i PMR Technical Note 6 January 2015 Overview of Carbon Offset Programs Similarities and Differences Technical n o Te 6 | J an Ua RY 2015This Technical Note was drafted and updated for the Partnership for Market Readiness PMR Secretariat by Anja Kollmuss and Jrg Fssler INFRAS with support from Felicity Spors, Pauline Kennedy and Pierre Guigon in the PMR Secretariat. The document is based on publicly available ination on the Clean Development Mechanism CDM, Joint Implementation JI, the Gold Standard GS, the Climate Action Reserve CAR, the Qubec Offset Program, Japan’s Joint Crediting Mechanism JCM, the China CER CCER, and the Verified Carbon Standard VCS, as well as on interviews and feedback from officials and experts from these programs. The Technical Note was updated in October 2014 to include California’s Compliance Offset Program CA COP, Australia’s Carbon Farming Initiative AU CFI, and Switzerland’s Offset Program CH OP. The update also includes relevant new developments under all of the originally covered offset standards and programs. The authors and the PMR Secretariat thank the representatives from the 11 programs for their much-appreciated collaboration and constructive feedback. An earlier draft of the first version was presented and discussed at the PMR Technical Workshop in Barcelona, Spain, on May 26, 2013. Feedback from participants has been taken into account for this final report. Special thanks go to Jessica Allen Australia, Thomas Bernheim European Commission, Bengt Bostrm Sweden, and Rachel Child Project Developers Forum. For the updated version, special thanks go to Stephen Shelby California Air Resources Board, Ella McKinley Australian Carbon Farming Initiative, Michelle Hermann Federal Office for the Environment, and Tang Jin SinocCarbon. Please direct any comments and questions to the PMR Secretariat pmrsecretariatworldbank.org. For more ination on the PMR, please visit www.thepmr.org.Overview of Carbon Offset Programs Similarities and Differences Technical Note 6 | January 2015 2015 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 1 2 3 4 18 17 16 15 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. The boundaries, colors, denominations, and other ination shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to the Publishing and Knowledge Division, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax 202-522-2625; e-mail pubrightsworldbank.org. Cover design Bill Pragluski / Critical Stages LLCiii PMR Technical Note 6 January 2015 Contents 1. Introduction 1 2. Overview of Programs 2 3. Principles and Goals of the Programs .8 4. Approaches to ology Design 8 5. Governance Structure 13 6. Monitoring, Reporting, and Verification MRV and Project Cycles 14 7. Sustainable Development Aspects .18 8. Conclusions.20 Annex A Overview Tables of uated Offset Programs .22 Annex B Other Offset Programs 74 Boxes 1. Overview of Considered Offset Programs . 2 2. Does a Selective Scope Simplify Standardization of Approaches 12 Figures 1. Number of Registered Projects and Units Issued, as of July 2014 5 2. Average Number of Credits Issued per Registered Project in Thousands as of July 2014 5 3. Simplified Overview of Coverage of the Considered Programs in Terms of Project Types and Sector and International vs. Domestic Scope .7 4. Offset Programs with a Broad Scope that Covers All Sectors in a Host Country versus Programs with a Selective Scope that Covers Only Sectors Not Included in a Domestic Emissions Trading Scheme or by Mitigation Policies .7 5. ology Development Approaches of Offset Programs.12 6. General Sequence of Project Registration 15 7. General Sequence of Project Verification and Issuance Procedure 17 Tables 1. Project-Based versus Standardized Approaches to Crediting ologies 10 2. Definitions of Types of Standardization.10 A.1. Overview of Programs as of July 2014 23 A.2. Principles and Goals of Programs 28 A.3. Operationalized Principles as of July 2014 36 A.4. Operationalized Principles Additionality and Baselines .44PMR Technical Note 6 January 2015 iv A.5. Governance Structure .48 A.6. Project Registration Procedures . 54 A.7. MRV and Credit Issuance Procedures 60 A.8. Renewal of Crediting Period . 68 A.9. Sustainable Development Aspects . 701 PMR Technical Note 6 January 2015 1. Introduction 1.1. Objective In an effort to reduce greenhouse gas emissions, countries are implementing a broad range of market-based approaches and carbon price-based mechanisms, including emissions trading schemes ETSs, scaled-up crediting, offset schemes, and carbon taxes. 1Over almost two decades, a rich body of experience with offset mechanisms has been gained, which, in turn, is ining the considerations, design, and regulation of existing, proposed, and planned offset programs. This Technical Note documents a mapping rcise that outlines the key elements and design features of offset programs. It discusses the essential differences and similarities between programs. It identifies the main elements and design features of 11 different offset programs and discusses how these programs address key issues including efficiency, environmental integrity, applicability, and transaction costs. The Technical Note is prepared with the intent to provide an overview of the key features of selected offset programs and to draw out similarities and differences; it does not uate the implications of the different features. This may be useful for the Partnership for Market Readiness PMR Implementing Countries that are contemplating different designs of crediting mechanisms. It may also contribute to the general discussion on the options for the design of crediting mechanisms in the context of policy action for climate change mitigation. 1.2. Approach This Technical Note examines 11 offset programs. The programs were selected based on their relevance and because together they represent a wide range of different offset program designs. A study framework for mapping the 11 offset programs was developed that seeks to outline the main characteristics of each. 2The framework considered the following characteristics of each offset program Overview of offset programs Principles and goals Operationalized principles Governance structure Project registration procedures Monitoring, Reporting, and Verification MRV and credit issuance procedures Sustainable development aspects The analysis included desk reviews of literature and program documentation and was complemented with interviews and written from program administrators. The design features of the 11 programs 1In this Technical Note, the term carbon offset program is used to avoid potential confusion that may arise with terms such as standards or registry. A carbon offset program combines a accounting rules; b Monitoring, Reporting, Verification and certification rules; and c registration and enforcement systems. See also SEI and GHG Management Institute. 2The Technical Note does not, however, seek to assess the overall benefits and potential limitations of offsets per se.PMR Technical Note 6 January 2015 2 are summarized in the tables in annex A. 3The most salient design features were examined to identify similarities, differences, and trends. A list of other offset programs that may be relevant but were not considered in the present study are provided in annex B. Preliminary results of this work were presented at the 5th PMR Partnership Assembly Meeting in Washington, DC, in March 2013, where preliminary feedback from participants was collected. A subsequent draft of the Technical Note was reviewed by the representatives of each offset program for another round of feedback; it was then presented at the PMR Technical Workshop in Barcelona, Spain, in May 2013 for further discussion and feedback. The Technical Note was published in August 2013. The first version of the Technical Note included the Clean Development CDM, Joint Implementation JI, the Gold Standard GS, the Climate Action Reserve, the Qubec Offset Program, Japan’s Joint Crediting Mechanism JCM, the China CER CCER, and the Verified Carbon Standard VCS. The Technical Note was updated in 2014 to include California’s Compliance Offset Program CA COP, Australia’s Carbon Farming Initiative AU CFI, and Switzerland’s Offset Program CH OP. The update also includes relevant new developments under all of the originally covered offset standards and programs. 2. Overview of Programs 2.1. Considered Programs The Technical Note examines 11 offset 4programs that represent a wide spectrum of approaches in terms of design and implementation see box 1. Box 1. Overview of Considered Offset Programs a There are two offset mechanisms under the Kyoto Protocol. Offsets from these programs are used by countries with a reduction commitment under the Kyoto Protocol, by private buyers that are covered under an emissions trading scheme e.g., EU-ETS, and by voluntary buyers. Clean Development Mechanism CDM Offset projects have to be located in developing countries that have ratified the Kyoto Protocol. Joint Implementation JI Track 1 Offset projects have to be located in countries that have a reduction commitment under the Kyoto Protocol. JI can be implemented under Track 1, under which host countries are responsible for most aspects of the project cycle including registration and issuance. Under Track 2, which is overseen by the UNFCCC, requirements and procedures are similar to those of the CDM. This Technical Note focuses on Track 1 because of its relevance for national programs and because 97 percent of all JI offsets have been issued under Track 1. 3It should be noted that while some of the standards examined have been in operation for a number of years and thus have road-tested procedures e.g., the CDM, GS, CAR, or VCS, others are very new e.g., Japan’s Joint Crediting mechanism and the China CER. 4In this Technical Note, the terms offsets and credits are used interchangeably because different offset programs refer interchangeably to these terms. box continues next page3 PMR Technical Note 6 January 2015 Box 1. Overview of Considered Offset Programs continued This Technical Note looks at several offset programs developed and administrated by governments to supply offsets for their domestic climate mitigation programs Programs generating domestic offsets Australian Carbon Farming Initiative AU CFI These offsets were primarily used for compliance by entities covered by the carbon pricing mechanism established by the Clean Energy Act 2011, which was repealed on July 17, 2014. The Australian Government has committed to expand the scope of the CFI and to establish the Emissions Reduction Fund, under which it would be the primary purchaser of offsets. b California’s Compliance Offset Program CA COP These offsets are used for compliance by entities covered by California’s and Qubec’s ETSs. China CER CCER These offsets can be used for compliance under the pilot cap-and-trade systems that are being developed inter alia in five Chinese provinces and two cities. Qubec’s Offset Program Qubec These offsets are used by entities covered by the Qubec and the California ETSs for compliance. c Switzerland’s Offset Program CH OP These offsets are used for compliance by producers and importers of motor fuels, and potentially by fossil-thermal power plant operators as well, to meet their mitigation obligations under the Swiss CO 2law. Program generating international offsets Japanese Joint Crediting Mechanism JCM dA bilateral project-based offset mechanism that both Japan and the host country may use to meet national climate targets. Voluntary programs that generate offsets that are used in the voluntary market as well as for compliance under some government compliance schemes Climate Action Reserve CAR Verified Carbon Standard VCS As approved Offset Project Registries, CAR- and VCS-certified projects that apply offset protocols approved by California are eligible to operate in the California ETS CA ETS. Both programs can issue offsets for certain project types under the C