Voluntary Carbon Standard 2007
www.v-c-s.org
Overview
Additionality and Quantification Procedures
Overview
Type of Standard and Context
The Voluntary Carbon Standard (VCS 2007.1) 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 is broadly supported by the carbon offset industry (project developers, large offset buyers, verifiers and projects consultants).
The 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 (WEF) Global Greenhouse Register. 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, auditors, industry associations, project developers and large offset buyers. The World Business Council for Sustainable Development (WBCSD) joined in 2007 as a founding partner of VCS 2007. The VCS 2007.1 was launched in November 2008, with the main difference from the earlier version being the incorporation of guidelines for the development of projects in the agriculture, forestry and other land use (AFOLU) sectors. The VCS will be updated on a periodic basis.
Start-up funding for the VCS Association comes from the Climate Group, the IETA, and the WBCSD, and additional fundraising is currently underway. Donations from commercial organizations are capped at USD 31,600 (EUR 20,000) per year. In the medium- to long- term, costs will be covered by levy charged at the point of VCU issuance (EUR 0.04 per VCU).
Standard Authority and Administrative Bodies
The VCS is managed by the VCS Association, an independent, non-profit association registered under Swiss law that represents the VCS Secretariat and the VCS Board. The VCSA is in the process of establishing a US non-profit headquartered in Washington, DC.
The VCS Secretariat is responsible for managing the VCS Program, which responds to stakeholder queries, manages relationships with registry operators and accreditation bodies, supervises the VCS website and project database, and oversees validators/verifiers.
The VCS Board has a number of responsibilities. It is responsible for approving any substantial changes to the VCS. It also makes a final determination regarding the approval of other GHG programs (e.g., project methodologies, accreditation procedures, additionality performance standards) under the VCS, and has the authority to suspend an approved program temporarily or indefinitely if changes are made to it that affect its compatibility with the VCS Program. The VCS Board has the authority to approve accreditation bodies that will accredit validators and verifiers and also approves registries that can join the VCS Registry System. The VCS Board also has the authority to sanction validators and verifiers as per the Terms and Conditions agreed to with these entities. Finally, the VCS Board makes final decisions on any appeals brought forward to the VCS.
The Technical Advisory Groups (TAGs) support the Board by providing detailed technical recommendations on issues related to the program 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 offset projects, validate new baseline and monitoring methodologies, validate additionality performance standards, and, for AFOLU projects, validate market leakage and non-permanence risk assessments. They can only do this for the project scopes and geographies for which they are accredited, and they must be accredited either under an approved GHG Program or under the ISO 14065:2007 with an accreditation scope specifically for the VCS Program. Unlike the CDM, accredited third-party auditors can validate and verify the same project and give final project approval. Validators and verifiers working under the VCS must agree to the VCS Terms and Conditions, which require them to, among other things, replace VCUs that have been determined to have been issued in excess due to fraud or negligence.
Regional Scope
The VCS is an international voluntary GHG offset program.
Recognition of Other Standards/ Linkage with Other Trading Systems
In early 2008, the VCS Program recognized the CDM and JI, and in late 2008 it recognized the Climate Action Reserve (formerly California Climate Action Registry: CCAR) . The VCS will evaluate and either fully adopt or adopt elements of other offset standards by commissioning a consultant to complete a detailed gap analysis of the two programs. The approval process will be based on the principle of full compatibility with the VCS program, with acceptance required by the VCS Board. If another offset standard is fully adopted by the VCS, all their auditors and methodologies are automatically accepted by the VCS, and credits certified by that standard can be fungible with VCS credits – the Voluntary Carbon Unit (VCU).
Market Size and Scope
Tradable Unit and Pricing Information
VCS-approved carbon offsets are registered and traded as Voluntary Carbon Units. One VCU represents emission reductions of 1 metric ton of CO2. VCUs (07 and 08 vintage) traded at 2.75 – 3.75 Euros per tonne in the spring of 2009 (Carbon Finance, April 2009).
Standard Users
VCS 2007.1 is expected to be used widely for the verification of VERs for the European and North American markets.
Current Project Portfolio
VCS 2007.1 was launched in November 2008 and the VCS Registry System was launched on 17 March 2009. As of 1 July 2009, there were 87 projects registered under the VCS, and a total of 5,415,892 issued VCUs. All of the registration and issuance information can be viewed at the VCS Project Database (www.vcsprojectdatabase.org).
Offset Project Eligibility
Project Types
All project types are allowed under the VCS Program provided that they are supported by an approved VCS methodology or are part of an approved GHG Program. Exceptions include 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. a Renewable Energy Certificate). Renewable Energy Credits (RECs) are fungible with VCUs if the GHG Program 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 program operator to confirm that the credit has not been used under the relevant program and has now been cancelled to prevent future use.
Project Locations
There are no project location restrictions for the VCS. Retirement of corresponding allowances is required for projects in countries or states/provinces that have established legislation to implement a cap and trade system.
Project Size
There is no upper or lower limit on project size. The VCS does however classify projects into three categories based on their size:
- Micro-projects: under 5,000 metric tCO2e per year
- Projects: 5,000–1,000,000 mtCO2e per year
- Mega projects: greater than 1,000,000 mtCO2e per year
The rules on validation and verification vary slightly depending on the project size category.
Start Date
The Project Start Date for non-AFOLU projects for the VCS 2007.1 is 1 January 2002. The Project Start Date for AFOLU projects can be earlier than 1 January 2002, provided the following conditions are met:
- project validation and verification against the VCS has been completed by 1 October 2010;
- the project proponent can verifiably demonstrate that the project was designed and implemented as a climate change mitigation project from its inception; and
- prior to 1 January 2002, the project applied an externally reviewed methodology and engaged independent carbon monitoring experts to assess and quantify the project’s baseline scenario and net emissions reductions or removals.
For non-AFOLU projects, VCS 2007.1 validation has to be completed within two years of the Project Start Date, or completed or contracted before 19 November 2008. In relation to validation contracts entered into before 19 November 2008, validation must be completed by 19 November 2009 and proof of contracting prior to 19 November 2008 must be provided. AFOLU projects starting on or after 1 January 2002 are not required to complete validation within a specific time frame.
VCUs from CDM pre-registration credits are allowed in accordance with the start date and crediting period rules above. No further proof of additionality is required.
Crediting Period
The earliest permissible start date for the project crediting period is March 28, 2006 for non-AFOLU projects and January 1, 2002 for AFOLU projects. Non-AFOLU projects and Agricultural Land Management (ALM) projects focusing exclusively on emissions reductions of N2O, CH4 and/or fossil-derived CO2 have a maximum crediting period of 10 years which may be renewed at most two times. For AFOLU projects other than such ALM projects, the crediting period is a minimum of 20 years and a maximum of 100 years.
Co-benefit Objectives and Requirements
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, and project proponents are obliged to present in the VCS Project Description “relevant outcomes from stakeholder consultations and mechanisms for on-going communication”. The requirements for stakeholder involvement are based on ISO 14064-2 requirements: ISO only briefly mentions co-benefits:
The project proponent shall describe the project and its context in a GHG project plan that includes the following:
[…]
k) a summary environmental impact assessment when such an assessment is required by applicable legislation or regulation;
l) relevant outcomes from stakeholder consultations and mechanisms for on-going communication.(ISO 14064-2)
Because adverse social impacts are more likely to occur in projects in the AFOLU sectors, the VCS does require that these projects “identify potential negative environmental and socio-economic impacts and take steps to mitigate them prior to generating Voluntary Carbon Units (VCUs).”
The VCS allows co-benefits to be tagged onto VCUs, thereby enabling community, biodiversity and other benefits to be added to the attributes of VCUs. Several of the REDD projects being developed under the VCS are being certified by the Climate Community and Biodiversity Standard (CCBS), and there are several projects in the VCS Project Database that have also been certified under the Social Carbon Standard.
Additionality and Quantification Procedures
Additionality Requirements
The VCS uses project-based, performance-based and positive technology list-based additionality tests. The project-based tests closely follow the CDM Additionality Tool procedures:
- Step 1: Regulatory surplus test – 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 barriers test – the project must demonstrate that it faces either capital and 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 test – 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 order to demonstrate these criteria, the VCS advocates the use of guidance provided by the GHG Project Protocol for Project Accounting.
The project-based tests are outlined in the VCS as minimum requirements for the development of new methodologies. Where an existing methodology is being used, additionality must be demonstrated as given in the methodology. For example, if a VCS project is using a CDM methodology that stipulates use of the CDM Additionality Tool, that tool must be used.
As an alternative to the project-based additionality test, project proponents can use performance tests or positive lists. 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 Program for the product, service, sector or industry. Positive lists are based on the concept that certain technologies are not currently being used and would likely not be implemented without additional incentives, and thus can claim to be additional until a robust level of market penetration is achieved. To date, no performance standards or positive lists have yet been submitted to the VCS, and any such proposals would be approved through the double approval process and by the VCS Board.
Quantification Protocols
The VCS accepts projects that use existing quantification methodologies approved either under the VCS Program or by another approved GHG Program, and it also approves new methodologies. At the time VCS 2007.1 was launched, all CDM baselines and monitoring methodologies had been approved for use under the VCS, and all CAR protocols were also approved.
For the most part, the VCS draws on guidelines provided in ISO 14064-2 to guide the development of a VCS Program Methodology (see ISO 14064). The VCS Association approves new methodologies using a double approval process, which entails conducting a 30-day public consultation and subsequently seeking approval from two independent accredited auditors – one appointed by the project developer and the other appointed by the VCS Secretariat. The VCS Association will approve the methodology/benchmark if there is unanimity among the two auditors and would not approve it if there is disagreement between them. The developer can appeal the decision. If the decision is appealed, the VCS Association appoints an independent consultant to review the developer’s claim. The VCS Board makes a final decision based on the review. The expenses for each review are paid by the developer.
Project Approval Process
Validation and Registration
Validation is required under the VCS, and this 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, with each retaining its distinctive characteristics. Group projects are only sampled by the project auditor. A project proponent contracts an accredited auditor of the VCS Program or of a VCS-approved GHG Program to validate the project. The auditor evaluates the project against the VCS validation requirements (see below) and prepares its report according to the VCS Validation Report template requirements. The project is automatically approved if it is successfully validated by the auditor and the VCS registry administrator confirms that due process has been followed. Project validation requires projects to meet ISO 14064-3 validation requirements and to prepare a validation report that follows the VCS Validation Report template requirements and includes:
- A description of the project design
- A description of the method used to calculate the baseline
- A Monitoring Plan
- A calculation of the GHG emission reductions
- A calculation of the environmental impact
- Comments by stakeholders
Monitoring, Verification and Certification
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 (in other words, the VCS board does not function like the CDM EB). Instead, the auditors who verify the projects approve the claimed emission reductions. The third-party auditor verifies the emission reductions and the accuracy of emission reduction calculations as per the requirements of ISO 14064-3. After a project has been validated and verified, the VCS Project Description 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 made publicly available. A verification report is prepared following the same requirements as for the VCS Validation Report template.
Registries and Fees
On successful verification, projects can issue VCUs by submitting the appropriate documentation to one of the three VCS registries – APX Inc., Caisse des Depots, and TZ1 – who then check the documentation for authenticity, accuracy and consistency and that due process has been followed, and make sure that the emission reductions have not been issued by other GHG programs. The registry administrators then upload the required documentation onto the VCS Project Database which completes a GPS search to make sure the project has not been registered before. Once all those checks are completed, the VCS Project Database issues VCUs with unique serial numbers to the registry that requested issuance.
An important feature of the VCS Registry System is the ability to transfer VCUs amongst the participating registries. That feature, however, is currently unavailable, though the VCSA expects to introduce this functionality in due course.
To minimize the risks of double counting, the VCS system requires that each of the registries operating under the VCS checks other GHG Programs to ensure that the same units have not been issued elsewhere. All projects are listed in the VCS Project Database, which is the central clearinghouse for VCUs, checks the GPS coordinates of all projects requesting issuance of VCU to make sure that the same project has not issued the same credits before. Furthermore, the project owner must also submit the following to the VCS:
- A letter confirming that the VCUs being registered have not been registered, transferred or retired previously;
- A representation indicating that the emission reductions have not been issued under any other GHG program;
- If emission reductions occurred in a country with established legislation to implement a cap-and-trade system, a certificate from the national registry of the host country stating that an equal number of AAUs have been cancelled from that registry;
- Emission reductions from renewable energy projects must show proof that they are not a result of activity to meet a regulatory renewable energy commitment or to generate Renewable Energy Certificates (or the RECs must be cancelled).
The registration fee for each VCU issued is EUR 0.04. Account fees are set by each of the VCS approved registries.
As of October 2009, the VCS registry system is able to conduct interregistry transfers. The action enables owners holding Voluntary Carbon Units (VCUs) at one of the VCS registries to transfer these units to a third party account held at a different registry, thereby enabling full inter‐operability within the VCS registry system and thus offering a broader scope for VCU transactions.
Selected Issues
The VCS was developed through a lengthy stakeholder process. It aims to strike a balance between ensuring the integrity of offsets, simplifying procedures and keeping costs for project developers low. In some areas the VCS is quite innovative. This is especially true for its rules relating to bio-sequestration projects:
VCS Agriculture, Forestry and Other Land Use
The VCS Agriculture, Forestry and Other Land Use (AFOLU) rules are thorough and innovative in the way they address permanence concerns. Permanence issues are addressed through detailed rules on buffers, which include set asides sized for each project based on the risk profile of the project. The VCS also provides detailed guidelines for addressing leakage from AFOLU projects. The VCS is the first carbon offset standard to cover all the major land use activities under a single verification framework. Only once projects have been fully implemented will it be possible to fully evaluate the quality of the AFOLU offsets.
Reducing Transaction Costs versus Ensuring Integrity
To simplify procedures and keep costs low for project developers, neither the VCSA nor the VCS Board approves or rejects projects or issuance requests (as in the CDM). Instead, the VCS relies on accredited validators and verifiers and the accreditation systems under which they operate. The advantage of this is that the administration of the VCS can be kept very lean and relying on professionals in their respective fields can also increase the quality of work (e.g., a proposed methodology is 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. To address this concern, the VCS provides oversight of the main entities auditing projects, which will likely include spot-checks on performance by auditors. Specific concerns related to the VSC are outlined below.
No Separation of Verification and Approval of Projects
Under the VCS, it is the auditors who approve the projects. Given the pressures on auditors and given the conflict of interest (Schneider, 2007), the lack of an accrediting board to review projects and give final project approval could be a potential weakness of the VCS. A double approval process for projects, similar to that which the VCS uses for methodology approval, could be a solution to this potential problem.
Approval of Methodologies
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 experience under 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. The 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 appointed by the VCSA). Moreover, the VCS requires that new methodologies and/or protocols be subject to a public consultation process and that the comments raised be duly taken into account.
The VCS allows for benchmark tools and technology lists to be added as additionality tests. The VCS requires that such tests must be defined in a way that the projects would be additional, as though the project test were being applied. Nonetheless, 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. Ideally, a conservative approach will be developed to ensure the integrity of these additionality tools.
Crediting Period
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 GS (three times for seven years). Extending the crediting period means that fewer emission reduction projects are necessary to create the same number of emission reductions. In other words, there is a trade-off between limiting crediting periods to a minimum to allow more projects to enter the market and extending it to a 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.
Co-Benefits
The VCS requirements for stakeholder involvement are based on ISO 14064-2, which states these in only very general terms. Definitions of stakeholders, confidential information and ‘sufficient opportunity’ for comments appear to be left to the project developer to decide, though for AFOLU projects the VCS requires that these projects “identify potential negative environmental and socio-economic impacts and take steps to mitigate them prior to generating Voluntary Carbon Units (VCUs). Nor are there specific procedures and rules on how stakeholder concerns are to be taken into consideration. For buyers who place value on these co-benefits, the VCS would not be a sufficient standard.
(Commercially sensitive information is defined as: “Trade secrets, financial, commercial, scientific, technical or other information whose disclosure could reasonably be expected to result in a material financial loss or gain, prejudice the outcome of contractual or other negotiations or otherwise damage or enrich the person or entity to which the information relates” (VCS 2007, p.6).)
However, the VCS allows co-benefits to be tagged onto VCUs, thereby enabling community, biodiversity and other benefits to be added to the attributes of VCUs. Several of the REDD projects being developed under the VCS are being certified by the Climate Community and Biodiversity Standard (CCBS), and there are several projects in the VCS Project Database that have also been certified under the Social Carbon Standard.
Quality Control of Auditors’ Work
The VCSA plans to conduct a review of the overall program, which will likely include spot checks of the entities working under the VCS (e.g., validators and verifiers, registries). Already each one of the VCS registries is required to conduct an extensive yearly audit covering VCU issuance, transfer and retirements levels, and provide the audit results to the VCSA. Based on the results of the reviews and audits, the VCS will then evaluate whether any of the rules have to be modified to improve the standard or close any unforeseen loopholes. In addition to the systematic evaluation of third-party auditors and other entities operating under the VCS, the VCS Board has the authority to sanction auditors, project developers or registry operators.
The Future of the VCS
Given that the VCS 2007 is broadly supported by the carbon offset industry, it is likely to 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 too vague. The VCS 2007 was developed after a two-year stakeholder consultation and has taken into account many of these criticisms. It is clearly an improvement on version 1. VCS 2007.1 is quite similar to VCS 2007, but it is more comprehensive as it incorporates the guidance for AFOLU projects. It is to be hoped 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.
References
Voluntary Carbon Standard website.
VCS Secretariat (2007). Voluntary Carbon Standard Program Guidelines. VCS. November 2007