TECHNICAL NOTE 14 | APRIL 2017A Guide to Greenhouse Gas Benchmarking for Climate Policy InstrumentsPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedA Guide to Greenhouse Gas Benchmarking for Climate Policy Instruments 1 A Guide to Greenhouse Gas Benchmarking for Climate Policy Instruments A Guide to Greenhouse Gas Benchmarking for Climate Policy Instruments 2 2016 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone 202-473-1000; Internet www.worldbank.org Some rights reserved This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of cutive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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Cover photo courtesy of Cover design Gregory Wlosinski A Guide to Greenhouse Gas Benchmarking for Climate Policy Instruments 3 Acknowledgements This Guide was prepared for the Partnership for Market Readiness, jointly by a team of experts from Ricardo Energy and Environment and NewClimate Institute for Climate Policy and Global Sustainability. Carolina de Oliveira and Mark Johnson led the team from Ricardo Energy and Environment, and Carsten Warnecke and Ritika Tewari led the team from NewClimate Institute for Climate Policy and Global Sustainability. Harikumar Gadde and Pauline Maree Kennedy World Bank, provided substantive s and managed the project. We sincerely thank representatives from climate policy jurisdictions who shared their practical insights and knowledge related to designing and implementation of benchmarks for climate policy instruments through a survey, interviews, and review of the Guide. These include Clare Lonergan and Daniel Besley Australia, Mary Jane Coombs and Mihoyo Fuji California, Sebastian Carranza Columbia, Alexandra Manole European Commission, Alexandra Zirkel, Frank Gagelmann, Dr. Markus Kollar and Christoph Khleis German Emissions Trading Authority, S. Vikash Ranjan India, Akihisa Kuriyama Japan JCM, Zhibek Issakyzy Kazakhstan, Vctor Escalona Gmez Mexico, Ted Jamieson New Zealand, Memory Machingambi and Sharlin Hemraj South Africa, Sachiko Nakamura Tokyo, Torsten Greis and Lea Bigot Tunisia, Nicolas Muller UNFCCC, and Vintura Silva UNFCCC. . A Guide to Greenhouse Gas Benchmarking for Climate Policy Instruments 4 Contents List of acronyms . 6 CUTIVE SUMMARY 7 1 Introduction . 18 2 Key Concepts and Guiding Principles . 20 2.1 What are benchmarks for climate policy instruments . 21 2.2 How and why are benchmarks used in climate policy 21 2.3 Key concepts in benchmarking for climate policy . 24 2.4 Guiding principles for development of benchmarks 28 2.5 Choosing whether to benchmark 31 3 Step One Planning . 33 3.1 Designing the benchmark 34 3.2 Creating an enabling environment for benchmark development . 45 4 Step Two Data Collection . 53 4.1 Specify data requirements 53 4.2 Choose a data collection approach 54 4.3 Implement selected data collection approaches . 60 5 Step Three Data Analysis . 63 5.1 Assess and improve data quality 63 5.2 Assess and improve data sufficiency . 64 5.3 Determine the benchmark value . 65 5.4 Assessing the benchmark 65 5.5 Stakeholder engagement . 67 6 Step Four Integration . 68 6.1 Applying the benchmark in the policy instrument . 68 6.2 Stakeholder engagement . 71 7 Step Five Monitoring and Improvement 73 7.1 Design the benchmark update approach 73 7.2 Develop a monitoring and review plan . 75 7.3 Stakeholder engagement . 76 Glossary . 77 References . 78 Anns . 80 A1. Benchmarking in the surveyed jurisdictions 80 A2. Example Data Collection Templates 83 A Guide to Greenhouse Gas Benchmarking for Climate Policy Instruments 5 List of Boxes Box 1 Benchmarking in scaled-up crediting instruments 22 Box 2 Type of products 25 Box 3 Benchmarked sectors in ETS, EETS, and CT instruments 34 Box 4 Sectoral disaggregation identifying discrete product categories . 37 Box 5 Determining output benchmarks in the cement sector PAT and the EU ETS . 37 Box 6 Calculation of emission intensity in South Africa . 39 Box 7 EU guiding principles and minimum standards for stakeholder consultation . 50 Box 8 Summary of key steps in implementation 62 Box 9 Stakeholder involvement in assessment and improvement of data . 67 Box 10 Application of benchmarks in Emission Trading Schemes. 71 List of Figures Figure 1 Key steps in the benchmark development . 9 Figure 2 Average stringency level . 11 Figure 3 Example of emissions intensity curve and calculation of benchmark value . 15 Figure 4 Overview of benchmark development steps 19 Figure 5 Illustrative intensity curve used for a benchmarking rcise 21 Figure 6 Illustration of crediting thresholds in scaled-up crediting 23 Figure 7 Processes in the production of packed container glass . 26 Figure 8 Conceptual presentation of fixed and dynamic benchmarks 28 Figure 9 Calculating the emission intensity of production 39 Figure 10 Emission intensity of fuel combustion 40 Figure 11 Approaches for deriving benchmark stringency levels . 42 Figure 12 Components of a stakeholder engagement strategy . 47 Figure 13 Choosing data collection approaches 59 Figure 14 Example of emissions intensity curve and calculation of benchmark value . 65 List of Tables Table 1 Key principles for developing benchmarks 8 Table 2 Stringency of benchmarks used in the climate policies in the surveyed jurisdictions 11 Table 3 Summary of data relevance and resources required by approach 13 Table 4 Five steps of benchmark development . 17 Table 5 Application of benchmarking in reviewed policy instruments 24 Table 6 Benchmarking approaches in surveyed jurisdictions 27 Table 7 Application of benchmarking principles in South Africa’s carbon tax . 30 Table 8 Stringency levels in surveyed jurisdictions 43 Table 9 Historical baselines periods chosen in selected surveyed jurisdictions . 44 Table 10 Example of resources required for benchmarking California ETS and Tokyo ETS 46 Table 11 Stakeholders and Engagement . 50 Table 12 Summary of data relevance and resource requirements under each approach 58 Table 13 Examples of jurisdictions using adjustments . 71 Table 14 Summary of application of benchmarking and climate policy instruments in selected jurisdictions . 80 A Guide to Greenhouse Gas Benchmarking for Climate Policy Instruments 6 List of acronyms BAT Best Available Technology BAU Business as Usual BOF Basic Oxygen Furnace BREF Best Available Technical Reference CA California CCA Climate Change Agreement United Kingdom CDM Clean Development Mechanism CT Carbon Tax EAF Electric Arc Furnace EETS Energy Efficiency Trading System ETS Emissions Trading System EU European Union GHG Greenhouse Gas JCM Joint Crediting Mechanism Japan MMR Mandatory Reporting Regulation MRV Monitoring, Reporting and Verification NAICS North American Industry Classification System NAMA Nationally Appropriate Mitigation Actions NDC Nationally Determined Contributions NGA Negotiated Greenhouse Agreements New Zealand NZ New Zealand OPC Ordinary Portland Cement PAT Perance, Achieve and Trade Scheme India PMR Partnership for Market Readiness PPC Portland Pozzolana Cement PSC Portland Slag Cement QA Quality Assurance RPO Renewable Purchase Obligations SA South Africa S-CP Scaled-up Crediting Program SEC Specific Energy Consumption UNFCCC United Nations Framework Convention on Climate Change A Guide to Greenhouse Gas Benchmarking for Climate Policy Instruments 7 CUTIVE SUMMARY The past year has seen a significant increase in global momentum for climate action. One hundred thirty-seven Parties to the United Nations Framework Convention on Climate Change UNFCCC have already ted their first nationally determined contributions NDCs as part of their commitments to the Paris Climate Agreement.1With the entry into force of the Agreement on 4thNovember 2016, and the 22ndsession of the Conference of the Parties COP 22 ending on the high note of further raising ambition, the call to implement these domestically defined commitments has intensified. Climate policy instruments are increasingly being used or considered by countries to contribute to mitigation commitments. Climate policy instruments, including emission trading schemes ETS and carbon taxes CT cover about 13 percent of global greenhouse gas GHG emissionsa three-fold increase from the past decade.2Benchmarks have been used in climate policy instruments to set targets and thresholds for environmental perance, and to determine the distribution of instrument benefits and obligations. Jurisdictions with mature ETSs, such as the European Union, New Zealand, Tokyo, and California, have been using benchmarks for allocation of emissions allowances in many or all of the sectors that are covered. In recent years, countries developing ETSs have also been exploring the use of benchmarks. For example, South Korea’s national ETS uses a benchmarking approach for three sectors. Countries are also showing interest in using benchmarks within carbon tax policies. For example, in South Africa’s future CT, sectoral benchmarks will be used to define the level of rebates for covered entities. Furthermore, benchmarks are also being discussed in baseline settings for sectoral crediting programs. This “Guide to Greenhouse Gas Benchmarking for Climate Policy Instruments” hereafter, “the guide” is intended to provide policymakers with structured guidance on the development of benchmarks. Practitioners who have already identified the need for benchmarks and are beginning to design them will benefit from the step-by-step approach provided here. The guide draws on over a decade of global experiences in benchmark development, covering practices in 16 jurisdictions that are already using or are in the process of developing a benchmarking approach. While experiences and circumstances of each country are unique, the guide synthesizes these experiences and systematically presents the common practices of countries together with the take-away points of value to a practitioner that is in the process of developing benchmarks. A detailed introduction to the topic, including the basic benchmarking concepts and guiding principles for benchmark development, is also provided. Key Concepts and Guiding Principles for Benchmarking This guide introduces the key concepts concerning the use of benchmarks for climate policy instruments. It also explains guiding principles for the development of benchmarking approaches. These aspects are summarized below. What are benchmarks for climate policy instruments A benchmark is a standard of perance that represents the impact associated with each unit of a particular activity. From a climate policy perspective, the impacts could be measured by GHG emissions or energy use, and the activities associated with these can be process outputs such as products manufactured/services provided or heat produced or process s such as fuel or electricity consumed. Benchmarks used in climate policies are typically indicators of environmental perance that can be calculated using the following ula nullnullnullnullnullnullnullnullnullnullnullnullnull nullnullnullnullnullnullnullnullnullnullnull null nullnullnullnullnullnull nullnullnullnull nullnull nullnullnull nullnullnullnullnullnullnullnullnull,nullnullnullnullnullnull nullnullnull,nullnullnull.nullnullnullnullnullnullnullnullnull nullnullnullnullnullnull nullnull nullnullnullnullnullnull nullnullnullnullnullnullnullnull,nullnullnullnull,nullnullnullnullnullnullnullnull nullnullnullnullnullnullnullnull nullnull nullnullnullnullnullnull nullnullnullnullnull,nullnullnullnullnullnullnullnullnullnullnullnull nullnullnullnullnullnullnullnullnull. 1By mid-April 2017. 2Estimated in the 2016 edition of World Bank’s “State and Trends of Carbon Markets” report World Bank, 2016. A Guide to Greenhouse Gas Benchmarking for Climate Policy Instruments 8 Benchmarks can be used when comparing peers against each other or against a certain reference level, such as best available technology BAT. By setting a common basis for comparison thr