDM website.
CDM uses project-specific tools to assess additionality. However, some of the baseline tools are based on performance standards.
The process of determining whether a project is additional involves three or four steps as laid out in the UNFCCC additionality tool version 4 (for details, see Appendix B).
Step 1: Identifying realistic and credible alternatives to the proposed project activity that are compliant with current laws and regulations
Step 2: Investment analysis to determine that the proposed project activity is not the most economically or financially attractive, or step 3
Step 3: Analysis of barriers that prevent the implementation of the proposed project activity or do not prevent the implementation of one of the other alternatives
Step 4: Analysis as to whether the proposed project activity is ‘commonly practiced’ by assessing the extent of diffusion of the proposed project activity
CDM follows a bottom-up, project-specific approach to determine baseline and monitoring methodologies. However, once a baseline and monitoring methodology is developed and approved by the CDM EB, the same framework can be used to develop other projects, provided they meet the other eligibility requirements. Existing methodologies have been amended and refined over time as new projects have been proposed and approved with amendments to the previously existing methodologies. Further, similar methodologies for certain types of projects have been consolidated into single methodologies so that they are applicable to a broad range of projects.
Project developers or consultants acting on behalf of the project developers may propose new methodologies. The proposal for a new methodology must be submitted to the UNFCCC secretariat through a DOE. The DOE or a member of the Meth Panel may undertake a pre-assessment of the proposed methodology. Upon receipt of the complete documentation and a fee of USD 1,000, the secretariat makes the methodology publicly available for comment for a period of 15 days. The Meth Panel reviews and assesses the proposed methodology with the help of the secretariat and based on the independent assessments of four members of the Meth Panel (who are selected on a rotational basis), two independent experts, and comments from the public. Based on the recommendations of the Meth Panel, the CDM EB approves or rejects the proposed methodology. If the proposed methodology is approved or incorporated into a consolidated methodology, then the USD 1,000 fee is adjusted in the registration fees.3
The project developer or a consultant acting on behalf of the project developer must prepare a Project Design Document (PDD) describing the project activity, the baseline methodology to be used to calculate the emissions reductions under the project and the methodology that will be used to monitor the emission reductions achieved. The PDD is then reviewed by a DOE to confirm the veracity of the information and arguments provided. Simultaneously, the PDD is posted on the DOE’s website and opened to public comments for a period of 30 days. The DOE and project developer need to consider the comments received and take action (if deemed necessary) before the DOE finalizes the Validation Report. The DOE review process also involves visits to the project site and consultations with local stakeholders. The DOE’s assessment and conclusions, including a summary of the stakeholder consultations, are synthesized into a Validation Report.
The PDD and the Validation Report are submitted to the project host nation’s DNA for approval. If the project meets the sustainable development criteria, complies with the country’s laws and regulations, and fulfills any other requirement specified by the DNA, the DNA issues a letter confirming the host nation’s approval. The PDD, the Validation Report and the Host Nation Approval are then submitted to the CDM EB for registration.
Within 8 weeks (or 4 weeks for small projects) of receipt of the Request for Registration, the EB is required to register the project. The RIT supports the EB in this process by reviewing the reports submitted along with the Request for Registration. If a party to the project or at least three members of the EU request a review of the project, then registration can be delayed until the next EB meeting.
Once the project is operational, the project implementer or a consultant acting on behalf of the project implementer is required to prepare a Monitoring Report on a periodical basis in accordance with the monitoring protocol in the PDD. The report must also include an estimate of the CERs generated during the reference period. A DOE verifies the Monitoring Report and also carries out a site visit, if deemed necessary. The DOE prepares a Verification Report documenting its assessment of the monitoring report and verifying the emissions reductions. The same DOE that validated a project cannot also verify it except in the case of smallscale projects.
The Monitoring, Verification and Certification Reports are submitted to the CDM EB with a request to issue the requisite amount of CERs. Within 15 days of receipt of this request, the EB must authorize the issuance of the CERs unless a project participant or three EB members request a review. The RIT supports the EB in this process by reviewing the reports submitted along with the Request for Issuance.
The CDM Accreditation Panel (CDM-AP), which reports to the CDM EB, is required to undertake regular surveillance of the DOE’s management responsibilities, resource and organizational management, and technical and analytical review processes, with a view to assessing the DOE’s ability to deliver the intended quality of its service. The CDM-AP carries out this surveillance at least every three years with the help of the CDM Assessment Team (CDM-AT).
In addition to the regular surveillance, the CDM EB, with the help of the CDM-AP and the CDM-AT, can conduct an unscheduled assessment of a DOE, a ‘spot check’ to ascertain whether the DOE still meets the accreditation requirements.
For both the regular surveillance and the spot checks, the DOE that is being assessed pays for the expenses to be incurred by the CDM-AP and CDM-AT in carrying out the assessment in advance.
The CDM Registry is administered by the UNFCCC secretariat. Upon authorization from the EB to issue CERs for a project activity, the secretariat forwards the issued CERs into a Pending Account until it receives instructions to forward CERs into the relevant Holding Account. Project participants may have a Holding Account either in the CDM Registry or in the National Registry of an Annex I country.4
For CERs to be transferred from an account in the CDM Registry to a National Registry account, they must pass through the International Transaction Log (ITL). The ITL, which is still under development, will record transactions of CERs from the CDM registries to the Annex I National Registries. These transactions include issuance, cancellation, replacement, retirement and the transfer of CERs.5 Once the CERs are received in a National Registry account they may be traded or used for complying with national or regional targets. At present, CERs cannot be transferred between National Registries but internal transfers within a National Registry are possible.
New methodology submission fee: USD 1,000 (adjustable in the registration fee if the methodology is approved or consolidated)
Registration fee: USD 0.10 per CER issued for the 15,000 CERs issued in a given calendar year and USD 0.20 per CER for every CER issued over and above the 15,000 CERs. The upper limit set for the fee is USD 350,000. No registration fee is charged if the average annual emissions over the crediting period are less than 15,000 tCO2e. If the project is not registered, then any amount above USD 30,000 is reimbursed to the project developer.
Issuance fee: 2% of the CERs from each issuance is charged to cover administrative expenses and adaptation costs.
The fraction of projects that are being reviewed and rejected by the CDM Executive Board has increased notably over time. This is especially true since the Registration and Issuance Team (RIT) was established in 2006. Nevertheless, the EB still has a large backlog of CDM projects awaiting registration. Some project developers have expressed dissatisfaction with the fact that project assessment varies quite considerably among RIT members. A major cause for this is the lack of institutional memory and insufficient training of staff. Despite the addition of the RITs, the EB is still not very efficient and is at times quite bureaucratic.
Currently project developers choose and pay DOEs. This causes a conflict of interest which potentially undermines the environmental integrity of CDM projects. As discussed earlier, DOEs are under pressure to do validation and verification services at low prices and in as little time as possible. Also, CDM does not provide detailed instructions on auditing procedures. Despite the DOE review and spot check procedures, there currently does not seem to be a strong threat of sanctions against DOEs that under-perform (Schneider, 2007).
The CDM additionality tool was developed over several years and is seen as a benchmark against which to compare other additionality testing procedures (it is used by a number of other standards described in this report). Yet recent reports have shown the current additionality tests are to a large extent subjective and can easily be misrepresented (Schneider, 2007; Haya 2007). No approach for determining additionality is perfect. Yet given the importance of ensuring environmental integrity of CDM projects, great care and effort should be put in place to minimize free riders. The CDM Executive Board is in the process of creating a set of validation and verification guidelines. Through creating better definitions for terms such as “common practice” and guidelines for evaluating arguments about project barriers, some non-additional projects could be less likely to be registered
There are trade-offs between generating large quantities of offsets and benefits for sustainable development: Project activities with large emission reductions often have few benefits for sustainable development (e.g. industrial gas projects), whereas emissions reductions are often small for projects which have high benefits for sustainable development (e.g. many types of small scale projects). The CDM has so far not been very successful in fostering projects that contribute to sustainable development. This is partly due to the fact that each country can establish their own sustainability criteria. Some host countries may be hesitant to develop stringent sustainability criteria because of the perceived risk of having project developers turn away if their criteria are too stringent. On the other hand, it is also worthwhile pointing out that some co-benefits are indirect such as improvement of infrastructure, additional tax income for the host country, improved power supply and grid stability.
http://www.cdmgoldstandard.org
The Gold Standard (GS) is a full-fledged carbon offset standard. The Gold Standard (GS) requires social and environmental benefits of its carbon offset projects and has a very well developed stakeholder process. The GS can be applied to voluntary offset projects as well as to CDM projects.
The GS was developed under the leadership of the WWF in order to ensure that emission reduction projects are real and provide social, economic and environmental benefits. The GS CDM was launched in 2003 after a two year period of consultation with stakeholders, governments, NGOs and the private sector from over 40 countries. GS VER was launched in 2006. The GS is endorsed by 56 NGOs.
The Gold Standard Foundation is a non-profit organisation under Swiss Law, funded by public and private donors. The operational activities of the GS are managed by the Gold Standard secretariat based in Basel, Switzerland, including capacity building, marketing and communications, certification, registration and issuance as well as maintenance of the GS rules and procedures. The secretariat has currently a staff of 5.
The Foundation Board oversees the strategic and organizational development of the Gold Standard. The Board has currently 8 members. At least 50% of its members must be recruited from the Gold Standard NGO supporter community, and one member is at the same time the Chair of the Gold Standard Technical Advisory Committee (GS-TAC, see below). In case of significant changes to the Gold Standard rules and procedures, the Board decides whether or not a Gold Standard NGO supporter majority is necessary to implement the change.
Technical Advisory Committee (GS-TAC) evaluates and approves projects, new methodologies for VER projects and is in charge of updating the GS rules and procedures. It is the equivalent of the CDM EB / Meth Panel for VER projects. The GS-TAC has currently 7 members, all acting in their personal capacities. The GSTAC members are from the NGO community, multilateral organizations, aid agencies and the private sector.
Gold Standard NGO Supporters decide on major rule changes (e.g. eligibility of project types). Gold Standard Supporter NGOs must be consulted as part of the Gold Standard stakeholder consultation in case they have operations in the relevant host country. Supporter NGOs are also invited to take part in the project reviewing process and can request an in-depth audit of GS projects both at the registration as well as issuance stage.
GS Auditors are UNFCCC accredited DOEs who carry out validation and verification of GS projects. DOEs are not allowed to do the validation and the verification for the same project, except for micro and small scale projects.
The standard is financed through donors and income from issuance fees and franchising fees.
The GS does not recognize any other voluntary standards. Yet the GS it is recognized by the VOS and is likely to be recognized in the near future by several other standards (VER+, VCS.)
In total, 10 projects have been registered under the Gold Standard. About 35 projects are official Gold Standard Applicants, representing about 4 million CERs and 500,000 VERs. Another 65+ projects are in the pipeline.
The GS accepts renewable energy (including methaneto- energy projects) and energy efficiency projects. It excludes large hydro projects above 15 MW capacity.
Gold Standard VER projects cannot be implemented in countries with an emissions cap, except if Gold Standard VERs are backed by AAUs being permanently retired.
The Gold Standard does not have any project size minimum. Project sizes for Gold Standard VERs are: micro-scale (<5,000 tonnes CO2 per year), small-scale (5,000-60,000 tonnes CO2 per year) or large-scale (>60,000 tonnes CO2 per year).
For Gold Standard CERs, the same size limits as for the CDM apply.
The earliest start date for retroactive crediting of Gold Standard VERs is January 1st 2006, and retroactive crediting is only permitted for a maximum of 2 years prior to the registration date.
Retroactive crediting for CDM projects submitting documentation (Gold Standard Validation report) is limited to two years prior to the date of registration for the Gold Standard. For years with compliant verification reports that lie only partly within that period, a proportional volume of credits is issued.
Crediting periods are either one 10 years period, or a 7 year period renewable three times, except for validated pre-CDM Gold Standard VERs (see below).
Projects can opt-in for Gold Standard crediting during the overall crediting period by submitting a Gold Standard-compliance verification report to the Gold Standard. Projects can opt-out of Gold Standard crediting during the overall crediting period, but optout is final and the project cannot be communicated as Gold Standard any more.
Prior to opt-in and after opt-out it is permissible to seek issuance of credits from other standards. It is however not permitted to apply for issuance of credits under different standards if this extends the overall crediting period of the project beyond what is possible under the Gold Standard VER rules.
The Gold Standard does certify CDM pre-registration credits for a maximum of a year prior to the project’s CDM registration date under certain conditions:
Gold Standard VERs will only be issued after the project has been successfully registered as a Gold Standard CDM project. Once the project has been registered as a Gold Standard CDM project the normal Gold Standard rules apply.
Official Development Assistance (ODA) funding is not allowed for Gold Standard CER projects, except from the development of the PDD or of a new methodology, but is acceptable for Gold Standard VER projects if additionality of the project can be clearly established.
Both Gold Standard CER and Gold Standard VER projects must show clear sustainable development benefits, including local and global environmental, social, and economic as well as technological sustainability. The GS provides a sustainability matrix to help project developers develop their sustainability criteria. The GS requires that critical and sensitive sustainable development indicators and mitigation or compensation measures are monitored over the entire crediting period and information on the status of the indicators is included in the verification reports.
Both the project developer and the stakeholders consulted assign scores between -2 (major impact that cannot be mitigated) and +2 (major positive impact) to a broad set of pre-defined indicators covering all aspects of sustainable development. Scoring depends on specific circumstances, and the framework chosen for the scoring process is tailored to each project and must be clearly explained and justified.
Environmental Impact Assessment (EIA) requirements are the same for both VER and CER stream for smalland large-scale projects. For micro-scale voluntary offset projects, an EIA is required if the relevant local or national law prescribes an EIA or potentially if stakeholders have concerns about environmental impacts for which mitigation measures cannot be identified – in such a case, the project must be treated as a small- or large-scale project. If no EIA is required by the legislation, the project developer still has to provide a statement confirming that the project complies with local environmental regulation.
Gold Standard requires two public consultation rounds for all projects (except micro-scale projects, which require one initial consultation only). VER offset projects require a letter to the Designated National Authority (DNA or, if not present, other relevant authority) to communicate the development of the project as a GS voluntary offset project. For micro-scale projects, only one consultation round is needed during the design phase.
During a 60-day period prior to finalizing the validation process, stakeholders must have the opportunity to make comments on the GS-PDDs. For VER projects, no international stakeholder consultation is required, in contrast to CDM projects. National Gold Standard NGO supporters and international GS NGO supporters with offices in the host country must be involved in stakeholder consultations in all cases.
The additionality tools for both GS CERs and VERs are project based. In addition, previous announcement checks are required for both CER and VER projects.
The GS requires the application of the latest UNFCCC additionality tool .
GS CDM projects can only use CDM EB approved methodologies. Gold Standard VER projects can choose to use the baseline methodologies approved by the Methodology Panel of the CDM Executive Board, the Small Scale Working Group (SSC WG) or the United Nations Development Programme (UNDP) MDG Carbon Facility. If no suitable methodology exists, Gold Standard VER projects can propose a new one to Gold Standard, to be approved by the Gold Standard Technical Advisory Committee at a fixed cost paid by the project developer. The fees are USD 2,500 for small & large projects and USD 1,000 for micro-scale projects. A methodology for the deployment of a fleet of smallscale biodigesters has been approved so far and others are under review.
In general, the requirements for Gold Standard VER and Gold Standard CER projects are identical, but for VERs, some requirements of the CDM have been simplified or removed:
All Gold Standard projects must be validated and verified by a DOE. The Gold Standard supports DOEs with a validation manual for each VER and CDM stream.
Validation and verification procedures are often unreasonably costly for micro-scale projects. Hence, micro-scale projects pay a standard fee to a validation fund (USD 5,000) and to a verification fund (USD 2,500). After submitting all documentation, Gold Standard TAC uses a ‘targeted random’ selection method to select projects for validation and verification. Actual validations and verifications performed by DOEs are paid for via the Gold Standard validation and verification funds. Projects not selected for DOE validation/ verification in this approach are validated/verified by the Gold Standard in-house but may be required to undergo DOE verification in later years.
GS CDM projects use CDM PDD and validation forms, with the additional Gold Standard specific information on project type, stakeholder consultation and contribution to sustainable development provided as an appendix. The GS provides templates and instructions for GS VER project verification documents.
Project developers monitor projects according to monitoring plans as given in the PDD. Monitoring reports are submitted to a third-party auditor (DOE). Gold Standard-specific verification is conducted by DOEs. It includes emission reduction data and monitoring of sustainable development indicators. Monitoring reports have to be submitted yearly. Normally, the same DOE cannot validate and verify the same project, except for micro-scale and small-scale projects.
The Technical Advisory Committee, the GS secretariat and GS NGO supporters can request clarifications or corrective actions within a 2-week period after submission of the verification report to the GS before credit issuance (GS VERs) or certification of CERs is initiated.
Until the Gold Standard VER Registry has been approved, GS VERs are issued with unique provisional serial numbers. Currently, VERs are issued directly by the Gold Standard.
The verification report showing compliance with GS reporting criteria (especially Sustainable Development Indicators.) Indicators must be monitored if:
Appropriate success indicators for mitigation or compensation measures must also be monitored.
The GS only accredits DOEs and relies on the quality control procedures of the UNFCCC (e.g. CDM spot check procedure).
The Gold Standard Foundation announced in November 2007 that APX, Inc. has been selected to create and manage the Gold Standard’s Registry for Verified Emissions Reductions (VERs) in the voluntary carbon market. CERs are registered in the CDM registry and will be tracked in the Gold Standard registry as well. VERs will be registered in the Gold Standard registry which will be launched in early 2008.
The Gold Standard does not engage in project or credit transactions. In the upcoming Gold Standard VER registry, it will be possible to track the number of retired Gold Standard VERs and to review the number of issued Gold Standard VERs. However, buyers and intermediaries between the point of issuance and the point of retirement remain unknown to the Gold Standard. The ownership of retired credits can be made public if desired.
The Gold Standard charges an issuance fee of currently 0.01 USD for CERs and 0.10 USD for VERs. No registration fee is charged. Separate fees are charged by the Gold Standard VER registry operators: 0.05 USD at issuance and 250 USD per year for all accounts except project owners. The 250 USD include trading transactions for 25,000 credits p.a., after which every trade is charged with 0.01 USD/credit. No fees are charged to transfer the credits out of the project owner account.
Already operational projects can earn retroactive Gold Standard status. For this, they need to go through a feasibility pre-assessment process for which the Gold Standard charges a fee of USD 0.01 per VER for an amount of VERs equivalent to the expected annual volume of reductions (with a minimum fee of 250 USD).
If the project developer submits a new baseline methodology, the methodology must be approved by the Gold Standard TAC. A fixed fee is charged for this process (1,000 USD for micro-scale and 2,500 USD for small and large-scale projects).
The Gold Standard is generally accepted as the standard with the most stringent quality criteria. Many buyers turn to Gold Standard as the only full-fledged standard endorsed by leading environmental NGOs. It is furthermore the only voluntary standard that has the following three elements: clearly defined additionality rules, required third-party auditing and an approval body similar to the CDM EB.
The supplemental criteria of the GS are all validated by a DOE. According to project developers, this often makes the validation process more intensive. In their experience, DOEs take this additional GS validation seriously and ask tough questions about the project’s background data for filling in the Gold Standard SD matrix.
The CDM has a rather poorly defined process for how to involve stakeholders. The GS improves this process by having clear and detailed definitions of the stakeholder consultation process. However, the projects eligible for GS generally do not face serious concerns from stakeholders. It would actually be much more important to improve stakeholder consultation of other CDM projects, for example, large hydro projects.
Similar to the stakeholder process mentioned above, the UN regulations on additionality for smallscale projects are not very well defined. The GS addresses this issue by requiring that the additionality tool is also applied to small-scale projects.
xThe Gold Standard sets demanding requirements and documentation thereof. This makes the validation and verification process more complicated, time-consuming and expensive. Some project developers might decide that the higher income from Gold Standard CERs (over regular CERs) does not justify the extra work.
Gold Standard only recognizes offset reductions from renewable energy and energy efficiency projects. This is potentially limiting, since the energy sectors are the most likely to be covered by mandatory reduction targets. If the United States, for example, were to implement a cap-and-trade programme covering the electricity generation sector, offsets from these types of projects would no longer be possible. Also, given the large contribution of deforestation to climate change, it would seem important to add bio-sequestration projects, especially since the Gold Standard, with its focus on high quality offsets with co-benefits could play an important role in ensuring quality in this sector.
Currently, the Gold Standard is in the process of improving its rules and procedures. Gold Standard version 2 is expected to go live in May 2008 and will provide further clarification and guidance for project types, additionality, sustainable development assessment, stakeholder consultation, and for the validation and verification process. It remains to be seen if the GS, currently a very small organisation, will be able to certify large quantities of emission reductions.
At the moment, with only a few projects using Gold Standard, it is a challenge to balance strengthening the standards with the need to attract project developers, most of whom are currently not willing to invest in much additional work to ensure environmental integrity and co-benefits.
It seems likely that the Gold Standard will only be successful on a larger scale if it succeeds in creating enough incentives to motivate more project developers to follow the strict guidelines. This could possibly be accomplished thought creating a large and sustained demand for Gold Standard offsets and through streamlining the Gold Standard process as much as possible without compromising the integrity of the standard.
The Voluntary Carbon Standard is a full-fledged carbon offset standard. It focuses on GHG reduction attributes only and does not require projects to have additional environmental or social benefits. The VCS 2007 is broadly supported by the carbon offset industry (project developers, large offset buyers, verifiers, projects consultants). VCS approved carbon offsets are registered and traded as Voluntary Carbon Units (VCUs) and represent emissions reductions of 1 metric tonne of CO2.
The Voluntary Carbon Standard (VCS) version 1 was published jointly in March 2006 by The Climate Group (TCG), the International Emissions Trading Association ( IETA) and the World Economic Forum Global Greenhouse Register (WEF). The VCS 2007 was launched in November 2007 following a 19-member Steering Committee review of comments received on earlier draft versions. The Steering Committee was made up of members from NGOs, DOEs, industry associations, project developers and large offset buyers. The World Business Council for Sustainable Development joined in 2007 as a founding partner of the VCS 2007. The VCS will be updated yearly for the first two years and every two years after that.
VCS Association manages the VCS. The VCS Association is an independent, non-profit association registered under Swiss law that represents the VCS Secretariat and the VCS Board.
VCS Secretariat is responsible for responding to stakeholder queries, managing relationships with registry operators and accreditation bodies, and managing the VCS website and projects database.
VCS Board is responsible for approving any substantial changes to the VCS 2007. It also evaluates and approves other GHG Standards (whether in full or elements of them) project methodologies and additionality performance standards. It also has the authority to suspend an approved programme temporarily or indefinitely if changes are made to it that affect its compatibility with the VCS Programme. Further, it can sanction validators and verifiers, project proponents and registry operators for improper procedure. Finally, it decides on appeals made by project developers against a validator or verifier.
Technical Advisory Groups (TAGs) support the Board by providing detailed technical recommendations on issues related to the programme and its requirements (e.g. the Agriculture, Forestry and Other Land Use TAG for bio-sequestration projects).
Accredited Third-Party Auditors have the authority to validate and verify GHG emission reduction projects, validate new baseline and monitoring methodologies, validate additionality performance standards, and perform gap analyses of other GHG programs. They can only do so for project scopes and geographies for which they are accredited. To receive accreditation, they must either be accredited under an approved GHG Programme or under the ISO 14065:2007 with an accreditation scope specifically for the VCS Programme. Unlike under CDM, accredited third-party auditors can validate and verify the same project.
Start-up funding for the VCS Standard Organisation comes from TCG, IETA and WBCSD with additional fundraising currently underway. Donations from commercial organisations are capped at €20,000 per annum. In the medium term costs will be covered by a per-tonne levy charged at the point of VCU issuance.
At present, the VCS Programme recognizes the CDM and JI, and is in the processing of evaluating the California Climate Action Registry. VCS will evaluate and adopt other offset standards either fully or elements of them. The approval process will be based on the principle of full compatibility with the VCS Programme. If another offset standard is fully adopted by the VCS, all their auditors and methodologies are automatically accepted by the VCS. All credits certified by that standard will then be fungible with VCS credits, the Voluntary Carbon Unit (VCU).
VCS 2007 was launched in November of 2007. It is not possible to determine how many projects have been certified under VCS 2007 to date because the VCS registries and central project database are still under development. Several projects were validated and verified against VCS version 1. The VCS Association expects that between 50–150 projects creating between 10–20 million tonnes of CO2e will have been approved under the VCS Programme by the end of 2008.
All project types are allowed under the VCS Programme provided they are supported by an approved VCS methodology or if they are a part of an approved GHG programme. Exceptions are: projects that are “reasonably assumed” to have generated GHG emissions primarily for the purpose of their subsequent reduction, removal or destruction (e.g. new HCFC facilities) and projects that have created another form of environmental credit (e.g. Renewable Energy Certificate). RECs are fungible with VCUs if the GHG Programme certifying the RECs has been approved under the VCS. In addition, projects that have created another form of environmental credit must provide a letter from the programme operator that the credit has not been used under the relevant programme and has now been cancelled (so it can not be used in the future).
No restrictions. Retirement of corresponding AAUs required for projects in Annex-1 countries.
There is no upper or lower limit on project size. VCS does however classify projects into 3 categories based on their size:
The rules on validation and verification vary to some degree for projects that fall in the ‘micro’ or ‘mega’ categories.
The earliest project start date permissible under the VCS is 1 January 2002. For the 1st year of the VCS 2007’s operation, projects that started anytime after January 1st 2002 will be accepted provided they complete the validation process within a year from 19 November 2007. After the first year, only those projects that started within 2 years before the validation date will be accepted. In other words, retroactive crediting is allowed for up to two years from the validation date.
The earliest permissible start date for the crediting period is 28 March 2006. The duration of the crediting period can be a maximum of 10 years and it can be renewed up to three times.
CDM pre-registration credits are allowed in accordance with the start date and crediting period rules above. No further additionality proof required.
The VCS imposes no exclusion of ODA funds.
The VCS does not focus on environmental and social benefits. It is sufficient for VCS projects to show that they are compliant with local and national environmental laws.
The requirements for stakeholder involvement are based on ISO 14064-2 requirements and are stated in general terms: Independent stakeholders are provided with access to all documents that are not commercially sensitive and given sufficient opportunity to offer comments and other inputs.
The VCS uses project-based, performance-based and positive technology list-based additionality tests. The project-based test closely follows CDM procedures:
Step 1: Regulatory surplus: The project must not be mandated by any enforced law, statute or other regulatory framework. This criterion also applies to projects using the performance or positive list tests.
Step 2: Implementation barrier: The project must demonstrate that it faces capital or investment return constraints or an institutional barrier that can be overcome by additional revenues from VCU sales, or that it faces technology-related barriers to implementation of the project.
Step 3: Common practice: The project must demonstrate that it is not common practice in the sector or region when compared with other projects that received no carbon finance, and if it is found to be common practice, then the project proponent must identify barriers it faces that were not faced by the other projects. In demonstrating this criteria, the VCS advocates the use of guidance provided by the GHG Project Protocol for Project Accounting (see GHG Protocol).
A performance test can be used as an alternative to the project-based additionality test. With a performance test, a project can demonstrate that it is not business as usual if the emissions generated per unit of output it generates are below a benchmark level approved by the VCS Programme for the product, service, sector or industry. At the time of its launch, no performance standards had been approved. New performance tests will be approved through the double approval process and by the VCS Board.
A positive list of approved technologies can be used as an alternative to the project-based additionality test. The project developer still has to use a baseline methodology to determine the number of offsets a project will create. At the time of its launch, no technology was included in the positive list. The list is currently under development.
The VCS accepts projects using existing methodologies either approved under the VCS Programme or another approved GHG Programme, and also approves new ones. At the time of the VCS 2007 launch, all CDM baselines and monitoring methodologies had been approved for use under VCS and methodologies from the California Climate Action Registry were under consideration.
For the most part, VCS draws on guidelines provided in ISO 14064-2:2006 to guide the development of a VCS Programme Methodology (see section on ISO 14064). The VCS Board will approve new methodologies using a double approval process which entails seeking an approval from two independent accredited auditors, one appointed by the project developer and the other appointed by the VCS Secretariat. The Board automatically approves the standard if there is unanimity amongst the two auditors and rejects it if there is a disagreement between them. The project developer can appeal the decision. If it does so, then the VCS Secretariat appoints an independent consultant to review the project proponent’s claim. Based on the review, the VCS Board then makes a final decision. The expenses for each review are borne by the project proponent.
Under the VCS, validation is required but can be done at the same time as verification. The VCS provides a template for both the validation and the verification report.
Projects may choose to be validated either as an individual project or as part of a grouped project including two or more subgroups each retaining their distinctive characteristics. Group projects are only sampled by the project auditor.
A project proponent contracts an accredited auditor of the VCS Programme or of a VCS-approved GHG Programme to validate the project. The auditor evaluates the project against the VCS’ validation requirements (see below) and prepares its report as per the VCS Validation Report template.
The project is automatically approved if it is successfully validated by the auditor. A formal registration process with the VCS Association takes place only at the time of issuance of VCUs. However, upon successful validation, a VCS project may volunteer to be recorded on the VCS Project Database. In order to do so, its documents are checked for authenticity by the registry operator and the verifier completes a GPS search on the project database that checks if the project has been registered under the VCS before.
The validation of a project is to be carried out in conformance with the requirements of ISO 14064- 3:2006 and the report prepared as per the VCS Validation Report template including:
The emission reductions achieved by VCS projects can be verified by the same entity that validated the project. The VCS Board does not approve or reject projects; it is the auditors themselves who verify the projects and approve the claimed emissions reductions. The third-party auditor verifies the emissions reductions and the accuracy of emission reduction calculations as per the requirements of ISO 14064-3:2006. After a project has been validated and verified, the VCS Project Document and proof of title are submitted to the registry operator. Electronic copies of these documents are then put on the VCS project database and are publicly available.
Verification report prepared as per the VCS Validation Report template.
One year after the launch of the VCS 2007, the VCS will conduct an external review of all the projects that will have been certified. This work will likely be carried out by a commissioned NGO. VCS will then evaluate the results and decide if any of the rules have to be modified to improve the standard or close any unforeseen loopholes.
There is currently no plan to have a systematic evaluation of the third-party auditors. Yet the VCS board has the authority to sanction auditors, project developers or registry operators “based on evidence of an improper behavior.” (VCS Programme Guidelines, p.7).
The VCS will accredit different registries. To avoid double counting and to ensure that VCUs are only registered in a single registry, the VCS will also maintain a project database on its website which will assign a serial number to each project. The database will be publicly available and enable anyone to look up the vintage of the offsets, the project proponent, the registry in which they are kept, and other project information.
To minimize the risks of double counting, the project owner must further submit the following to the VCS:
a) A letter confirming that the VCUs being registered have not been registered, transferred or retired prior to the said registration;
b) Where emissions reductions have occurred in an Annex-1 country, a certificate from the national registry of the host country stating that an equal number of Assigned Amount Units have been cancelled from that registry;
c) Proof that emission reductions (from renewable energy projects) have not arisen from an activity used to meet a regulatory renewable energy commitment or to generate Renewable Energy Certificates or that the latter have been cancelled.
The registration fee for each VCU issued is 0.04 Euros (November 2007). Account fees will be set by each of the VCS approved registries.
The VCS is a base-level-quality standard that aims to keep costs for validation and verification low while still ensuring basic quality requirements. The VCS has outsourced a number of tasks that under CDM are done by the Executive Board and the Methodology Panel (e.g. project and methodology approval). The advantage of this is that the organisation can be kept very lean. Also, outsourcing tasks to professionals in the respective fields can potentially increase the quality of work (e.g. having a proposed methodology evaluated by an external advisory group of experts in that particular technology). The downside of this approach is that more decision making power is given to outside entities.
Under the VCS, it is the auditors themselves who approve the projects. Given the pressures on auditors and given the conflict of interest discussed earlier, we see the lack of an accrediting board to review projects and give final project approval as a potential weakness of the VCS. A double approval process for projects similar to the one VCS uses for methodology approval could be a potential solution to this.
There is pressure on auditors to approve their clients’ methodologies in order to maintain a good relationship and not compromise future work opportunities. As has been shown in the CDM (Schneider, 2007), this design flaw in carbon markets is difficult to address as long as the project developer pays for and can choose the auditor. VCS is mitigating the fact that project developers and auditors have aligned interests by having two auditors approve a new methodology (the second of which is chosen by the VCS and reports directly to the board). It will be interesting to see how well this system works in practice.
The VCS plans to add benchmark tools and technology lists to its additionality tests. Since these tools have not been developed yet, we cannot comment on their quality or stringency. However, the VCS 2007 states that benchmark and technology list tools must demonstrate that projects approved under them would also be approved under the project-based tests. Nevertheless, current VCS documents do not indicate that these tools will have embedded measures to account for free riders, for example through discounting of offsets that are accredited through benchmark tools. We hope that a conservative approach will be taken to ensure the integrity of these additionality tools.
The VCS crediting period for offset projects is 10 years with the option to renew three times. This is considerably longer than under the CDM or the Gold Standard (3 times 7 years). Extending the crediting period means that fewer emissions reduction projects are necessary to create the same number of emissions reductions. In other words, there is a trade-off between limiting crediting periods to the minimum to allow more projects to enter the market and extending it to the maximum to make more projects viable. Longer crediting periods will result in fewer projects being implemented. Also, having longer crediting periods than other standards might allow project developers to jump to the VCS once the crediting period of the originally chosen standard has expired. This raises potential additionality issues.
The VCS requirements for stakeholder involvement are based on ISO 14064-2, which states these only in very general terms. Definitions of stakeholders, confidential information6 and ‘sufficient opportunity’ for comments appear to be left to the project developer to decide. There are also no specified procedures and rules on how stakeholder concerns are to be taken into consideration. For buyers who place value on these co-benefits, VCS would not be a sufficient standard.
Given that the VCS 2007 is broadly supported by the carbon offset industry, it will likely become one of the more important standards in the voluntary offset market and might very well establish itself as the main standard for voluntary offsets. The VCS version 1 was criticized by many as too weak and vague. The VCS 2007 was developed after a 2-year stakeholder consultation and has taken into account many of these criticisms and is clearly an improvement over version 1.
Since VCS 2007 was just released, it is too early to judge if the standard will be able to realize its goal of ensuring “that carbon offsets that businesses and consumers buy can be trusted and have real environmental benefits.” We are hoping that the VCS will use its market position to improve the quality of offsets and will address some of the potential weaknesses in the standard.
http://www.tuev-sued.de/climatechange
http:/www.netinform.de
The VER+ is a full-fledged carbon offset standard and closely follows the Kyoto Protocol’s project-based mechanisms (CDM and JI). It does not focus on cobenefits.
The VER+ standard was developed by TÜV SÜD, a Designated Operational Entity (DOE) for the validation and verification of CDM projects. It was designed for project developers who have projects that cannot be implemented under CDM yet who want to use very similar procedures as the CDM. The VER+ was launched in mid 2007.
TÜV SÜD certification body “climate and energy” has four members who supervise and administer the VER+ standard’s criteria. The same body also reviews all the CDM projects that TÜV SÜD audits as a DOE before the documents are submitted to the CDM EB.
Third Party Auditors are CDM and JI accredited auditors. They are approved to validate and verify projects. In the validation and verification process, the auditing company is obliged to follow the requirements as defined by the Validation and Verification Manual (initially published by Worldbank / IETA), in its most recent version. Unlike under CDM, accredited thirdparty auditors can validate and verify the same project.
The VER+ is financed by funds from TÜV SÜD and by issuance fees for use of the registry.
If a project that has been initially implemented under another standard seeks VER+ certification, a so called “equivalence check” is carried out. Based on validation and verification reports, the auditor in charge confirms that the already audited project also complies with VER+ requirements.
At the end of 2007 there were approximately 25 validated projects and several verifications were taking place. The demand for VER+ is growing, especially among project developers in China and for CDM preregistration credits.
VER+ accepts all project types except HFC projects, nuclear energy projects, large and hydropower projects over 80MW. Hydro projects exceeding 20MW have to conform with World Commission on Dams rules. LULUCF projects, including REDD, are accepted if implemented with a buffer approach to address the risk of potential non-permanence.
VER+ follows the same project criteria as JI but without limitation to the status of the host country. Hence, the host country can be an Annex I, non-Annex I or nonratification country.
VER+ credits generated in an Annex I country need to demonstrate the retirement of AAUs in order to be fully interchangeable with VER+ credits from a non-Annex 1 country. Furthermore VER+ credits can be issued if it is demonstrated that the host nation does not participate in International Emissions Trading (Kyoto Protocol Art 17) or if it is confirmed that VER+ credits will not be transferred out of the host country.
No restrictions apply.
Applications for retroactive VER+ accreditation can be submitted for start dates as early as January 1st, 2000. Retroactive crediting has been limited such that credits are issued for 2 years back from the registration date (at the certification body of the auditor in charge) and will be phased out by the end of 2009.
The crediting period of VER+ activities ends at the end of the latest agreed commitment period under the UNFCCC scheme. At the end of 2012 a brief check up on the “Kyoto status” of the host country will be carried out to avoid double counting with UNFCCC regimes. Once this review is carried out, the crediting period is extended up to the end of the next commitment period (as defined by UNFCCC). At the end of this next commitment period (e.g. 2020), a revalidation is required. The maximum crediting periods are limited to 25 years for standard projects and 50 years for LULUCF activities.
The generation of VER+ credits is possible ahead of the registration of a CDM project without any further additionality testing. A registered CDM project has to have started to operate and reduced emissions prior to UNFCCC registration. The earliest starting date for this pre-CDM/JI crediting is the date of publication of the PDD on the UNFCCC website (Global Stakeholder Process). VER+ crediting may occur until CDM/JI registration. No separate PDD is needed for CDM or JI activities applying for VER+ credits for a crediting period prior to the one under UNFCCC.
As under CDM rules, VER+ projects are not allowed to use Official Development Assistance (ODA).
If the project activity requires an Environmental Impact Assessment (EIA) due to national legislation, it needs to be submitted for project approval.
If required by national law, a local stakeholder process has to be carried out. Otherwise, the project developer can choose between:
Just like in CDM the PDD is published for 30 days on
the DOE’s website and comments can be made via the
website, which will then be considered in the audit
process.
(www.netinform.de; look for climate and energy).
Additionality tests for VER+ are project-based.
All CDM approved baselines and methodologies are allowed. The latest versions of the CDM methodologies have to be used. If there is no existing CDM methodology that matches the project conditions, a project specific methodology can be developed. This new methodology is reviewed on a project by project basis. The project methodology has to be based on “guidance on criteria for baseline setting and monitoring” as defined for JI activities.
VER+ projects are required to:
A UNFCCC-accredited auditor reviews the validation process and approves the project. The project is then registered with the auditor in charge. The results of the validation (as well as verification at a later stage) are forwarded to the BlueRegistry, where relevant information of VER+ projects is held and publicly available.
The requirements are similar to those of CDM but they do not require approval from the host country:
A project specific approach as defined for JI can be used for those project settings where a CDM approved methodology is not available or fully applicable.
Verification is based on monitoring reports from the project developers and conducted by an auditor. The auditor also approves the verification report. All VER+ project documentation is submitted to the BlueRegistry. Unlike under CDM rules, an auditor is allowed to do validation and verification of the same project.
The first verification is required at latest one year after registration of the starting date of the crediting period. For LULUCF projects, a first verification is required within 5 years from validation.
For any VER+ activity, the frequency of the proceeding verifications can be chosen by the project participants. Based on a positive verification statement, VER+ credits are issued by the auditor.
Since the VER+ relies exclusively on DOEs, the standard relies on the review procedures of the CDM.
In June 2007, TÜV SÜD launched its own BlueRegistry for VER+ credits. An account is opened for each verified VER+ project at TÜV SÜD’s BlueRegistry. In an effort to prevent project developers from registering their credits with multiple registries, VER+ includes in its contract a clause that stipulates that the credit holder shall refrain from double selling / registering. The BlueRegistry intends to accept GS-VER and VCS certified credits and already registers green energy certificates. Agreements on the standardized interchange between registries are currently pending.
Total costs for validation, registration and VER+ issuance charged by the auditing company vary depending on project size, technology, location etc. and is estimated to be in the range of 5,000 to 15,000 Euros.
If verification has been carried out by TÜV SÜD then all VER+ credits are automatically registered in the BlueRegistry without additional costs.
For projects and credits not verified by TÜV SÜD, there is a registration fee which covers incorporation into the BlueRegistry. TÜV SÜD charges a one time subscription fee (550-1100 Euros) and a registration fee (1500-3000 Euros p.a.) for opening and maintaining accounts. In addition the transaction fee for registered credits ranges from 120 Euros for 200 tonnes or less to 700 Euros for 10,000 tonnes or more.
TÜV SÜD has a good reputation as a DOE and is a well-know auditor. We are nevertheless concerned about potential conflicts of interest. Currently, most VER+ projects are validated and verified in house, since both the certification body and the auditor are in this case TÜV SÜD, it is difficult to know if project approval will always be strictly independent.
Projects are validated, verified and approved by the same DOE. Even with TÜV SÜD’s best intentions, given the pressures DOEs are currently facing to do very fast and low cost evaluations, the possible conflict of interest is real.7 Yet, since the standard is very new and few projects have been implemented it remains to be seen if these concerns prove to be valid.
The VER+ standard allows projects in any country. For Annex 1 countries they stipulate that the corresponding amount of AAUs are retired or that the generated VER+ credits are not to be transferred out of the country. We agree that the first provision avoids double counting but do not see how VERs used within the country avoids double counting. We therefore see the second alternative as insufficient to avoid double counting.
VER+ does not require a local stakeholder process and does not focus on enhancing co-benefits. For buyers who place value on these co-benefits, VER+ would not be a sufficient standard.
There are several reasons why project developers might choose VER+ over CDM. In comparison to CDM, VER+ provides more flexibility on methodologies, which speeds up validation and verification. A project specific approach as defined for JI can be used for those project settings where a CDM approved methodology is not available or fully applicable. The fees for the incorporation of VER+ credits to the BlueRegistry are usually lower than those covered by UNFCCC for registration and issuance of CDM projects.
Given the proliferation of standards, it remains to be seen how well the VER+ will be able to establish itself. Although TÜV SÜD is well respected in the industry, the VER+ was developed by a single DOE and does not have the wide NGO or industry-based support that the Gold Standard and the VCS have. It is therefore unclear how widely the VER+ will be used.
http://www.chicagoclimatex.com
The Chicago Climate Exchange (CCX) is a voluntary GHG emissions cap-and-trade scheme based in North America. Although participation is voluntary, compliance with emission reduction objectives is legally binding once a member joins. CCX has as part of its cap-and-trade scheme an offset programme with a full-fledged carbon offset standard. CCX members commit to reduce their emissions by a fixed amount below the established baseline level.8 Members who cannot achieve the reduction target through cutting their emissions internally can meet their compliance commitment by purchasing emission allowances (called Carbon Financial Instruments; CFI) through CCX’s electronic trading platform from other CCX Members that reduce their emissions beyond the reduction target. Offsets from projects implemented through the CCX offset programme can also be used to comply with reduction targets. Total use of offsets for compliance is limited to no more that one half of the required reductions.
In 2000, a group of researchers led by Richard Sandor at Northwestern University carried out a feasibility study on the viability of a cap-and-trade market to reduce greenhouse gas (GHG) emissions in the US. Through 2002, they developed the rules and protocols required to establish the scheme and, by 2003, they launched trading operations with 13 members that made voluntary but legally binding commitments to reduce six GHGs. Total membership has grown to almost 400 entities.
CCX Committee on Offsets is responsible for reviewing and approving proposed offset projects. The offset committee has currently approximately 12 members. Each member is appointed by the CCX Executive Committee for a 1 year appointment with the possibility of renewal.
External Advisory Board provides external strategic input to the CCX team and includes experts from the environmental, business, academic and policy-making communities.
Technical Advisory Committees are established by request of each CCX standing committee or on an ad-hoc basis. These technical committees are usually comprised of outside experts. Currently CCX has technical advisory committees on agricultural methane capture, landfill methane capture, soil carbon sequestration for conservation tillage and rangeland soils, forestry and ozone depleting substances.
CCX Committee on Forestry is responsible, among other things, for reviewing proposed forestry offset projects.
CCX Regulatory Services Provider is the Financial Industry Regulatory Authority (FINRA), the largest nongovernmental regulator for all securities firms doing business in the United States, which provides external verification of the baseline and annual emissions report of each member, monitors CCX trading activity and reviews verifiers’ reports for offset projects.
Third-party Offset Project Auditors are called ‘verifiers’ and are approved by CCX for each project type to verify an offset project’s annual GHG sequestration or destruction. There are currently 29 approved auditors (12/07).
Climate Exchange PLC is a publicly listed company on the AIM division of the London Stock Exchange. Financials of Climate Exchange, including CCX, are available to the public. The operations and management of the exchange is financed primarily through trading and offset registration fees as well as through enrolment and annual fees generated from its members.
The CCX allows trading of credits generated in some projects registered under the CDM. Such projects must be approved by the CCX Offsets Committee and must retire their CERs in exchange for receiving CCX credits. Number of Projects registered and offffsets issued 44 offset projects have been issued 20.82 million metric tonnes of CO2e offsets since the scheme’s inception in 2003 as of 28 November 2007. (http://www. chicagoclimatex.com/offsets/projectReport.jsf, accessed Nov 28, 2007)
CCX accepts the following project types:
Most CCX offset projects to date are located in the US. In order to avoid double counting, CCX accepts projects in any country except in member states of the EU-ETS. Furthermore, CCX does not allow for the registration of projects in Annex 1 countries during the Kyoto period that might be counted under the country level inventory (AAU).
There is no limit on the project size. However, projects with less than 10,000 metric tonnes of CO2e cannot trade on the exchange directly but can do so through an offset aggregator.
Projects selling offsets on the CCX should not have started earlier than January 1, 1999 for most project types. However, the earliest start date for forestry projects is January 1, 1990 and for HFC destruction projects is January 1, 2007.
Most of the eligible project types can earn offsets for the period 2003 to 2010 (8 years). The exceptions include renewable energy projects, which can earn offsets from 2005 to 2010 (6 years), HFC destruction projects, which can earn offsets from 2007 to 2010 (4 years), and rangeland soil carbon projects, which can earn offset from 2006 to 2010 (5 years).
CCX generally approves CDM pre-registration credits if all the CDM documentation is in place. CCX does not require any further additionality proof for such preregistration VERs.
No funding restrictions.
Offset projects must comply with the rules and regulations of the host country. Beyond this legal prerequisite, CCX does not have any requirements for stakeholder involvement and other co-benefits. The vast majority of CCX offsets are implemented in developed countries where legal and regulatory frameworks already require assessment of environmental and social impacts. In cases where projects originate from a non- Annex I country, environmental and social impacts are considered by the offset committee on a case by case basis depending on the project type.
Additionality requirements are primarily performance-based. Additionality criteria are incorporated into the eligibility criteria of the project types. The CCX requires that projects are new, beyond regulation and involved in highly unusual “best in class” practices. There is no formal project-specific assessment of additionality. Additionality of each project is reviewed by the CCX Offsets Committee.
The baselines and methodologies for calculating emission reductions are defined for each project type through the use of specified crediting rates for eligible project activities. Some baselines are project-specific (e.g., large reforestation projects are credited relative to measured site-specific carbon levels prior to the start of the project). Other baselines are based on performance standards (e.g. avoided deforestation projects in Brazil are credited using predetermined annual deforestation rates for specific states within Brazil).
CCX does not distinguish between validation and verification. Both steps are usually done at the same time by the same auditor and are called “project verification and enrollment.” In other words, an initial validation of projects is optional. Credits are generated after verification.
The following steps are involved in verifying or enrolling an offset project on the CCX:
The steps involved include:
Verification Statement by the third-part auditor are required.
Auditors are approved for each project type. Once approved the CCX does not have a formal process in place to evaluate and sanction auditors in case of underperformance.
Offset project developers can participate in CCX by registering offsets either as Offset Providers or Offset Aggregators. An Offset Provider is an owner of an offset project that registers and sells offsets directly on the Exchange. An Offset Aggregator is an entity that serves as the administrative representative for multiple offset-generating projects on behalf of multiple project owners. The CCX Trading System has three components:
1. The CCX Registry
as the official record holder and transfer mechanism for
Carbon Financial Instrument® (CFI™) contracts. All CCX
Members have CCX Registry Accounts.
2. The CCX Trading Platform
The CCX Trading Platform is an internet-accessible
marketplace in order to execute trades among CCX
Registry Account holders and to complete and post
trades that are established through private bilateral
negotiations.
3. The Clearing and Settlement Platform
The Clearing and Settlement Platform processes daily
information from the CCX Trading Platform on all trade
activity.
Fees for CCX membership areUSD1,000-35,000 per year depending on the size and type of member. Offset registration fees are USD 0.12 per metric tonne from non-Annex I countries and USD 0.15 per metric tonne from Annex I countries. The trading fee is USD 0.05 per metric tonne. Trading and offset registration fees are posted on the CCX website and are subject to change.
CCX has been a pioneer in establishing a cap-and-trade system. It was the first such system established in North America and it has given companies the opportunity to learn and gain experience with emissions reduction commitments and carbon trading. Despite these very positive aspects of CCX, there have been several points of criticism of CCX in general (as a cap-and-trade system) and of CCX’s offset programme. We first discuss the offset programme:
CCX does not require a local stakeholder consultation process and does not focus on enhancing cobenefits. For buyers who place value on these co-benefits, CCX would not be a sufficient standard.
There has been significant criticism of the lack of additionality of some CCX offsets, in particular those involving no-till agriculture. There were several documented instances where farmers received carbon offset revenue for practicing no-till agriculture despite the fact that these farmers had been practicing no till for many years already.9
CCX argues that it would be unfair if the proactive farmer who has been practicing no-till cannot sell his carbon credits, whereas a farmer who just started doing so in order to get revenue can earn credit. This argumentation in favour of ‘rewarding early action’ with carbon credits conflates two separate issues:
Environmental integrity: ‘Rewarding early action’ with carbon credits undermines the environmental integrity of offsets: If non-additional credits enter a cap-and-trade system, emissions are actually increasing because the buyer of the non-additional offsets will continue to emit whilst no further emissions reductions are achieved through the offset projects.
Fairness to early actors: it is true that additionality raises an equity issue: Individuals who have acted as pioneers and have already been engaged in non-traditional low-carbon practices such as no-till agriculture will not be able to sell their carbon credits because their actions are by definition nonadditional (they happened for other reasons than the carbon offset market).
In order to preserve the environmental integrity of the broader offsets market, the fairness concern would need to be addressed via measures other than handing out non-additional carbon credits (e.g. early action provisions, tax/subsidy treatment, discounting of credits, etc).10
Transparency of CCX
Several groups have in the past criticized CCX for its general lack of transparency.11 CCX has responded
to this criticism by making its rule book and many of the methodologies available on its website. We
welcome this increase in transparency which will enable a more independent evaluation of project
methodologies.
Accomplishments of CCX and additionality of CFIs
Companies who voluntarily signed on to CCX are a self-selecting subset of corporations who are
likely to be confident that they can comply or even over comply with the commitments. It is therefore
difficult to assess the achievements of the CCX per se. The very low prices of CFIs indicate that many
of the member companies of CCX have over-complied with their commitments and, conversely, that
the CCX targets are not stringent enough to exert any pressure above and beyond the companies’
expected emission levels. If the cap in a cap-and-trade system is low and there is over-compliance,
the cap may not be leading to any reductions beyond business-as-usual. There is a risk that carbon
offsets from unspecified CFIs do not actually lead to emissions reductions beyond business-as-usual.
Future of CCX
CCX was the first cap-and-trade system that was established in the US and as such has played a
innovative and valuable role in bringing carbon trading to the US. It is unclear how CCX will function
if the US adopts a mandatory cap-and-trade programme. It is possible that CCX could become largely
a trading platform and exchange, deferring to government authorities to define rules and procedures
and to certify reductions.
Offset Standard Screens are not full-fledged standards by themselves but accept projects that were implemented under other standards and adhere to their screening standards.
http://www.carboninvestors.org/
The Voluntary Offset Standard (VOS) is a carbon offset screen that accepts other standards and methodologies using certain screening criteria. It currently accepts Gold Standards VER projects and projects that employ CDM procedures but which are implemented in countries that have not ratified the Kyoto Protocol and are therefore not eligible for CDM.
The International Carbon Investors and Services (INCIS) launched the VOS in June 2007. INCIS is a not-for-profit association of large investment companies that provide carbon-related investments and services. INCIS has 26 members (as of November 2007).
Since the VOS is a new standard, many of its administrative structures are not yet in place.
Members: INCIS was initially set up as the “European Carbon Investors and Services” but has since its launch expanded to represent the interests of 26 members based both within and outside of Europe. These include, among others, ABN AMRO, Baker & McKenzie, Barclays Capital, Climate Change Capital, Credit Suisse, Deutsche Bank, Fortis, ING, MGM International, Morgan Stanley, and Standard Bank.
Auditors: UNFCCC approved DOEs verify and approve projects.
The VOS is financed through INCIS membership fees and will further be financed through the issuance fees once its registry is established.
The VOS accepts credits from CDM, JI, and Gold Standard CER and VER projects. Other VER standards (or specific methodologies approved under these additional standards) may be recognised under the VOS in the future by INCIS.
No information is available: the VOS relies upon DOE certification so there will be no central entity to collect VOS project numbers until a registry is established.
VOS accepts project types covered under the CDM/JI mechanism, with the exception of new HFC projects and 20 MW-plus hydroelectric dams unless they meet the criteria and guidelines of the World Commission on Dams.
Projects are allowed in any country except those based in countries covered by a scheme for greenhouse gas emission allowance trading, such as the EU-ETS, if there is no mechanism in place to retire the equivalent numbers of allowances in that country (e.g. retiring of AAUs).
The limitations specified under CDM/JI mechanisms apply.
The limitations specified under CDM/JI mechanisms apply.
The same as CDM/JI and CDM Gold Standard
Pre-registration VERs are generally accepted by the VOS. Such VERs can be issued from the project start date if the project has been successfully validated by a DOE as meeting the CDM standard, including additionality, and the number of VERs has been verified by a different DOE.
The limitations specified under CDM/JI mechanisms apply.
The limitations specified under CDM/JI mechanisms apply. If the credits are GS, then Gold Standard rules apply.
The rules and guidelines specified under the CDM/JI mechanisms and the Gold Standard apply.
For GS VERs: validation is done through the Gold Standard. For CDM standard VERs: validation is done through DOE certification.
For GS VERs: verification is done through the Gold Standard. For CDM standard VERs: verification is done through DOE certification.
The VOS relies on the review processes of the CDM and does not have its own review process for auditors.
The VOS is planning to establish its own registry.
For GS VERs: see the Gold Standard section. For CDM standard VERs: the DOE validation and verification costs. Registry costs are yet to be determined.
The VOS standard screen is supported by many of the heavy weights in the financial industry. This is an indication that these financial players are concerned about the risk they are taking by trading VERs from an unregulated market. Because of the support by these powerful financial players, the VOS could potentially play an important role.
Yet currently the VOS seems somewhat vague. It is difficult to get any specific information about the VOS. There is little information available on the website or in printed materials.
Currently the VOS only accepts VERs from projects implemented using CDM methodologies and Gold Standard offsets. In terms of VER projects implemented using CDM methodologies, the VOS is similar to the VER+, yet has fewer defined organisational structures and procedures. It is still unclear how the decision making structures for approval of methodologies or other standards will look. For these reasons, it is unclear how important a role the VOS will play in the voluntary offset market.
This section focuses on CDM’s bio-sequestration rules only. For a complete description of the CDM, see Here.
As of September 2007, only 10 afforestation/ reforestation projects are registered with CDM. (Source: http://www.cdmpipeline.org/cdm-projects-type.htm)
CDM accepts afforestation12 or reforestation13 projects. CDM forestry projects can only be implemented on land (a) that is not forested at the start of the project activity; (b) which was not recently harvested; and (c) which is not likely to become forested in the near future without human intervention. All other forms of biological sequestration or land-based emissions reduction activities, including avoided deforestation, are currently not allowed.
The requirements for registering, validating, and certifying forestry projects are the same as for other project types. However, the following requirements are specifically for CDM forestry projects.
Specific methods to account for leakage are developed under each baseline methodology. Methodologies must identify the sources of leakage and explain which sources of leakage are to be calculated, and which can be neglected. They must also specify any relevant calculations, parameters, and coefficients; indicate how values will be obtained; and describe uncertainties associated with key parameters. Specific methodologies may identify circumstances in which a particular source of leakage can be “neglected” or ignored. Such exclusions must be justified.
CDM does not account for international leakage and market shifting.
To address the risk that carbon might be re-released in the atmosphere due to forest destruction, CERs from forestry CDM projects produce temporary emissions credits. Specifically, these are either termed “temporary CERs” (tCERs) or “long-term CERs” (lCERs). Both types of CERs have expiration dates, after which they must be replaced by another tradable emissions unit under the Kyoto Protocol (e.g., standard CERs, AAUs, ERUs, or RMUs).
If an Annex 1 country uses a tCER for compliance it must replace it with a permanent Kyoto unit or an unexpired tCER in the next commitment period. If the project is still performing as expected, the new tCERs will just replace the expired ones. If the project fails during the first year of the commitment period, the tCERs will not have to be replaced until the end of that commitment period. This reduces the risk for the buyer who can plan for the whole commitment period.
lCERs expire at the end of the final crediting period for the project activity. lCERs may be cancelled if the verification reveals that the stored carbon for which they were issued got released back into the atmosphere. Upon cancellation, they must be replaced by another Kyoto Protocol emissions trading unit.
CDM forestry projects have either a single 30-year crediting period, or 20-year crediting periods that are renewable up to two times.
During the first commitment period, Annex 1 countries are limited to using forestry credits for no more than 1% of their baseline emissions.
There have been very few implemented CDM A/R projects. The methodology requirements are complicated and require sophisticated measurements of carbon stocks.
CDM currently does not allow for REDD projects, yet deforestation remains a serious problem and contributes significantly to climate change. Many developing countries and NGOs have been advocating for the inclusion of REDD into CDM. Yet it is unclear how well suited CDM is for addressing deforestation. Even with carefully designed methodologies, (international) leakage is difficult to address in REDD projects. For authors’ comments on the CDM, here.
This section focuses on bio-sequestration rules only. For a complete description of the VCS, see here.
Voluntary Carbon Standard (VCS) includes biosequestration and land-based emissions reductions projects and has developed a specific set of rules to address the particular issues and risks associated with these project types. The VSC uses the acronym AFOLU (Agriculture, Forestry and Other Land Use) for its biosequestration projects.
The VCS AFOLU standards were launched on November 19th, 2007, and new methodologies and projects have yet to be approved.
The following types of projects are acceptable under the VCS AFOLU:
The geographical area subject to potential leakage must be identified ex-ante, and any potential leakage subtracted from the net carbon benefits generated. Each project activity type has specific rules governing how leakage must be addressed.
Given the potential for regional markets to shift leakage from improved forest management projects (if they reduce overall timber supply), the VCS provides default leakage factors to ensure that potential leakage impacts are captured and subtracted. These default values can range from 10% to 70%.
In the case of RED projects, an analysis of agents and drivers of deforestation must be presented to the verifier, as well as a description of the measures that will be implemented to address them (e.g., building in sustainable agricultural intensification practices when shifting agriculture is a deforestation driver, or incorporating fast-growing wood lots to address local fuel wood or timber needs). The identified factors must subsequently be monitored on a regular basis. Depending on the extent of possible leakage, the area subject to leakage monitoring could encompass the entire host-country. If significant leakage that is directly attributable to the project is likely to occur beyond this area (such that it cannot be monitored), the activity is not eligible.
In line with the CDM, VCS AFOLU does not account for international leakage or international market shifting.
Unlike CDM, the VCS does not issue temporary credits. VCS AFOLU projects produce permanent VCUs that are fully fungible regardless of the project type generating them. VCS AFOLU projects set aside a portion of all their credits generated into a buffer reserve to mitigate nonpermanence risk. The buffer credits from all projects are held in a single pooled VCS buffer account to act as insurance against unanticipated project failure.
The buffers are sized depending on the risk level of a project. Projects with higher risk of (partial) failure must include a larger buffer than projects with smaller risks.
| Risk Class | RED Buffer | ARR Buffer |
| High | 20-30% | 40-60% |
| Medium | 10-20% | 20-40% |
| Low | 5-10% | 5-20% |
This risk assessment and subsequent buffer determination is conducted by two separate independent verifiers to ensure that a conservative number of credits are set aside.
The buffer solution to permanence issues in biosequestration projects reduces the risk to the buyer and seller of the offsets because the buffer acts as a guarantee. Credits in the buffer are cancelled when carbon is lost from the project compared to a previous issuance event, or should the project not be re-verified in the future. The buffer approach is meant to encourage developers to design projects for longer time-horizons and adopt strong risk mitigation strategies, since longterm projects with a low risk profile will be subject to a lower buffer withholding requirement.
Buffers can be drawn upon over time as project’s longevity is established and risks shown to be effectively mitigated. 15% of project’s buffer is released every 5 years at re-verification. For example, a mediumrisk project starting out with a 30% buffer would have 15% of this (or 4.5% of total credits) released at its next verification event five years later. This 15% release would continue (e.g., at next verification would release 15% of 25.5% of credits from buffer), so that by 50 years after the first verification (or 55+ years since project start), assuming that the project’s risks have been shown to be effectively managed, the project would be subject to a ~6% buffer withholding.
Verification of the project is in theory optional, but it is in interest of project proponents to regularly submit verification reports to the VCS because if a project fails to submit a verification report to the VCS within five years from latest verification, 50% of the buffer credits are cancelled. After another five years, all remaining buffer credits are cancelled. Projects may claim cancelled credits in the future by submitting a new verification before the end of the crediting period.
To ensure the environmental integrity of the buffer approach the VCS will conduct “truing up” of the overall VCS buffer pool every few years. A review of existing VCS verification reports for all AFOLU projects under the VCS would flag the projects that have failed or underperformed and then identify their common characteristics. The buffer values and/or risk criteria for VCS projects going forward would then be adjusted accordingly.
VCS crediting period for AFOLU projects are the same as the life of the project, with a minimum of 20 years and a maximum of 100 years.
VCS requires all AFOLU projects to “identify potential negative environmental and/or socio-economic impacts they might have, and effectively mitigate them prior to generating VCUs.” However, VCS does not monitor social and environmental impacts; project developers simply have to demonstrate to verifiers that there are no negative social and environmental impacts.
The VCS AFOLU rules are thorough and innovative and they address many permanence and additionality concerns. It is also the first carbon standard to cover all the major land use activities, whether forestry or agricultur related, under a single verification framework. Only once projects have been implemented will it be possible to fully evaluate the quality of the standard.
VCS AFOLU does not require a local stakeholder process beyond what is required by law and does not focus on enhancing co-benefits. For buyers who place value on these co-benefits, VCS AFOLU alone would not be a sufficient standard but could be combined with a standard such as the CCBS. For authors’ comments on the VCS, see here.
http://www.climate-standards.org/
The Climate, Community & Biodiversity Standards (CCBS) is a project design standard and offers rules and guidance for project design and development. It is intended to be applied early on during a project’s design phase to ensure robust project design and local community and biodiversity benefits. It does not verify quantified carbon offsets nor does it provide a registry. The CCBS focus exclusively on land-based biosequestration and mitigation projects and require social and environmental benefits from such projects.
The CCBS was developed by the Climate, Community and Biodiversity Alliance (CCBA) with feedback and suggestions from independent experts. CCBA is a partnership of non-governmental organizations, corporations and research institutes, such as Conservation International, The Nature Conservancy, CARE, Sustainable Forestry Management, BP and CATIE. The first edition was released in May 2005.
CCB Alliance is formed by representatives from each member organisation. The alliance currently has 13 members and makes decisions about changes to the standards. It also works closely with the auditors, advising them on interpretation and application of the standards.
Working groups are comprised of alliance members and external advisors and are appointed when needed to address specific issues. Working groups proposals for changes must be approved by the Alliance.
Third-party auditors are certified DOEs under the CDM for afforestation and reforestation – organizations that are approved to evaluate CDM projects – or evaluators who are certified under the Forest Stewardship Council.14 Validation and verification can be done by the same auditor.
The CCBS are managed by the CCBA which is supported by contributions from alliance member organizations and by foundation grants.
Because CCBS is a project design standard only, and not a full fledged carbon offset standard, project developers who want to sell certified or verified emissions have to apply another standard to get certification and registration of their offsets. About 30% of the projects are developed as CDM projects that will generate CERs. 70% of the projects are looking to sell their offsets in the voluntary market.
Projects may combine the use of several different standards (e.g. CCBS to ensure validity of design to generate carbon credits with social and environmental benefits, FSC for certification of timber products, and the VCS for verification and registration of carbon credits). Using different standards might potentially help projects attract different funders and product buyers at different stages in the project cycle.
As of September 2007, two projects have been validated against CCBS, a further five projects are undergoing validation and at least 20 more projects plan for CCBS validation in the coming few months. Over 70 projects are under development using the CCB Standards. The pool is growing by a few projects every month.
Some CCBS projects are selling ex-ante credits. Some are planning to sell a mixture of ex-ante and ex-post credits. Ex-ante credits enable projects to raise funds for project implementation. Because of the risk t