Designing Accreditation and Verification Systems A GUIDE TO ENSURING CREDIBILITY FOR CARBON PRICING INSTRUMENTSPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure Authorized 2019 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone 202-473-1000 Internet www.worldbank.org The findings, interpretations, and conclusions expressed by World Bank Staff or external contributors in this work do not 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.Rights and PermissionsThe material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given.AttributionPlease cite the work as follows World Bank, 2019. Designing Accreditations and Verifications Systems A guide to ensuring credibility for carbon pricing instruments. World Bank, Washington, DC.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 ]Acknowledgments This guide to designing verification and approval systems for carbon pricing instruments was prepared for the Partnership for Market Readiness PMR by a team of consultants from SQ Consult and Icontec, under the guidance of Harikumar Gadde of the PMR. Lead authors of the guide are Machtelt Oudenes, Lucy Candlin and Marion Vieweg SQ Consult, supported by contributing authors Dian Phylipsen, Edwin Dalenoord SQ Consult, Francisco Charry and Julio Alejandro Giraldo Icontec. This guide builds on the essential experience of practitioners in the field of designing, implementing and using verification and approval systems. We sincerely thank those government experts who shared their practical insights and knowledge through questionnaire responses, interviews, and review of the guide. These include We also thank Jonathan Avis ERM CVS, Martin Enderlin CDM cutive Board Member and Werner Betzenbichler Chair of Designated Operational Entities Forum for their valued acumen into the verification and approval processes under the Clean Development Mechanism CDM. Finally, we thank our World Bank colleagues and experts, Venkata Raman Putti, Marcos Castro, Daniel Besley, Taisei Matsuki, Sarah Moyer, Pierre Guigon, for providing invaluable insights and feedback.Country Organisation ExpertAustralia Clean Energy Regulator Geoff HouenGermany European Co-operation for Accreditation/ DAKKs Peter Hissnauer Germany Deutsche Emissionshandelstelle DEHSt Joachim LeitnerGreece Ministry of Environment and Energy Yiannis MarkoudakisHungary Ministry of National Development Levente Andrs KoczhIreland Environmental Protection Agency Annette PrendergastJapan Ministry of Environment Kazuisa KoakutsuKazakhstan EnEco Solutions LLP Inna LissovaKazakhstan EnEco Solutions LLP Yekaterina SolomeyevaKazakhstan USAID Power the Future Regional Program Assel Kabylbayithuania Lithuanian National Accreditation Bureau Gražina ValužeNetherlands Dutch Emissions Authority Margreet KleijnNew Zealand Ministry for the Environment Matthew CowieNorway Norwegian Environment Agency Andr AasrudNorway Norwegian Environment Agency Annicken HoelNorway Norwegian Environment Agency Trine BerntzenRomania Romanian Accreditation Association Daniela IonescuSlovak Republic Ministry of Environment Natlia BroošovSouth Africa National Treasury Sharlin HemrajSouth Africa Specialist Project Manager for the PMR Jongikhaya WitiSouth Africa National Department of Environmental Affairs Phindile MangwanaSouth Korea Interperon Co. Ltd. Hang-Hoon OhSweden Swedish Board for Accreditation and Conity Assessment Else-Hanna Elgsen Switzerland Federal Office for the Environment Reto SchaferThailand Thailand Greenhouse Gas Management Organisation Puttipar Rotkittikhun Turkey Ministry of Environment and Urbanization Zeren ErikTurkey Ministry of Environment and Urbanization Evren TrkmenogluUK United Kingdom Accreditation Service Janet GascoigneUSA California California Air Resources Board Jason GrayUSA California California Air Resources Board Rajinder SahotaChina China expert Wenbo LiuChina China expert Lixin ZhangChina China expert Mingshan SuChina China expert Qingzhi LiuColumbia Ministry of Environment and Sustainable Development Sebastian CarranzaMexico SEMARNAT Victor EscalonaDESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 34SYNTHESISINTRODUCTIONKEY CONCEPTSGETTING STARTEDWHETHER TO VERIFYINFLUENCING FACTORSSTAKEHOLDERS Helps to avoid missing important elements and making common mistakes that will increase cost of the system or reduce trust; Allows understanding of trade- offs and how systems can develop over time.In any type of CPI, the obligated entity is required to monitor its emissions according to a plan or legal requirements. At the end of the monitoring period the monitored emissions have to be reported. Verification is an independent check on the quality of these reported data and the compliance with CPI specific requirements. Approval3is a process by which the competence of parties carrying out verification is assessed and these parties get official permission to verify emissions under a specific CPI. It is one of the checks and balances that can be put in place to ensure that the outcome of verification activities is sufficiently robust.Verification looks backwards at the data that has been generated, collected, and monitored according to validated ‘approved’ plans where applicable and requirements over the reporting period.After verification, the data report that is being verified together with the verification report that gives the verifier’s opinion on that data report will be ted to the regulator responsible for receiving these reports under the CPIs.Once verifiers have been granted the approval to carry out verification activities, it is important to continue monitoring their competence in a supervision process. The more robust these processes are, the more trust the public and market participants have in the competence and independence of parties doing verification and, consequently, in the quality of the outcomes of verification and the data being used for legal and/or trading purposes.NOTE 3 The ‘A’ in the terms MRVA and V in that case, verification is not needed as the reports receive basic checks from tax authorities. In this first step, policy makers will consider some of the key elements impacting the design of the V Specifically, who to engage with, the level of participation, and priorities for engagement; Different approaches to stakeholder engagement; Communication lines between policy makers, regulators, and stakeholders.The type of stakeholder involved depends on the CPI itself and the way the V for CPIs that include trading, relevant stakeholders could include market traders and lawyers that structure contracts and the like.Setting up the verification systemSetting up a verification system requires policy makers to take a broad range of decisions. This guide groups these decisions into five steps as illustrated in figure E. The steps are highly linked, and it is important to ensure that an integrated approach is taken that fulfills the desired objectives of the CPI.For each of the steps, different elements need to be considered and often a range of options is available. The sections below outline these options and discuss key considerations for decision making and how systems can evolve over time. Which options are selected depends on policy objectives, the type of CPI, type of monitoring and reporting system, available resources, the legal and institutional structure, and the country’s plans for the CPI.FIGURE D. Stakeholders in different CPIsFIGURE E. Step by step through verification Policy maker Regulator implementing the CPI Company or reporting entity consisting of various facilities/operator of an individual installation or facility/aircraft operator Verifier/individual auditor Party approving/supervising verifiers oversight entity Party enforcing rulesEmission trading Policy maker Company household Tax authority Verifier/individual auditor Party approving verifiers oversight entity Party supervising verifiers oversight entityCarbon tax systemsPROJECT-BASED Project developer/implementor/project participant Project host location country or owner etc. e.g., Designated National Authority Designated operation entity DOE/Verifier/individual auditor Party approving DOEs/verifiers/auditors oversight entity Party approving/supervising DOEs/verifiers/auditors oversight entityDECISION ON When to verify Type of verifier Selection and payment Rules for verificationDEFINITION OF Verification principles Scope Level of assurance Materiality Specifics in the verification processENSURING Competence Impartiality High-quality processesENSURING Availability of resources Supporting infrastructureENABLING Quality assurance Ongoing capacity development Ination exchangeSCALED-UP Sector associations Jurisdictional host regulators, policy enforcers in city, region Designated operational entity DOE/verifier/individual auditor Party approving DOEs/verifiers/auditors oversight entity Party approving/supervising DOEs/verifiers/auditors oversight entityOffset mechanismsSTEP V1Type of verification systemSTEP V2Design of verification systemSTEP V3Requirements on verifiersSTEP V4ImplementationSTEP V5Ongoing managementSource authorsSource authors17SYNTHESISDESIGNING ACCREDITATION AND VERIFICATION SYSTEMS Start verification cycleUnderstandingthe entity/projectactivityAddressingmisstatementsand non-conitiescorrection/clarificationRisk analysisIssuingverificationreportConfirming dataentered intoregistryOutstanding issues identifiedduring verificationVerificationplanIndependentreviewImplementationof verificationactivitiesFindings andverificationreportThe verification process is based on risk assessment determining the extent and detail of verification activitiesPreparationNext year’sverificationSTEPV1The type of verification systemIf verification for the CPI is required, the next decision is on when to require verification at what stage1. Verification can be used for the design of the CPI for example, on data used to set a cap or baseline for calculation of allocation of allowances for an emission trading scheme, to create a baseline for a crediting mechanism, or to set carbon tax rates and baselines for a carbon tax system. This is important given the financial interests involved with CPIs. In the beginning it may be difficult to get data for the design of the system and to have it verified. However, this can evolve into more stringent requirements once the CPI is up and running. 2. Policy makers can decide to require verification for the operation of the CPI to increase the public’s confidence on the accuracy of data used as a basis for surrendering emission allowances, imposing a carbon tax, or issuing credits for offset mechanisms.For both these stages verification for the design of the CPI and verification for the operation of the CPI, policy makers need to decide at what frequency the verification is carried out. This can either be regularly at set intervals, on demand, or based on predetermined milestones. Verification for the design of the system will usually be a determined by the length of trading periods or other milestones for the review of basic design data. During operation of emission trading schemes and carbon tax systems there is usually an annual cycle of emissions reporting. In offset mechanisms there is often no specific frequency set.A key decision for policy makers to make is the type of verifier that will do the verification. Different options can be distinguished1. Verification by the regulator the regulator responsible for implementing the CPI verifies the data report and checks compliance with the programme specific requirements;2. Verification by an independent expert hired by the regulator institutes or experts are hired through consultancy projects, procurement services, or nominated as preferred experts by the regulator and carry out verification activities on behalf of the regulator;3. Verification by an approved third-party verifier an organisation that is independent from the regulator and other parties that is, the organisation does the verification and takes responsibility for the conclusions and the decision to issue a verification report;4. Verification by an approved individual independent auditor an individual person instead of an organisation that is, the individual takes responsibility for the conclusions and the decision to issue an opinion statement.The type of verifier model can evolve over time. In the early years or a pilot phase, it could be that policy makers choose to select option 1 or 2 in order to have more control over the verification system and to build up sufficient competent verifier resources. Over time a CPI usually evolves toward option 3 which is the most common model applied in CPIs researched for this guide. There are however also CPIs that use option 3 from the start as they want to align with other schemes, link, or choose to apply recognised international standards. Highly linked to these options is the choice policy makers need to make on who should pay the verifier. Different choices can be made which are influenced by the extent to which the regulator wants to have direct control over the verifier and how the regulator wants to ensure impartiality of the verifier1. Regulators pays from their normal public budget2. Regulator pays from specifically raised funds3. Obligated entity selects and pays the verifier4. Obligated entity provide funds to collectively pay for a pool of verifiersThe way a CPI is set-up needs to ensure that the appropriate time is allocated to individual verification activities regardless of the ‘fee rate’ determined as appropriate. Policy makers need to make provisions for that in the legislation. In the early years, a selection and payment model may be chosen in which government agencies can rcise greater control. Over time, selection and payment can shift from the government to the obligated entity encouraging them to take more responsibility for the quality of their own data.When designing the verification