Application of Principles Improves Greenhouse Gas Inventory and Project Accounting

International standards published in 2006 define principles for greenhouse gas (GHG) accounting. Five principles are provided in ISO 14064 Part 1, Greenhouse gases – Specification with guidance at the organization level for quantification and reporting of greenhouse gas emissions and removals:
• Relevance
Select the GHG sources, GHG sinks, GHG reservoirs, data and methodologies appropriate to the needs of the intended user.
• Completeness
Include all relevant GHG emissions and removals.
• Consistency
Enable meaningful comparisons in GHG-related information.
• Accuracy
Reduce bias and uncertainties as far as is practical.
• Transparency
Disclose sufficient and appropriate GHG-related information to allow intended users to make decisions with reasonable confidence.

These five characteristics of GHG accounting are principles, rather than requirements, because they are aspirational in nature. In some cases trade-offs are either explicitly stated or strongly implied. The first principle of relevance is explained by reference to a process of selection. It is expected, therefore, that an inventory manager will make choices concerning the identification of sources, sinks and reservoirs, data sources, and quantification methodologies in establishing the inventory. Even when a choice does not compromise the principle of completeness, it may imply some arbitrary decision making. An example could be selecting an appropriate degree of aggregation for individual sources. Relevance, therefore, guides the inventory manager in pursuing the next principle, completeness.

In theory, organizations should strive for 100% completeness in reporting. In practice, some sources will be reported at higher or lower levels of detail, and some may even be missed, especially when an inventory is first established. The relevance principle is not intended to permit organizations to underreport their emissions, but rather to acknowledge that 100% completeness is not likely to be achieved. For example, organizations may have trees on their properties. It is rare among organizations, except those with large numbers of trees under professional management, to account for the changes in carbon stocks in their inventories.

Consistency refers to the manner in which GHG emissions information is stated, both in terms of data aggregation and consolidation practices within an organization’s inventory for a single reporting period, and with respect to the application of accounting methodologies from one reporting period to the next. This principle may on occasion be at odds with the accuracy principle, which exhorts inventory managers to reduce bias and uncertainties. Why would such a tension arise? In the case where an inventory manager decided to revise the organization’s accounting methods in a subsequent year for quality improvement purposes, the emissions accounting would no longer be consistent with prior year reporting. Inventory managers may in reality make such choices, but they should not do so casually, and the facts of any significant accounting methods changes should be fully disclosed. In some cases, restatements of prior year emission accounts may be called for. Another application of the principle of consistency is the adjustment of an organization’s base year. Triggered by acquisitions and divestitures, base year adjustment ensures the consistency of reports from one reporting period to the next.

The principle of accuracy seems self evident. Organizations should neither underreport nor overreport their GHG emissions. ISO 14064-1 introduces the concept of “practicality” in this principle, however, because in reality it is no more possible to be 100% accurate than it is to be 100% complete in reporting emissions. The principle of accuracy is tempered by the concept of materiality, which recognizes that coming close to the “true number” is good enough. Common reasons for not achieving 100% accuracy may arise due to limitations of measurement devices or to the application of intermittent measurement instead of continuous measurement. Or it may be due to the use of emissions factors, which are based upon the averaging of values.

The last principle, transparency, challenges organizations to gather and report GHG information in sufficient detail so that intended users can properly evaluate it. This is not normally an issue when an inventory manager gathers information and reports it internally. Questions typically only arise when an organization has to decide how much detail to include in publicly disclosed reports. This involves choices, and the exercise of judgment. Other business considerations may come into play, such as not wanting to report information in such detail as to disclose appropriately confidential business information.

The principles of quantifying and reporting greenhouse gas emissions at the organization level were designed as guideposts for inventory managers, not straitjackets. The use of common sense in their application is recommended. In cases where it appears necessary to compromise a principle, the reasons for the divergence should be explained.

In addition to the five principles described above, a sixth principle, conservativeness, applies to greenhouse gas projects. This principle is found in ISO 14064 Part 2, Greenhouse gases – Specification with guidance at the project level for quantification, monitoring and reporting of greenhouse gas emission reductions or removal enhancements, and is presented in the following terms:

• Conservativeness
Use conservative assumptions, values and procedures to ensure that GHG emission reductions or removal enhancements are not over-estimated.

Conservativeness is appropriate for project accounting because verified emission reductions must have environmental integrity to sustain environmental markets. The principle is most often applied where uncertainty has been identified in project accounting methodologies. By applying the principle of conservativeness, confidence is increased for those who may purchase GHG emission reductions or removal enhancements.

© 2010 Futurepast: Inc.

Tips for Greenhouse Gas Project Developers, Part 2: Creating an Effective Project Design Document

In “Tips for Greenhouse Gas Project Developers, Part 1” (2010-01-17), we discussed the important project attributes of emission baselines and additionality, and described how a “performance-based” project protocol differs from the model employed in the Kyoto Protocol’s Clean Development Mechanism (CDM).

This blog addresses another important greenhouse gas (GHG) project element, the “Project Design Document” (PDD). The PDD name comes from CDM but has its equivalent in voluntary GHG programs as well, even if called by a slightly different name. The International Standard ISO 14064:2006 Part 2 refers to it simply as project “documentation.”

There are multiple audiences for a PDD. The first audience is internal. A PDD describes the project in detail, including relevant GHG sources, sinks and reservoirs; emission reduction or removal enhancement quantification methodologies, and the number of tons of CO2-e that the project is expected to create. The PDD also defines requirements for quality control/quality assurance and for monitoring and measurement. It may discuss applicable crediting periods, plans for validation and/or verification, and plans for registering project offset credits.

A second audience for the PDD is an organization that may provide project financing prior to the creation of the offset reductions, or a prospective purchaser of offset credits. Both a carbon financing source and a buyer use PDDs as initial screens for identifying potentially attractive projects and making preliminary assessments of risk.

The third audience for a PDD is the project’s validation or verification body (VVB). VVBs use PDDs to assess audit risk and to develop verification plans and data sampling plans.

Because the PDD is often the means by which outside parties are first introduced to a project, the document should be carefully prepared. It should make a convincing case that the project is eligible, additional, and monitored, and that emission reductions or removal enhancements are (or will be) properly quantified and reported.

A central element of the PDD is the monitoring plan. This section of the PDD describes the need for and purpose of monitoring, and the types of information to be tracked. It discusses where monitored information comes from, and what monitoring methodologies are employed. The latter can include estimation, modeling, measurement or calculation. The monitoring plan defines intervals for monitoring, and discusses roles and responsibilities. It describes any GHG information management systems to be employed, such as automated equipment and data loggers, and specifies the location and retention time for stored data. The monitoring plan also describes plans for calibration and maintenance of monitoring equipment, and includes or refers to procedures needed to carry out the monitoring function.

Monitoring plans should provide for tracking regulatory compliance and other eligibility criteria as well as applicable flows of gases, fluxes in carbon stocks, project emissions, project leakage and changes to the baseline scenario.

A well designed PDD is essential for proper project implementation. It can open the door to project financing and sale of credits, and ease validation and verification. Project developers can undertake this important task on their own or engage the help of qualified consultants, such as Futurepast.

Tips for Greenhouse Gas Project Developers, Part 1: Baselines, Additionality and Performance-Based GHG Protocols

Recent publicity surrounding the climate change negotiations in Copenhagen raised public awareness about the need to transition to a low carbon economy. As a result, inventive people are thinking about new ways to avoid, reduce, or sequester carbon dioxide. But where to start?

Greenhouse gas (GHG) projects are defined as “[an] activity or activities that alter the conditions in the baseline scenario which cause greenhouse gas emission reductions or greenhouse gas removal enhancements” (ISO 14064:2006, Part 2, 2.12). This means the activities of a project need either to reduce GHG emission or increase carbon removals compared to what would have otherwise occurred had the project activities not been implemented. The project emissions then, are always compared against a baseline, which represents “business as usual.”

The following diagram illustrates the basic concepts of a baseline scenario, the calculation of emission reduction credits, and a time-limited project. The diagram shows a flat baseline—that level of GHG emissions that would be expected to exist in the absence of the GHG project. The curved line on the graph illustrates how a project might reduce GHG emissions compared to the baseline scenario. In the example, GHG emissions decline relative to the baseline as a result of project activity, and then level out. Emission reductions, then, are represented by the quantity, measured in metric tons of CO2-equivalent, of emission reductions achieved by the project compared to the baseline. The solid line shows a finite crediting period, which for many projects is 10 years. After that time period, the project may still generate emission reductions, but no longer earn offset credits.

Projects are implemented for many reasons. It is important to keep in mind that the project developer has to demonstrate that the project activity is “additional to” what would have occurred in the baseline scenario. Some projects do not qualify for the issuance of carbon offset credits because they fail this test of “additionality.” For example, the US EPA regulates large municipal solid waste landfills. Once a landfill’s design capacity exceeds 2.5 million metric tons or 2.5 million cubic feet, the landfill is required to install a landfill gas collection and combustion system to control nonmethane organic compound (NMOC) emissions. The same requirement is triggered if the landfill emits more than 50 metric tons per year of NMOCs. Consequently, such a landfill could not claim greenhouse gas emission reduction credits if it installed a landfill gas capture and combustion system after crossing the regulatory threshold.

Another test of additionality is “common practice.” In other words, if everyone else is doing it, because it makes good business sense, the emission reduction activities may not qualify as “additional.” How common practice is defined is subject to interpretation, so people who pass judgment on these things apply other tests as well. We’ve discussed the “regulatory additionality” test already.

Other tests are technology and financial. The technology test is met when the project uses a technology that has been approved for GHG crediting by a GHG Program. Prominent GHG programs include the Clean Development Mechanism (CDM) of the United Nations Framework Convention on Climate Change (UNFCCC), the Climate Action Reserve, and the Chicago Climate Exchange.

The financial test asks whether the project would be implemented anyway regardless of the money that would be raised from the sale of carbon offset credits. The project is only additional from a financial perspective if the answer is “no.”

It should be apparent that judgments about “additionality” can be tricky to make. Fortunately, there are many cases where a case-by-case determination does not have to be made. This occurs when a project is developed that meets a specific “performance standard” established by a GHG program. The term “performance standard” means that if a project fulfills all the criteria set out in a project methodology or protocol, then it is deemed by the GHG program that issued or recognized that methodology/protocol to be additional.

Project protocols developed by the Climate Action Reserve in the United States are of the “performance standard” type. A project developer need only find a suitable CAR protocol, fulfill all its requirements, have the project verified, and credits will be issued.

In the CDM, by contrast, a project developer follows an approved methodology, or proposes a new one. Next, the project developer hires a GHG validation body to “validate” the project. Validation means that an auditor examines the project design, scrutinizes the monitoring plan and other project controls, and renders a decision about whether the project, if properly implemented, will generate GHG offset credits that are real, additional and permanent. Validation of the project takes place prior to implementation. Once the project has been validated and implemented, verification that the planned emission reductions have been achieved is also required.

In North America, the project protocols of most GHG programs are of the performance-standard type. However, the Voluntary Carbon Standard (VCS) is one notable exception. It issues offset reduction credits for projects that, in most cases, have followed a CDM methodology and have been validated and verified. I say “in most cases” because VCS also has a mechanism whereby a project developer can propose a new methodology and have it accepted if it passes muster by two independent validation bodies.

Would-be project developers face a steep learning curve when implementing projects for the first time. The field is highly technical, requires a thorough understanding of complex sets of rules, and demands attention to detail during implementation. For this reason, the use of project consultants from firms such as Futurepast can be highly cost-effective.

Reducing Emissions Below A Project Baseline
Reducing Emissions Below A Project Baseline