Design of mechanisms

Appropriate design of mechanisms is another important prerequisite to avoid double issuance and double claiming, in particular with regard to crediting mechanisms. To effectively avoid double counting, we recommend agreeing internationally on principles or rules for the design of mechanisms.

Transparent information on mechanisms is important to identify any double counting or to verify that double counting is not occurring. We recommend establishing a centralized information platform under the UNFCCC which includes information on each mechanism. Both cap-and-trade and crediting mechanisms should clearly specify their scope, including the jurisdictions, emission sources, greenhouse gases, time period covered. Furthermore, each crediting mechanism should maintain a publicly accessible database on credited activities which allows clearly identifying each credited activity, including the location, the emission sources and gases, and the vintage of the emission reductions.

Double counting due to double issuance of units can be addressed in two ways: by allowing double issuance but ensuring that only one of the double-issued units is used to attain mitigation pledges or by avoiding double issuance (CAR, 2011; GSF, 2013; VCS, 2013). The following approaches could be employed to avoid that one or more entities seek credits for the same emission reductions under the same or different crediting mechanisms (see Table 3-1):

• Attestation by the entities seeking credits: Crediting mechanisms could require that any entity seeking credits sign an attestation declaring that it has not and will not seek credits for the same emission reductions under another or the same crediting mechanism. Such attestations are, for example, required by the Climate Action Reserve (CAR), the Gold Standard (GS) and the Voluntary Carbon Standard (VCS) (CAR, 2011;

GSF, 2013; VCS, 2013). Attestations could be formulated as legally enforceable declarations which would allow the regulatory body or others to seek legal remedies in the case of non-compliance. Attestations could be required once when a credited activity is approved or for each issuance request.

• Written attestation from other entities: The regulator of a crediting mechanism could require the entities seeking credits under the mechanism to acquire an attestation from potential other entities, which could claim credits for the same emission reductions, that they have not and will not seek credits for the same emission reductions. This approach is, for example, followed in some CDM and GS methodologies.

• Host country oversight: Countries hosting mechanisms could have the responsibility to ensure that no double issuance occurs within their jurisdiction. Parties could agree that host countries have to issue letters of approval for any emission reductions that are claimed within their jurisdiction. Letters of approval have to be issued under the CDM.

• Transparent procedures for transfer of credited activities between crediting mechanisms:

Crediting mechanisms could establish transparent procedures to terminate crediting or transfer a credited activity to another mechanisms. The CAR and the VCS have procedures to both transfer projects from and to other schemes (CAR, 2011; VCS, 2013).

• Verification of no double counting through third-party verifiers or regulators: Third-party verifiers or the regulators of a crediting mechanism could be required to check for each issuance request whether the same reductions have already been issued as credits in the same or another crediting mechanism. The scope of the check could depend on the material risk of double counting, implementing a risk-based approach.

• Only one type of entity can seek credits: The regulator of a crediting mechanism or Parties could decide that only one type of entity (e.g. the producer, the operator, or the consumer) can seek credits under the mechanism. Under the CDM, the available baseline and monitoring methodologies often allow only one entity to claim CERs for a proposed project activity.

• Limitation to activities with clear ownership of credits: The scope of crediting could be limited to activities with clear ownership of credits (e.g. those where the mitigation activity occurs in the same place as most of the emission reductions). The VCS and CAR intend to limit eligibility to projects types for which the ownership of the credits is unambiguous (CAR, 2011; VCS, 2012).

Some of these approaches could pose challenges. Requiring entities to make declarations on what other entities will or will not do could pose legal risks for those entities, especially if they have no contractual arrangements with the other entities or if they do not know who they are. Even if the other entities never planned to seek any credits, they may be hesitant to make a written commitment, as they have no incentives to give away such rights and may not be aware of the consequences. Allowing only one type of entity to seek credits under one mechanisms may not necessarily prevent double issuance between different mechanisms; and seeking international agreement for all mechanisms which entities can seek credits may turn out to be difficult. The limitation of mechanisms to activities with clear ownership of credits could reduce the scope of mechanisms considerably. For these reasons, we recommend combining attestations by the entities seeking credits, host country oversight, transparent procedures for transfer of credited activities between mechanisms, and verification of no double counting through third-party verifiers or regulators.

The risk of double issuance or double claiming due to the accounting of indirect emissions could be addressed through appropriate principles for the design of mechanisms, such as the following:

• In the case that indirect emissions overlap between a crediting mechanisms and a mitigation pledge or cap-and trade mechanism, double counting could be addressed

either if the jurisdiction implementing the mitigation pledge or the cap-and-trade mechanism establishes an allowance reserve to compensate for any credits that fall within its scope, or if the crediting mechanism avoids the crediting of any emission reductions that fall within the scope of the mitigation pledge or cap-and-trade mechanism. The following two principles could avoid both double counting and over-crediting:

a. Indirect baseline emissions that fall within the scope of a mitigation pledge or cap-and-trade mechanisms could either not be included in the calculation of emission reductions or a different unit type could be issued for those reductions;

b. Indirect project (or leakage) emissions that fall within the scope of a mitigation pledge, should be included in the calculation of emission reductions or other units corresponding to that amount should be cancelled, in order to avoid over-crediting of emission reductions.

• In the case that indirect emissions overlap between two crediting mechanisms (or two credited activities within one mechanism), double counting could be addressed by ensuring that only one mechanism issues units for reductions in indirect emissions.

The following two principles could avoid both double counting and over-crediting:

a. In the case of indirect baseline emissions, the emission factor should reflect the actual emissions occurring with any credited activity implemented upstream or downstream (and not the emissions that would occur in the absence of the credited activity implemented upstream or downstream), in order to ensure that only the credited activity upstream or downstream claims the emission reductions.

b. In the case of indirect project (or leakage) emissions, the emission factor should reflect the emissions that would occur in the absence of the credited activity implemented upstream or downstream (and not the actual emissions occurring with the credited activity implemented upstream or downstream), in order to ensure that only the credited activity upstream or downstream claims the emission reductions (see biofuels example in section 3.2.1).

In many cases, pragmatic approaches are needed to implement these principles for accounting of indirect emissions. In some cases it is not known where the indirect emissions occur, and hence whether they fall within the scope of mitigation pledges or other credited activities. Default emission factors, derived in a representative manner reflecting these principles, can avoid double counting and over-crediting in a reasonable manner.