Carbon Markets FAQs
Carbon markets can be either voluntary or mandatory. The main difference between the two is that the voluntary market is unregulated. Even so, there are recognised international standards, such as The Gold Standard, that monitor and verify the quality and validity of the carbon credits that are traded.
Those involved in both markets also tend to have different profiles. Compliance schemes are currently aimed at the most “energy intensive” emitters (at a company level). These include power generators, oil refineries, iron and steel production and processing companies, those who produce commodities such as cement, glass and ceramics and the paper and pulp industry.
The voluntary market serves the purpose of businesses (typically blue-chip corporations), government departments, NGOs and single individuals wanting to manage their carbon footprint.
Emissions trading, also known as ‘Cap and Trade’, is a market-based approach to address climate change.
The basic principle involves setting a limit on the total quantity of GHG emissions allowed to be released over a given period of time (the “cap”). Each participant in the scheme receives an individual cap or allowance. Emission permits or allowances are issued to help cover these caps.
And the ‘Trade’
The trading part establishes a market for these permits by allowing organisations to buy and sell depending on whether they have a shortfall or surplus in allowances. (E.g. a participant who emits less then their allowance can sell the unused balance to another participant who has exceeded their allowance). Emissions trading encourages companies to continually reduce emissions – the more permits they don’t use, the more money they can make from selling that excess.
Most emissions trading schemes also allow participants to purchase carbon credits from GHG emission reduction projects in developing countries. One credit equals one tonne of emissions saved. As long as these credits are certified to the correct level then they can count towards the emitter’s target back home. However, to ensure that emitters are making a significant contribution to controlling their own emissions, and are not just buying their way out of their obligations, offset usage in trading schemes is usually limited to a proportion of the overall emissions target.
An emissions trading scheme, when functioning well, results in overall emissions remaining within the cap, while individual participants have the flexibility of a market-based mechanism within which to operate.
Additionality is a defining concept of carbon-offset projects. To qualify as a genuine carbon offset, the reductions achieved by a project need to be ‘additional’ to what would have happened if the project had not been carried out (e.g. continued as business-as-usual). For instance, if a project is viable in its own right, say through the sale of electricity, or because of government funding, regulation or other policies, then it cannot be used as an offset project as it would have been undertaken regardless of investment secured through carbon markets.
The concept of additionality is important as only carbon credits from projects that are “additional to” the business-as-usual scenario represent a net environmental benefit. Without the “additionality” requirement, there is no guarantee that the emissions reduction activities will lead to a reduction of greenhouse gases into the atmosphere. Therefore, in simple terms, if carbon credits are awarded to activities that would have happened anyway, emissions are allowed to rise without a corresponding cut elsewhere, therefore making the process meaningless.
Genuine carbon standards have been set up to provide assurances to buyers that the emissions reductions generated by a particular project are indeed real, quantifiable and additional.
Credible standards provide high quality, independently verified assessments of the emission reductions produced by a project. The Gold Standard goes one step further and ensures that all its projects meet robust and stringent methodology requirements for sustainable development in the local area.
To ensure the purchase of high quality carbon offsets, it is imperative that companies pursue offsets that have been subjected to rigorous third party monitoring, reporting and verification procedures. It is also useful to source carbon credits from a reputable offset supplier who can offer transparency in terms of the projects, pricing and retirement of the carbon credits.
Carbon offsetting on its own will not provide a solution to climate change, it will need a multi-layered approach with different schemes working in conjunction. However, that said, carbon offsetting does have a large role to play in the overall approach to carbon management. Reducing emissions internally takes time and money; carbon offsetting is a quick and cost effective way to balance a carbon footprint whilst waiting for the fruition of internal abatement measures.
At the same time, the emission reduction projects paid for by offsets introduce clean technology and investment into developing countries, helping communities to improve their economy and industry but not at the cost of the environment. Carbon offsetting projects help to successfully establish a path to a low carbon economy.
Carbon offsetting provides the opportunity to offset unavoidable emissions, reducing a company’s impact on the environment. It offers companies’ access to compelling social-economic community marketing opportunities whilst helping to finance projects that would not otherwise be viable. The atmosphere does not care where GHGs are emitted or where they are prevented. All that matters in the fight against climate change is reducing the total amount of emissions.
In addition to showing leadership and environmental stewardship there are many reasons to reduce emissions and support carbon offsetting, including:
- Mitigate against the risk of impending regulations
- Create significant savings from reduced energy bills and increased operational efficiencies
- Demand from stakeholders, improving brand perception, especially in the eyes of environmentally conscious consumers
- To meet with Corporate Social Responsibility (CSR) obligations
- Leading by example, power to evoke a real change in consumer purchasing behaviour
- Reputational and commercial risk of not being seen as environmentally conscious
- The rising threat of extreme weather warnings, rising sea levels and natural disasters
- Security risks from lack of energy, water and food supply
No. Even with the clean technology we continue to develop, our society as a whole is going to carry on polluting the atmosphere. It is not possible to not pollute, but one thing we can do is regulate it whilst we move to low carbon economies.
Under Emissions Trading Schemes there is a maximum amount of CO2 that countries, or companies, are allowed to release into the air every year. Countries and organisations can buy or sell carbon credits, that is, the allowance to put more carbon into the air, from other countries and organisations. Where one might lose a carbon credit, the other is gaining it.
In fact, having carbon credits is believed to help reduce pollution as it encourages companies to continually reduce emissions. Buying obligatory carbon credits is an additional cost to a company, it therefore motivates companies and countries to look for ways to internally reduce the amount of CO2 they emit. Likewise, there is an incentive to pollute less than the allocation as selling the surplus carbon credits is also lucrative.
Arguably, as long as the credit is trustworthy and robust, a ton of CO2 removed from the atmosphere is a ton of CO2 removed from the atmosphere, it doesn’t matter where or what type of technology was used. However, different types of carbon credits suit different buyers depending on their needs and obligations. For example, compliance buyers may prefer cheaper offsets to meet their obligations in the most economical manner whereas buyers building a comprehensive CSR strategy may prefer more ‘charismatic’ projects that meet both their environmental and the social-economical commitments. So there isn’t one carbon credit better than another, but there are carbon credits more suited to a business need than others.
The Gold Standard Foundation is aware that there have been complaints to the Financial Services Authority (FSA) in the United Kingdom about carbon credit trading schemes. While none of the complaints to the FSA were related to The Gold Standard, some financial institutions, hedge funds and corporations do invest, buy, sell and trade in carbon credits, including Gold Standard-certified carbon credits.
The carbon markets have witnessed significant growth over the last few years, but they are not risk-free. Investing in carbon credits is more complex than a traditional investment, making the opportunity more difficult for individual investors to evaluate. If you need to sell your carbon credits at any given time, you should be aware that your ability to do so will be contingent on the state of the secondary trading market, which is affected by various global political and economic factors that are beyond The Gold Standard Foundation’s control. The Gold Standard Foundation recommends that purchasers of its credits retire them in order to reduce their carbon footprint.
The Gold Standard Foundation will be a part of any industry initiative on best practice and strongly recommends that consumers seek independent financial advice before investing in the carbon markets. Individual investors are also urged to review the additional resources listed below and check the registration of any person or company offering an investment opportunity in the carbon markets.
QUESTIONS TO ASK BEFORE INVESTING
- How do I know whether carbon credits are an appropriate investment for me given my overall investment objectives?
- What are the fees and other costs? You should pay particular attention to the fees and hidden costs of any product you invest in. Ask your investment professional to explain all of the fees and costs associated with the investment.
- How long will my money be tied up? While it is easy to turn many investments into cash, liquid markets for some types of carbon credits might not exist. Research the type of credit you are buying before you purchase.
- What risks are associated with the underlying project(s) and certification standards?
When companies or individuals go about their daily lives and conduct business they use energy. When this energy is derived from fossil fuels such as oil, coal and gas, it releases carbon and other greenhouse gases (GHGs) into the atmosphere. This is one of the key contributors to climate change.
Carbon offsetting is the process by which businesses and households can compensate for the release of these GHG emissions by funding certified GHG emission reduction projects that either destroy GHG emissions, prevent their release elsewhere or sequestrate the carbon dioxide.
A carbon credit, or carbon offset, is a financial unit of measurement that represents the removal of one tonne of carbon dioxide equivalent (tCO2e) from the atmosphere.
Carbon credits come from GHG emission reduction projects that deliver measurable reductions in emissions by either:
- Replacing the use of dirty fossil fuels with renewable energy;
- Reducing the use of fossil fuels through energy efficiency; or
- Capturing and storing already released carbon in trees and other plants.
For example, a wind farm project supplies power stations with renewable energy replacing the need for energy produced from fossil fuels such as coal. Energy efficiency projects reduce the direct release of GHGs into the atmosphere, e.g. a domestic project in Kenya that The Gold Standard is in the process of accrediting, distributes an engineering system for low-income families that treats contaminated water, reducing the direct release of GHGs into the atmosphere by avoiding the need to burn firewood to boil water. It is estimated that this project will generate more than 2-million emission reduction credits per year, the equivalent of taking nearly 350,000 cars off the road for one year.
Capturing and storing already released carbon in trees and other plants is known as carbon sequestration and requires the protection of existing forests or the planting of additional trees and plants.
The atmosphere has no national boarders and does not care where GHGs are emitted or prevented. The most important factor in terms of fighting climate change is reducing the total amount of emissions worldwide.
Climate change caused by greenhouse gas (GHG) emissions is a serious global problem. National and international attempts to mitigate the growth in atmospheric concentrations of GHGs have resulted in the formation of a carbon market. Currently the carbon market is comprised of a compliance market, made up of emitters who are obligated to reduce their emissions and a voluntary market, in which organisations voluntarily reduce their carbon emissions. Most economists argue that an efficient, international carbon market will reduce GHG emissions at the lowest cost, allowing polluters that are unable to abate their own emissions cheaply to invest in projects globally that can.
In 1992 the United Nations Framework Convention on Climate Change (UNFCCC) was created to raise awareness and build knowledge to help mitigate climate change. In 1997, more than 170 countries adopted the Kyoto Protocol to the Convention. This set legally binding targets for 37 industrialised countries to limit or reduce overall GHG emissions by at least 5% below 1990 levels during the period 2008-2012.
To achieve the targets set within this protocol, three flexible financial mechanisms were created:
- Emissions Trading – the international transfer of emission allocations between industrialised (Annex 1) countries. E.g. a country that stays within its target can sell the surplus allowances to another country that has exceeded its limit.
- The Clean Development Mechanism (CDM) – creates carbon credits called Certified Emission Reductions (CERs) through emission reduction projects in developing countries, regulated by the United Nations. Emitters who have exceeded their emission allocations can purchase these CERs to make up the difference.
- Joint Implementation – any Annex I country can invest in emission reduction projects in any other Annex I country as an alternative to reducing emissions domestically.
The rational behind such schemes is that climate change is a global problem and that the location of GHG emission reductions is irrelevant in scientific terms. This means that a tonne of carbon dioxide reduced in a cook stove project in Kenya has the same environmental value as a tonne of carbon dioxide reduced through a wind project in China or a clean energy project in the United States. The difference in these projects is the cost of implementation.
The emission reductions generated by these flexible mechanisms are collectively referred to as ‘carbon credits’. A carbon credit is a financial instrument that represents a reduction or the avoidance of one tonne of carbon dioxide equivalent (tCO2e) from the atmosphere.
These three mechanisms, along with the European Union Emissions Trading Scheme (EU ETS) put in place by the EU in order to meet its Kyoto target, make up the largest environmental market in the world for the trading of carbon credits.
In a voluntary carbon market, an entity (company, individual, or other “emitter”) volunteers to offset its emissions by purchasing carbon credits that reduce the amount of carbon in the atmosphere. It is driven by a company’s desire to demonstrate leadership and/or ‘do the right thing’ and has been around in different forms for many years. The wish to make voluntary commitments to reduce their impact on the environment pre-dates the Kyoto Protocol.
Reasons to engage in the voluntary carbon market could include:
- To save money/reduce operating costs
- Corporate Social Responsibility (CSR)
- Leading by example
- Demand from stakeholders
- Green marketing / boosting green and socially responsible credentials
- Mitigating reputational and commercial risk
Gold Standard FAQs
Gold Standard is a standard and certification body that works to ensure every dollar of climate and development funding goes as far as it can. To do this, we design the strongest processes that maxmise the impact of efforts to deliver clean energy and water, responsibly manage land and forests, and transform lives of the world’s poor. We then verify those outcomes, inspiring greater confidence that drives investment to accomplish even more.
Now with more than 80 NGO supporters and 1100 projects in over 70 countries, our projects have delivered billions of dollars in climate and development outcomes in local communities all around the world.
In 2003, representatives of environmental and human rights organisations convened in Brussels to discuss their concerns that carbon markets could become a ‘race to the bottom’ in relation to environmental integrity and sustainable development.
The group highlighted the need for a system that could identify and encourage well-designed activities as the sources for credible greenhouse gas reductions that maximise wider sustainable development outcomes. At this meeting the concept of the Gold Standard was born.
The Gold Standard certification process was developed through close collaboration between technical and policy experts from civil society, governments, multilateral organisations and the private sector. A non-profit Swiss Foundation was established to house a full-time secretariat for the standard and to further develop tools to achieve its mission.
Now endorsed by 80+ international NGOs and with more than 1,200 projects in 70 countries undergoing certification. The Gold Standard has become the global benchmark for the highest integrity and greatest impact in climate and development initiatives.
The cornerstone of our strategic plan is creating Gold Standard 3.0 – a holistic standard that integrates Energy and Waste, Land Use & Forests, and Water to maximise the benefits of the respective scopes. With a single, streamlined certification process that reduces costs and complexity, Gold Standard 3.0 will assess the impact of project activities toward the post-2015 Sustainable Development Goals. By strengthening our core differentiator, we will support our partners in securing the highest value for Gold Standard credits, and we will promote this position with aggressive demand-building efforts.
- Renewable Energy – such as solar, biomass, biogas and liquid biofuels (if they produce electricity), wind, geothermal, hydro.
- Energy Efficiency – industrial, domestic, transportation, public sector, agricultural sector and commercial sector.
- Waste Handling and Disposal – all waste handling activities that deliver an energy service or a usable product with sustainable development benefits (e.g. composting).
- Short Lived Climate Pollutants – such as Black Carbon
Land Use & Forests
- Afforestation projects - that establish a forest in an area that previously was not forested.
- Reforestation projects - that re-establish a forest, either naturally or by direct seeding or planting.
- Agriculture programmes - that focus on increasing farm productivity whilst lowering the impact of the key drivers of deforestation.
- Programmes that that supply, purify, and conserve water – including WASH projects and sustainable sugarcane initiatives.
|A holistic approach that addresses the nexus of climate, energy, food and water security||>||Breath of impact featuring both environmental and social dimensions that contribute to multiple Sustainable development Goals and/or CSR objectives|
|Performance-based payments using a results based finance framework for funding||>||De-risking of investment from payments only for verified outcomes|
|Strong governance and rigorous long-term project design||>||Greater outcomes and a better story to share with stakeholders|
|Rigorous and regular measurement and evaluation against pre-defined objectives||>||Certainty of quantifiable ROI with clear metrics for simple reporting|
|Transparency and public sharing of data||>||Higher credibility and protection against reputational risk|
Energy FAQs: Additionality
No, Gold Standard does not check the additionality of CDM registered projects.
Yes, projects meeting the deemed additionality criteria can make use of the deemed additionality rules. As per a new rule update, even retroactive projects (which meet the criteria) can apply the deemed additionality rules.
Energy FAQs: Consultation Process: Local Stakeholder Consultation (LSC)
No, for the LSC only the International GS NGO Supporters (WWF, REEEP, SouthSouthNorth, Mercy corps, Helio International, Greenpeace, Care International) and those GS NGO Supporters located in the same host country as the project activity need to be invited. However, for the Stakeholders Feedback Round (SFR) all the GS NGO Supporters need to be invited to or informed of this event.
All projects undertaking a regular certification cycle shall conduct the LSC meeting before the start date of the project. The LSC report should be submitted within a month of the consultation. Projects that do not conduct the LSC meeting prior to the start date shall be considered as retroactive projects and will undergo a prefeasibility assessment.
Energy FAQs: Consultation Process: Stakeholder Feedback Round (SFR)
The DOE makes the draft PDD public on the UNFCCC website during the start of validation for Global Stakeholder Consultation. During SFR the PDD, GS passport and LSC report are made publicly available for public comments for at least 60 days.
Retroactive projects are recommended to conduct a face-to-face meeting as a part of the Stakeholder Feedback Round. Also, they should use the outcomes of the PFA to plan the SFR accordingly. For more information please see section 2.10 in Version 2.2 of the Toolkit.
Energy FAQs: Crediting Period Renewal
For large-scale projects, the DOE that carries out the validation for renewing the crediting period cannot carry out the verification of the renewed crediting period.
For large-scale projects, the DOE that carries out the validation for renewing the crediting period cannot carry out the verification of the renewed crediting period.
The project should submit a request for renewal prior to the end of the first crediting period. If the renewal request is submitted after the first crediting period has finished, there will be a 4-week crediting period renewal review. The second crediting period can start once this review has finished.
Yes, a site visit is mandatory.
Energy FAQs: Definition of Start Date
'Start date of the project’ means the earliest date at which either the implementation or construction or real action of a project begins (further, the guidance provided in paragraph 67 of CDM EB 41st meeting report is applicable)
Energy FAQs: Design Change
Yes. If any new country, technology or methodology is added to a registered PoA/micro-PoA, the CME shall follow Annex AA for submitting a request for design change approval.
Energy FAQs: Fees
All projects except GS v2.1 SoP projects are required to pay registration fees before the 6-week registration review period can be initiated. Registration fees are also applicable for initiating the 2-week inclusion review period for PoAs/micro-PoAs activities.
The fee is transferred via bank transfers only.
If the actual PFA fee is over 20% higher than the amount in the validated PDD, then the difference will be charged before the Registration Review commences.
The registration fee is based on the expected volume of emission reductions for the first 12 months of the crediting period according to the validated PDD. The registration review period commences only upon confirmed payment of registration fees. The registration fee is 0.30 USD/credit for VER projects and 0.10 USD/credit for CER projects.
For an SoP structure, registration fees will be charged based on the expected volume of emission reductions for the first 12 months of the crediting period according to the validated PDD. Therefore the credits will not be deducted from the first twelve months of issuance. However, for subsequent periods, a SoP deduction of 1.5% (CER) and 2% (VER) will be applied at issuance. For the cash-per-credit option, registration fees are based on the expected volume of emission reductions for the first 12 months of the crediting period according to the validated PDD.
If the issuance volume for the first 12 months of the crediting period is greater than the volume used for calculating the fees, then the PP must pay the balance upon issuance.
Energy FAQs: Micro-PoAs
Yes, in the case of micro-PoAs, OO visits are mandatory at the time of internal validation.
Objective Observer’ means an independent expert (e.g. academics from local universities, staff from local NGOs or local consultancies, representatives of development organizations, etc) that is contracted to appraise the project with respect to sustainable development aspects. For appointing an OO, CVs of 3 potential candidates should be submitted by the CME. The GS will assess the CVs and sign an agreement with the selected candidate. In case none of the CVs are relevant, GS may ask for submission of more CVs.
Yes, GS trains the selected OO and is responsible for paying the expenses incurred by the field visit.
4 VPAs can be submitted at a time for a GS inclusion review, which commences only after the payment of Inclusion Review Fees (USD 2500/VPA).
Energy FAQs: Other Questions
All project owners need to declare that the project has not directly or indirectly received or benefitted from official development assistance. (Refer T.1.2.e of requirements)
All projects must fulfill host country requirements on environmental and social impact assessments at local, regional and national levels. A declaration must be submitted, as part of the Cover Letter, warranting that the project complies with local environmental and social regulations. (See T.2.4.4. of requirements)
The PP can claim Gold Standard pre-CDM VERs for a maximum of two years prior to the start of the CDM or JI crediting period (date of registration/determination under UNFCCC) provided they enter into an agreement with The Gold Standard Foundation. This agreement states that the PP will commit to surrender to The Gold Standard Foundation, for immediate retirement, CERs or ERUs that will be issued in respect of GHG Reductions generated by the Project during the CDM or JI crediting period in an amount equal to the Pre‐CDM VERs or Pre-JI VERs. In all cases, credits cannot be claimed for more than a period of 2 years prior to the GS registration date.
Contrary to the de-bundling provisions in the CDM EB 54 Report Annex 13, The Gold Standard does not require a 1 km buffer between VPAs applying a small-scale methodology under the same PoA, even if these are implemented by the same entity.
A methodology concept note needs to be submitted to GS for initial feedback. Upon positive feedback the PP should use the UNFCCC template to write-up the full version of the methodology. Once complete the PP needs to re-submit to Gold Standard for review and pay the applicable fees as per Annex L. The Gold Standard will identify two independent external experts to review the proposed methodology. The cost of this review will be paid for by the PP. The Gold Standard will review the methodology taking into consideration the outcomes of the external review. GS may either approve the methodology or ask for clarifications and request changes.
As of now it is only possible to convert issued GS CERs into GS VERs.
Yes, DOE site visits are mandatory for all verifications. For more details, please refer to our recent rule clarification.
Yes, a GS VER project can be located in any host country. However, project activities in countries with caps on GHG emissions must retire the equivalent amount of AAUs to claim GS VERs.
All non-neutral and neutralized (with the help of mitigation measures) SD indicators should be included in SD monitoring plan. Also, Safeguarding Principles with 'medium' to 'high' risk should be included.
All projects submitted to GS after 31 December 2011, are required to apply the Grievance Mechanism. However, projects applying for renewal of crediting period can choose to opt for the Grievance Mechanism.
Energy FAQs: PoAs
Yes, however, there needs to be prior approval at the time of ‘Listing’ the activity.
Yes, however, case-by-case deviation may be granted after TAC approval. Please refer to the guidelines.
Date of PoA submission is the date on which the PoA Design Consultation Report is submitted to GS for review.
The PoA Design Consultation is a mandatory step of stakeholder consultation that must take place in all PoAs. This consultation needs to be carried out in addition to a PoA/activity level consultation. The objective of this consultation is to collect feedback from relevant stakeholders on the overall design and expected impacts of the programme, in order to ensure it is in line with the national or regional sustainable development goals and priorities. This consultation can be conducted electronically.
Stakeholder consultation at a PoA/activity level involves a physical meeting with stakeholders including local people, communities impacted, local NGOs, government officials etc. This meeting should be complemented with other feedback gained via bilateral discussions, call for inputs via emails, letters of support, etc. The aim of this consultation process is to inform stakeholders in detail about the activities to be implemented within the programme and give them the opportunity to discuss the impact of the activities on them and on the environment. (Refer Annex F and Annex V).
- Host country DNA(s)
- GS Secretariat
- GS International and GS local NGO Supporters
- Local NGOs 5) Research organizations Institutes
- Agency(ies) which have the mandate to set the quality criteria for that technology in the host country
- Implementing agencies/CME(s) of the earlier PoAs in the region/country
- Technology suppliers
- Renewable energy development agencies, etc.
Yes, the PoA Design Consultation is mandatory for all PoAs submitted for GS certification, including CDM PoAs and micro-PoAs.
- Overall sustainable development aspects of a PoA
- Geographical spread or location of a PoA
- Technology employed under the PoA
- Other organizations/agencies who can provide feedback on the design of the PoA
- Implementation plan of the programme, i.e. commercial terms and conditions should be transparently shared by the CMEs on the basis of which interested activities will be allowed to join a PoA, etc.
Case 1 – All retroactive VPA(s) with a start date before the time of first submission of the PoA to Gold Standard must undergo a full pre-feasibility assessment, a full validation and a registration review by The Gold Standard in order to be included in the PoA. All regular cycle VPAs that have a start date before the time of first submission must undergo a full validation and a registration review by The Gold Standard in order to be included in the PoA.
Case 2 – The first retroactive VPA of a specific technology / methodology combination with a start date after the time of first submission of the PoA to The Gold Standard can only be included in the PoA subject to a full pre-feasibility assessment. Subsequent retroactive VPAs of that same combination can be fast-tracked.
Energy FAQs: Pre-Feasibility Assessment (PFA)
The documents required for a PFA are Project Design Document (PDD), GS Passport, Emission Reduction Calculations (in excel format), CDM Validation Report (if applicable), and other supporting documents like an EIA, baseline surveys (if available), etc.
In a full PFA, GS carries out a thorough assessment of the documents stated above and provides feedback in the form of a formal PFA report. The PFA report is shared on the registry and the DOE is required to address the comments raised in the PFA report in the GS Validation Report. In the case of a fast track PFA, GS does not provide a formal PFA report but provides feedback in the form of a 2-hour consultation with the PP and DOE. The presence of a DOE in the 2-hour consultation is not mandatory but strongly recommended by GS. There is no fee involved in fast tracking the PFA, but all projects undergoing full PFA are required to pay PFA fees. (Please refer Annex L for further details).
- Large hydro-power projects (more than 20 MWe capacity)
- Retroactive hydro projects (both small and large-scale)
- Palm oil mill related projects
- Rejected CDM projects (for reasons related to the methodology)
- First retroactive activity of a technology/methodology combination within a PoA (including micro-scale PoAs). All other projects can apply for a fast track PFA.
Energy FAQs: Specific Eligibility Criteria – Annex C
1) Competing use of water resources
2) Minimum ecological flow
3) Impact on groundwater level
4) Design and effectiveness of fish passage(s)
5) Sediment management plan
6) Mitigation measures for reducing soil erosion.
For more details, please refer to Annex C
Yes, all hydro projects (including micro-scale hydro projects) are required to discuss the six critical issues in the project documentation.
Unless already addressed satisfactorily as a part of the existing ESIA report, the opinion of an independent external expert(s) should be provided. Based on relevant CVs submitted by the PP, GS will select an external expert. It is the PPs responsibility to pay for this expert. Before any work can start on the study a MoU needs to be signed by all parties (e.g. GS, PP and the expert(s)). The MoU will outline the scope of the work and what needs to be assessed by the expert(s).
Project Participants must demonstrate that their project makes use of surplus biomass for each type of biomass resources used. For small-scale activities, they can do this once, ex-ante on time for validation. For large-scale activities, they must do this once in time for validation and then every time they conduct verifications (e.g. as part of the Sustainability Monitoring Plan). For more information please see Annex C.
Activities involving the distribution of large amounts of small domestic interventions, such as heating, cooking, water filters, efficient lighting (CFL, LED, etc.) or electricity generation devices using renewable energy sources, are required to demonstrate a clear transfer of carbon credit rights. The project needs to provide The Gold Standard Foundation with a clear description of the transfer of credit ownership throughout the entire investment chain and proof that end-users are aware of and willing to give up their rights on emission reductions.
Land Use & Forests FAQs: Afforestation/Reforestation
There are concerns that the Gold Standard Requirements on forests (A/R and IFM) would lead to a significant increase of plantations.
The Gold Standard does not regard plantations as inherently negative. Rather, we believe that plantations can, when sustainably designed and managed, lead to an increase of ecosystem services and employment in rural areas. Our rules only allow plantations if they:
- Are designed and managed in cooperation with stakeholders
- Bring income and jobs to local people
- Maintain water availability and soil nutrients
- Absorb and store carbon
- Include corridors for wild animals
- Protect critical areas for plants and animals
- Enhance degraded areas
We are supported by the WWF programme on New Generation Plantations.
Note that all Gold Standard projects must prove how they go “beyond business as usual”. This means that a normal forest plantation, which could be financed also without the benefits from carbon credits, cannot be certified under Gold Standard.
Yes. It is correct that investments in climate forests do not contribute to reducing society's dependence on fossil fuels. But as long as fossil fuels are burned, forests are currently the only answer to re-capture the CO2 in our atmosphere. We see forest activities as one of many to reach the world goal of -80% CO2 by 2050, and we believe that all tools must be used to reach this goal.
The carbon market is highly dependent on political situations. In contrast to other commodities such as minerals or food, there is no obligation of companies to buy carbon credits if they don’t have to. Based on this, the market can only be flooded if the demand (which depends on political commitments) are not set sufficiently high.
Through a variety of safeguards, Gold Standard ensures that the carbon stored through our certified activities is stored long-term. First, the projects are designed in close cooperation with local stakeholders. Furthermore, the project developer is liable to re-forest areas that burn down. Second, if the area cannot be re-forested, a project developer will need to compensate the loss of carbon through the purchase of other Gold Standard certificates. If a project is fully bankrupt, the Gold Standard buffer comes into play. This buffer consists of certificates from all forest projects and functions similar to an insurance pool – and replaces credits from projects that have failed.
A forest provides us with both trees (standing in the forest) and wood (once harvested). We can separate these out when thinking about it from a carbon perspective.
Credits are not calculated by trees, but by the overall forest. A forest where trees are used for wood needs to reflect this in its growth-models. What does this mean? It means that a forest project is composed of many areas that are planted over time and that are managed differently (depending on the soil conditions, tree species, etc.).
So, image you are a bird flying over a forest that is making use of its timber: You will see parts of the forests that are still young, others are mid-age and again others are ready to be harvested. Companies that manage their forests sustainably only harvest the areas that are ready to be harvested, whilst making sure that the other areas are continuously re-growing. So the bird flying over this forest will always see trees. The growth-models that are used for the calculation of carbon credits reflect the management of these forests, which means that projects can account for their "average long-term carbon sequestration" and earn carbon credits based on this.
And what about the wood that is harvested? This "carbon pool" (technical term we use for this) can also generate carbon credits - fully independent of forest. Here, carbon methodologies exist that make it possible to determine e.g. the effect of wood chips (wood used as renewable energy) that is replacing fossil fuel or storing carbon in form of furniture or houses. Currently, Gold Standard does not have any methodologies for this.
The quantity of carbon stored in a forest depends on factors like geographical location, species, soil type, and climate. To ensure that no overestimation is made on the carbon stored by the forest, Gold Standard has set different safeguards:
Conservative approach: All parameters used for the determination of the net CO2-fixation must be derived from the best available scientific sources. In their synergy, they must lead to a conservative calculation approach. This means that in case of uncertainties:
- The CO2-fixation should be underestimated, and
- The baseline and leakage should be overestimated
Carbon pool “harvested wood”: Some Gold Standard projects produce timber. This timber generally has additional climate effects, which are NOT accounted for by the standard's methodology.
What are typical positive effects from harvested wood?
- Wood is used for furniture and as building material. Such use stores carbon for much longer than the time of the climate project.
- Wood can be used to replace energy intensive materials, for example, by using wooden window frames instead of aluminium frames.
- Wood is a direct substitute for fossil fuels, for example, using pellets to heat a home rather than oil.
Monitoring over 50 years: To ensure that the carbon stays in the trees, Gold Standard certified projects are monitored by third-party auditors up to 50 years after planting.
Land Use & Forests FAQs: Agriculture
- The mitigation potential for direct emissions from agriculture is estimated to be 2.5-2.7 Gt CO2-eq/yr taking into account economic barriers (50US$/tCO2-eq)
- Agriculture is a primary driver of deforestation
- Location-specific interventions required since mitigation measures have to be adapted to prevailing conditions
- Include supply and demand side measures
- Large scale and small-scale farms in all countries can contribute in achieving the 2°C goal by tackling the drivers of deforestation through sustainable agriculture.
- Yes, lots of case studies that show climate change impacts can already now be observed in many agricultural systems in the form of extended crop failures, increasing incidences of pests, unsuitability of traditional crops.
- Already vulnerable farming systems are hit most severe by increasing frequency of extreme events and prolonged droughts/heavy rainfalls
- Agriculture is in many developing countries the backbone of the economy often represented by smallholder families → cliamte change affects countrywide economies and mostly the poor.
- Absolute emissions will rise in emerging economies and developing countries but, through efficiency gains, resources can be used more effectively while also reducing emission on a unit of product level (kg CO2/kg of product)
- Globally cropland availability is sufficient but at the same time no guarantee for local availability or avoided deforestation. Hence, meeting climate targets requires location-specific interventions
Example of mitigation practices compatible with food production:
- Cropland management (improved varieties, crop rotation, efficient use of fertilizer, reduced tillage, water harvesting, timing & precision)
- Grazing land management (deep rooting grasses, appropriate stocking densities, animal waste management)
- Livestock (improved feed and dietary additives to reduce emissions form enteric fermentation, improved breeds).
By the nature of every GS standard certain core safeguards are put in place, which we call Do-No-Harm Requirements. These requirements are intended to avoid adverse effects and perverse incentives when implementing a GS project. In the agriculture realm food security is of course a core issue, which GS is aware of. Hence, we included the following requirement as a Do-No-Harm Requirement in our Agriculture standard:
- Any project activity shall not negatively influence access to and availability of food for people affected (Requirement in GS AGR)
Supply side measures:
- Soil carbon management
- Reducing emissions from fertilizer production and application
- Livestock management (enteric fermentation, manure)
Demand side measures
- policy interventions to address consumption of high impact food (meat, soy, etc)
- food waste reduction
With agriculture being one of the main drivers of deforestation, the sector of agriculture, forestry and other land use (AFOLU) is the largest contributor of global direct GHGs emissions (24 % or 11.76 Gt CO2-eq/yr). (Source: IPCC Assessment Report 5)
- Yes, carbon can be stored in soils through accumulating soil organic matter (SOM). SOM is a mixture of various carbon compounds consisting of decomposing plant and animal tissue, microorganisms, and soil minerals.
- Carbon can be stored in soils for millennia or again be released to the atmosphere. Climatic conditions, vegetation, soil texture, drainage, and anthropogenic management thereby affect how much and how long carbon is stored in the soil.
- The capacity of soils in sequestering carbon is limited and different from soil type to soil type.
The term Climate Smart Agriculture was first introduced by FAO in 2012 and quickly gained international momentum also in the private sector. It was in the arena of the NGO community where major concerns were expressed on the interpretation and implementation of the concept of CSA. Some NGOs feared that the concept of Climate Smart Agriculture would entail a form of neo-colonialism promoted largely by the international fertilizer and seeds industry, which therewith would seek new possibilities to expand their sales markets.
Since this would not at all reflect Gold Standard’s vision of Climate Smart Agriculture we decided to rename our former Climate Smart Agriculture Programme to Gold Standard Agriculture.
No. In order to avoid perverse incentives for conducting GS projects only for the sake to make money from carbon credit sales and thereby provoke land grabbing, Gold Standard has put in place a comprehensive and robust set of social and ecological requirements. This set of requirements has to be followed by every project. Demonstrating compliance with these requirements do in practice dismantle any incentive to conduct a GS Agriculture project only for the sake of gaining revenues from credit sales and thus to provoke land grabbing.
Smallholders contribute more than two thirds of domestic agricultural production in most developing countries. Furthermore, expected yield increases in global crop production between 2005-2050 will primarily be generated in developing countries (FAO 2009). Mitigation practices from its nature can easily be integrated in economic growth situations through efficiency gains. Here the individual farmer can benefit from climate finance through carbon certification in a way that improved farming practices contributing to GHG mitigation will also contribute to the ecological and economic performance of the individual farm.
Land Use & Forests FAQs: General
The Gold Standard’s expansion into the land use sector involves continuous input and guidance from key stakeholders and experts in the market, including The Gold Standard Secretariat, Board and Technical Advisory Committee (TAC). For every activity specific rulebook (for example the Afforestation/Reforestation requirements), special advisory panels are created that advice The Gold Standard on the shape, procedures and modalities for the new standard. This means the quality criteria on for example Afforestation and Reforestation were developed in partnership with more than 100 organisations including WWF, the Forest Stewardship Council (FSC), Fairtrade International and major governments.
In 2012 The Gold Standard Foundation acquired the CarbonFix Standard. This strategic collaboration established the foundation of The Gold Standard’s expansion into the land use and forests sector. CarbonFix projects that met the newly designed Gold Standard rules, were the first to transition into Gold Standard Land Use & Forests projects.
The Gold Standard Framework and Requirements for Land Use & Forests activities include a number of unique features:
- Alignment with major international conventions e.g. CBD, UNFCCC, UN Global Compact.
- Are the result of collaboration between more than 100 international NGOs, government bodies, policy and technical experts
- Top-down rules ensure safeguards, bottom-up stakeholder participation warrants sustainability.
- Facilitates streamlined co-certification with key standards such as FSC
- Strict rules for permanence and risk management are combined with a compliance pathway to ensure that activities stay on track.
Gold Standard Land Use & Forests certification ensures climate integrity through five backstops designed to ensure that activities do not underperform and, should they do so, to address and resolve issues transparently. This approach ensures that that the integrity of The Gold Standard is maintained, meaning that no verified Gold Standard credit will ever not represent a tonne of carbon reduction. The backstops are:
- Robust requirements on values and process that thoroughly assesses the design of the activity;
- Frequent Monitoring, Reporting and Verification (MRV) of the activity (carbon and non-carbon);
- A compliance pathway that clearly lays out how activities that under-perform get back on track.
- The project owner’s liability under The Gold Standard Terms & Conditions; and
- The Gold Standard Compliance Buffer.
The Gold Standard anticipates that some projects may reach backstop number 3: the compliance pathway. This compliance pathway deals with unforeseen circumstances that arise, in spite of applying the safeguarding requirements as outlined, which may impact the sustainable development of the activity or permanence of the carbon stocks.
For example, these circumstances may occur in community activities where large numbers of participants withdraw their land or where natural disasters destroy the forest or damage the landscape. Under the compliance pathway, the Project owner must implement agreed measures (or combinations of measures) for bringing the carbon stocks back to previous levels.
This is a very relevant topic for The Gold Standard, as our two key objectives are the reduction of greenhouse gas emissions and sustainable development, including improving livelihoods. This includes the many smallholders who live in rural areas of developing countries. The Gold Standard is working on smallholder empowerment at various levels:
The Gold Standard Land Use and Forests requirements are designed in an easy and understandable way so local people are able to design and implement projects themselves.
By working with expert, best in class partners like FSC and Fairtrade, The Gold Standard is better able to grow best practice sustainable land projects from small holders to a larger, landscape scale.
And finally, The Gold Standard designs “smallholder guidelines” for each of its programmes, that ensure The Gold Standard requirements can also be well applied in a smallholder setting.
Land use and forests activities frequently require upfront finance and often use forward sales of CO2-Certificates, that is, selling before issuance and thus certification. The Gold Standard Foundation recognizes that upfront finance is vital for many land use and forests activities. The Gold Standard Foundation also understands that being able to sell title to an asset, rather than a ‘project plan’, can catalyse this.
However, it is also the case that untracked forward sales do not provide buyers with sufficient protection, increasing the risk of over-selling the anticipated outcomes, and thus damaging the reputation of the carbon markets and the flow of climate finance.
The Gold Standard enables the registration of an agreed number of expected CO2-certificates following the review of a project. Scientifically sound models can ensure that the quantity of expected CO2-certificates is not overestimated. These are registered as ‘Validated CO2-certificates’. Validated CO2-certificates can be traded, but not retired. Once the validated amount has been verified, the validated units will be transformed into verified units.
The vital role of sustainable land use and healthy forests in the balance of the Earth’s ecosystem has been part of the international political agenda for many years. Since the Rio Earth Summit in 1992, land use and forest issues have been framed within the climate debate. Most recently the political process has been driven under the UNFCCC umbrella of REDD (Reduced Emissions from Deforestation and Degradation) and REDD+ (denoting wider outcomes).
The Gold Standard Foundation and its partners believe in a strong international focus on conserving forests for climate, biodiversity and livelihood reasons. Moreover, forest ecosystems require the strongest possible safeguards.
However, by just crediting stored carbon – that is, simply paying people to stop cutting forests - many current approaches to REDD and REDD+ face technical and political challenges that may undermine long-term sustainability. Therefore The Gold Standard approach to achieving REDD+ is built around addressing the drivers of deforestation and unsustainable practices by using carbon finance to enable new land management techniques, restore forests and transform livelihoods through energy access and other clean technologies.
This genuine landscape approach, in which multiple and different sustainable activities can be included for certification, recognises that for genuine and long-lasting success, the nexus of energy, water, land use and development - reflecting the integrated nature of human activity - must be considered. This will give local communities a stake in a forest’s future, in turn driving long-term conservation of carbon stocks and sustainable livelihoods.
Land use and forests play an enormous role in the carbon balance of the planet; yearly an amount corresponding to 50 times the net emissions caused by humans cumulates through terrestrial ecosystems. Of the emissions generated by humans, around 30% are caused by the unsustainable use of land. The amount of carbon still stored in land-based ecosystems means that the potential contribution of this area to mitigating or increasing the rate of climate change can be significant in future.
Forests contain more than half of the world’s biodiversity and the livelihoods of billions of people depend on the sustainable use of land. With a growing world population, the demand for productive land continues to increase, causing rapid deforestation and degradation, a decrease in biodiversity and a negative impact on the livelihoods of many of the poorest people on the planet.
The above pressures, plus the fact that land-use activities are now being incorporated within emerging compliance schemes around the world, creates an urgent need for a best practice benchmark. The Gold Standard Foundation’s supporters believe that it can fill this gap, based upon ten years of demonstrating how trust, achieved though robust design and processes, can engage the full range of stakeholders to build markets.
The Gold Standard is working towards a genuine landscape approach to GHG emission reductions and sequestration through a phased introduction of full requirements for each of the different activities in a landscape. The Gold Standard’s aim is to maintain and enhance the carbon stock stored at the landscape level, while improving the sustainable use of resources, people’s livelihoods and the conservation of biodiversity.
The activities The Gold Standard will initially focus on are:
- Improved Forest Management
- Climate Smart Agriculture
Water FAQs: General
You can review the Water Benefit Standard and provide your input to improve the requirements and methodologies. This public consultation will be open until 1 January 2015.
There are several pilot projects in process in water access/WASH and one in agricultural efficiency. You can track the progress at http://www.waterbenefitpartners.org/wbc-pilot- projects/. Starting in January 2015, we will accept expressions of interest for new projects. There is a three-month review process. And as of June 2015, you can begin implementing new projects through the Standard.
The Water Benefit Standard is open to any technologies and measures that address locally defined water issues and create verifiable benefits to natural and human environments according to an approved methodology.
No. This is not offsetting, nor will buyers of Water Benefit Certificates be allowed to make a claim that they are offsetting their water usage or claim water neutrality. Water neutrality as a matter of fact does not exist. Fundamentally, the Water Benefit Standard is about releasing money into the basin to provide environmental and social benefits. Purchasing WBCs is not intended to substitute for reviewing and managing one’s own water footprint, but rather to supplement these activities beyond a buyer’s direct area of influence.
Yes, but these projects must also provide water-related and other environmental and socio- economic benefits to the local community according to the Water Benefit Standard regulations.
Corporates are encouraged to responsibly manage and reduce their own water footprint wherever possible. But recognizing that most organizations cannot reduce to zero, Water Benefit Certificates are a way to invest in water security. It is important to consider that water is inherently a local resource, such that a cubic metre of water from a project in Canada is qualitatively vastly different from a cubic metre of water from a project in the Sahel. Further, water has value on multiple levels, ranging from economic to social to cultural. Therefore, in order to make purchases of WBCs credible, it is important that they be used as one component of a larger, comprehensive water stewardship strategy, and that the desired outcomes from purchasing WBCs are communicated appropriately and effectively.
The Standard requires a Watershed Risk Assessment in which the project undergoes under a scarcity and risk analysis.
If the increases are small scale, ie, below the threshold designated in the Sustainability Criteria, it is acceptable. If large, projects are required to reduce their emissions.
Water Benefit Partners (WBP) is a Public Private Partnership (PPP) that was formed in 2011 bringing together NGOs, corporations, public institutions and sustainability advocates to promote positive, measurable water outcomes in water-stressed areas. The partnership was initiated by First Climate Markets AG and The Gold Standard Foundation and is co-funded by First Climate and the Swiss Development Cooperation (SDC). The PPP partners developed the first draft of the
Water Benefit Standard and now acts as a laboratory to explore different issues of relevance to a functioning standard including the certification process, sustainability as well as the market demand for such a mechanism. Until its expiration at the end of July 2015, First Climate is responsible for coordinating the certification of all demonstration projects while the Gold Standard Foundation administers the Standard and issues WBCs for successfully verified activities.
The Water Benefit Standard is a results-based finance mechanism to drive funding for water supply, purification and conservation projects. These projects help maintain the water balance within a watershed, encourage local stakeholder engagement and consultation, promote sustainable development, ensure environmental integrity and prepare water users to contend with a world of increasing water scarcity.
A Water Benefit Certificate represents a volume of water sustainably supplied, purified, or conserved. Once issued, Water Benefit Certificates can be sold to earn income that supports further water project activity.
The primary difference is the Water Benefit Standard’s focus on catalysing finance for water projects and making the most of these funds. While the other initiatives provide methods for measuring a water footprint or define specific water stewardship actions, the Water Benefit Standard is designed to make funding flow to critical water projects and to ensure that every dollar makes the greatest impact. Thus, the Water Benefit Standard supports the work that’s currently happening, and can actually help other initiatives reach their goals.
In addition, the Water Benefit Standard provides more opportunities to assist others in the watershed rather than focusing on an organization’s own footprint. It also broadens engagement beyond corporates to public institutions, funding agencies, NGOs and even individuals. Finally, the long-term measurement of project-specific outcomes—both environmental and socio-economic— which must be transparently shared on a public registry is a distinguishing factor of the Water Benefit Standard.
Two main reasons: 1) developing high quality projects in a more cost efficient manner, and 2) reducing risk in investment. Using the Water Benefit Standard, you don’t have to start from square one. There are methodologies in place from which you design a high-impact project that means that your investment is certain to deliver the independently verified outcomes you want to see.
The Standard is governed by the Gold Standard’s Technical Advisory Committee comprised of some of the world’s leading technical experts, international organisations, and corporate advisors:
Adam Harvey, Whave, Uganda
Anna Forslund, Stockholm International Water Institute (SIWI), Sweden
Biksham Gujja, AgSri, India
Dean Thomson, World Vision, Australia
James Dalton, International Union For Conservation Of Nature (IUCN), Switzerland Jamie Pittock, Australian National University, Australia
Samuel Bryan Nexus, UK
Scott Harder (Sub-committee Vice Chair), Environmental Finance Group, USA Sascha Lafeld, First Climate, Germany
Todd Gartner, World Resources Institute (WRI), USA
The Water Benefit Standard is officially live as of 3 September 2014 and will be open for public consultation until January 2015. We will continue to refine and improve the Standard based on feedback from this consultation and ongoing learnings from pilot projects in the field.
We have been developing this standard over the last 4 years in close collaboration with more than 20 Water Benefit Partners from the NGO, corporate and scientific world. It was an open but controlled global stakeholder process engineered to prove the concept. This is just the beginning. The Standard is now open for public consultation, the feedback from which we will add to learnings from projects on the ground to enhance the Standard over time.
Water FAQs: Methodology, Monitoring and Evaluation
First, a baseline methodology estimates the state of water use in the absence of the project. Then a monitoring methodology calculates the actual water benefits directly resulting from the project, taking into account any water benefits from sources within the project boundary. By determining both the baseline and project scenario, water benefits are objectively verified in a transparent way. Due to the variety and complexity of project types and location, there is likely to be additional criteria that are not specified in the universal Water Benefit Standard.
- Pre-Feasibility Assessment (Gold Standard Foundation) After completing the project documentation, The Gold Standard conducts a desk review assesses whether the project is likely to comply with its requirements.
- Initial Certification (Independent Auditor) An independent auditor determines whether the project adheres to the rules of the Standard and is thus eligible to be registered as a Gold Standard project.
- Performance Certification (Independent Auditor) After each year of monitoring the registered project, the independent auditor verifies the outcomes. This reviews the water benefits that occurred over the previous year, and determine the number of WBCs to be issued.
Unlike many donor/ public funded efforts where sustainable development outcomes are often unclear or anecdotal, all projects under the Water Benefit Standard must first be evaluated for sustainable development outcomes and these must then be tracked and measured on an annual basis. Any negative impacts must be mitigated whilst all neutral and positive impacts are monitored for project duration. This process involves local stakeholder consultation and is reviewed externally, and all reports are transparent and publicly available online.
The availability of water differs greatly around the globe. Because water moves in a global cycle, Water Benefit Standard projects must not help somewhere and unwittingly taking water away from a beneficial use elsewhere. For this reason projects must quantify not only water use at the project site, but also the impacts of the proposed change on the entire river basin and any aquifer.
The number of Water Benefit Certificates issued depends on the scale of the project. For example, a cubic metre of water conserved in large-scale agriculture has a different WBC value to a cubic metre of clean drinking water delivered to a family. Due to the wide spread of volumes between very small and very large projects, the Standard applies a discount factor to project volumes that exceed certain thresholds in order to encourage economies of scale. The discount factors do not affect the cumulative water volumes supplied, purified or conserved up until the threshold, rather they only apply to additional volumes that exceed the thresholds.
The basic unit that holds across all projects is set as 1 Water Benefit Certificate = 1 cubic metre of water supplied, purified or conserved. Due to the wide spread of volumes between very small and very large projects, the Water Benefit Standard applies a discount factors to project volumes that exceed certain thresholds in order to encourage economies of scale.
- For volumes up to 40.000 m3 p.a., 1 m3 is worth 1 WBC
- For additional volumes greater than 40.000 m3 but less than 1.300.000 m3 p.a., 10 m3 are worth 1 WBC
- For additional volumes greater than 1.300.000 m3 p.a., 100 m3 are worth 1 WBC
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A regular project term is either 10 years or 3x7 years using a flexible baseline approach after each 7 year period. For projects that are part of a programme of activities (PoA), the project term is up to 28 years. All outcomes, including sustainable development metrics, are audited and reported in a transparent public registry each year.
Water FAQs: The Market and Financing
Corporates, governments and public institutions, NGOs and concerned citizens that want to make the greatest impact with every dollar they invest in water initiatives. Several corporate buyers have already committed to purchasing Water Benefit Certificates. Like these companies, corporate buyers will have an interest in good water stewardship as part of their corporate social responsibility programmes and/or to preserve the basins that support their supply chains.
By 2016, an anticipated 10-15 projects will have Water Benefit Certificates available for sale covering WASH, water-efficient agriculture, household and industrial wastewater treatment, irrigation techniques and more. The market ultimately determines the price for Water Benefit Certificates, but so far, WBCs have traded in the range of 7-10 US$ per Certificate.
For Water Benefit Standard project developers, Water Benefit Certificate sales agreements with buyers can translate into credit enhancements or can be used as collateral for loans from local banks. This way, urgently needed upfront financing can be provided to projects to kick them off.
Yes. Once Water Benefit Certificates are issued and sold, the annual revenue from the sale can be used to reinvest in the project activity to not only continue the activity, but to expand its impact in scope and scale. For example, a safe water programme in rural Uganda provides new clean water access points. Following a successful one-year pilot in 100 communities, the project developer will use the revenue generated from the sale of its Water Benefit Certificates to expand nationwide and beyond. This long-term self-financing capability is what gives the model its most powerful potential—providing an ever-expanding impact, year after year.
Projects that issue Water Benefit Certificates via the Water Benefit Standard must demonstrate that they are beyond business as usual, meaning that they would not have been implemented without the Water Benefit Standard. The project developer proves this by conducting a Financial Needs Assessment (FNA) as part of the initial certification. The FNA can be completed in one of two ways:
- Compliance with a postive list of preferred technologies, methods or geographical regions that permits the project to per se pass the FNA. Such projects must still disclose a financial forecast over the project period.
- If a project does not comply with the positive list, a formal financial analysis must be conducted to demonstrate that the revenue from WBCs is required to make the project financially feasible.