Designing Accreditation and Verification Systems A GUIDE TO ENSURING CREDIBILITY FOR CARBON PRICING INSTRUMENTS © 2019 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org The findings, interpretations, and conclusions expressed by World Bank Staff or external contributors in this work do not reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Attribution—Please cite the work as follows: World Bank, 2019. Designing Accreditations and Verifications Systems: A guide to ensuring credibility for carbon pricing instruments. World Bank, Washington, DC. All queries on rights and licenses should be addressed to the Publishing and Knowledge Division, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. [Cover Design: bittersweetcreative.com] Acknowledgments This guide to designing verification and approval systems for carbon pricing instruments was prepared for the Partnership for Market Readiness (PMR) by a team of consultants from SQ Consult and Icontec, under the guidance of Harikumar Gadde of the PMR. Lead authors of the guide are Machtelt Oudenes, Lucy Candlin and Marion Vieweg (SQ Consult), supported by contributing authors Dian Phylipsen, Edwin Dalenoord (SQ Consult), Francisco Charry and Julio Alejandro Giraldo (Icontec). This guide builds on the essential experience of practitioners in the field of designing, implementing and using verification and approval systems. We sincerely thank those government experts who shared their practical insights and knowledge through questionnaire responses, interviews, and review of the guide. These include: Country Organisation Expert Australia Clean Energy Regulator Geoff Houen Germany European Co-operation for Accreditation/ DAKKs Peter Hissnauer Germany Deutsche Emissionshandelstelle (DEHSt) Joachim Leitner Greece Ministry of Environment and Energy Yiannis Markoudakis Hungary Ministry of National Development Levente András Koczóh Ireland Environmental Protection Agency Annette Prendergast Japan Ministry of Environment Kazuisa Koakutsu Kazakhstan EnEco Solutions LLP Inna Lissova Kazakhstan EnEco Solutions LLP Yekaterina Solomeyeva Kazakhstan USAID Power the Future Regional Program Assel Kabylbayeva Lithuania Lithuanian National Accreditation Bureau Gražina Valuže Netherlands Dutch Emissions Authority Margreet Kleijn New Zealand Ministry for the Environment Matthew Cowie Norway Norwegian Environment Agency André Aasrud Norway Norwegian Environment Agency Annicken Hoel Norway Norwegian Environment Agency Trine Berntzen Romania Romanian Accreditation Association Daniela Ionescu Slovak Republic Ministry of Environment Natália Broošová South Africa National Treasury Sharlin Hemraj South Africa Specialist Project Manager for the PMR Jongikhaya Witi South Africa National Department of Environmental Affairs Phindile Mangwana South Korea Interperon Co. Ltd. Hang-Hoon Oh Sweden Swedish Board for Accreditation and Conformity Assessment Else-Hanna Elgåsen Switzerland Federal Office for the Environment Reto Schafer Thailand Thailand Greenhouse Gas Management Organisation Puttipar Rotkittikhun Turkey Ministry of Environment and Urbanization Zeren Erik Turkey Ministry of Environment and Urbanization Evren Türkmenoglu UK United Kingdom Accreditation Service Janet Gascoigne USA (California) California Air Resources Board Jason Gray USA (California) California Air Resources Board Rajinder Sahota China China expert Wenbo Liu China China expert Lixin Zhang China China expert Mingshan Su China China expert Qingzhi Liu Columbia Ministry of Environment and Sustainable Development Sebastian Carranza Mexico SEMARNAT Victor Escalona We also thank Jonathan Avis (ERM CVS), Martin Enderlin (CDM Executive Board Member) and Werner Betzenbichler (Chair of Designated Operational Entities Forum) for their valued acumen into the verification and approval processes under the Clean Development Mechanism (CDM). Finally, we thank our World Bank colleagues and experts, Venkata Raman Putti, Marcos Castro, Daniel Besley, Taisei Matsuki, Sarah Moyer, Pierre Guigon, for providing invaluable insights and feedback. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 3 4 Synthesis: setting up a V&A system 14 SYNTHESIS Introduction 27 INTRODUCTION Key concepts in verification and approval 31 KEY CONCEPTS GET TING PART A  Getting started 35 STARTED WHETHER STEP 1  Determine whether or not to verify 36 TO VERIF Y Overview STEP 2  Understanding factors that influence V&A system design 41 INFLUENCING FACTORS STAKEHOLDERS STEP 3  Define roadmap and plan stakeholder engagement 47 & ROADMAP VERIFICATION PART B  Setting up the verification system 49 SYSTEM T YPE OF STEP V1  Designing the type of verification system 51 VERIFICATION DESIGN STEP V2  Designing the verification system 60 VERIFICATION REQUIREMENTS STEP V3  Defining requirements for verifiers 74 FOR VERIFIERS IMPLEMENTING STEP V4  Implementation of the verification system 78 VERIFICATION MANAGING STEP V5  Ongoing management of the verification system 84 VERIFICATION APPROVAL PART C  Setting up the approval system 93 SYSTEM T YPE OF STEP A1  Designing the approval and oversight system 95 APPROVAL DESIGN STEP A2  Designing requirements for approval 107 APPROVAL REQUIREMENTS STEP A3  Designing requirements for oversight bodies 120 FOR OVERSIGHT IMPLEMENTING STEP A4  Implementation of the approval and oversight system 126 APPROVAL MANAGING STEP A5  Ongoing management of the approval and oversight system 129 APPROVAL DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 5 Table of contents Definitions 10 4 STEP 2 7.4 Understanding the Understanding factors that verification process 63 influence V&A system design 41 Abbreviations 12 7.5 Considerations for defining 4.1 Use of international standards 41 rules for verification 72 Synthesis: 4.2 Understandingrelevant setting up a V&A system 14 framework conditions 41 8 STEP V3 Understanding the compliance 4.3 Understanding choices in Defining requirements for verifiers 74 framework 15 the V&A system design 42 8.1 Ensure competence of Introducing the design process 16 verifiers and personnel 74 5 STEP 3 Getting started 16 8.2 Ensure impartiality of Define roadmap and plan verifiers and personnel 76 Setting up the verification system 17 stakeholder engagement 47 8.3 Define key organisational and Setting up the approval system 21 5.1 Planningstakeholder procedural requirements 77 engagement 47 1 Introduction 27 8.4 Considerations for designing 5.2 Defining a roadmap 47 rules on verifiers and verifier of carbon pricing 1.1 Overview personnel 77 instruments 28 PART B 1.2 Objectives and scope Setting up the verification system 49 9 STEP V4 of guidance 29 Implementation of the 6 STEP V1 1.3 How to read the guidance 30 verification system 78 Designing the type of verification system 51 9.1 Resource needs for verification 78 2 Key concepts in verification 6.1 When to verify 51 9.2 Ensuring skilled personnel and approval 31 for verification 79 6.2 Determine the type of verifier 53 elements of a MRVA 2.1 Key 9.3 Facilitate the implementation compliance system 32 6.3 Selection and payment of a of the verification system 83 is verification and 2.2 What third-party verifier 57 approval of verifiers and 6.4 Legislative frameworks for 10 STEP V5 why are both important? 33 verification 57 Ongoing management of the verification system 84 PART A 7 STEP V2 Getting started 35 10.1 Ensuring the quality and Designing the verification system 60 consistency of verification 7.1 Define the scope of verification 60 outcomes 84 3 STEP 1 7.2 Define level of assurance 61 Determine whether 10.2 Ongoing capacity building or not to verify 36 7.3 Define materiality 63 and stakeholder engagement 89 6 10.3 Organise information exchange 12.6 Whatneeds to be considered exchange and 15.2 Information between regulators and when defining the rules for cooperation between parties 132 oversight bodies 91 approval and oversight 118 Further reading 132 PART C 13 STEP A3 Setting up the Designing requirements Annexes 133 approval system 93 for oversight bodies 120 1 CPISin the world and their 13.1 Ensuringcompetence of V&A system 134 11 STEP A1 approval and oversight bodies 2 Engagement of national and Designing the approval and and their personnel 120 oversight system 95 international stakeholders 146 13.2 Ensure impartiality of approval 3 Common principles that apply 11.1 Optionsfor designing the and oversight bodies and approval structure 96 to both approval and verification their personnel 122 processes 149 11.2 Type of entity doing the key organisational and 13.3 Define for selection and 4 Options approval of the verifiers 101 procedural requirements 123 payment of a third-party verifier 150 11.3 Whether to design a dual 13.4 Whatneeds to be considered 5 International recognised standards 153 approval (registration) system 101 when defining rules concerning approval and oversight bodies 124 6 Scope of verification 156 11.4 Oversight of the verifier 102 7 Verification report 157 11.5 Type of rules to regulate 14 STEP A4 approval and supervisions 8 Examples of impartiality measures 158 Implementation of the approval of verifiers 105 9 Examples of application and oversight system 126 of materiality 160 for 14.1 Timelines 12 STEP A2 approving verifiers 126 Timelines of verification: 10 Designing requirements additional considerations 162 for approval 107 of the oversight 14.2 Preparation body and personnel 127 Example of an accreditation 11 in the approval 12.1 Activities certificate 164 and oversight process 108 implementation of the 14.3 Facilitate approval and oversight system 128 Key organisational and 12 12.2 Acceptance of verifiers procedural requirements 164 across borders 111 15 STEP A5 Resource requirements for 13 12.3 Periodicongoing surveillance Ongoing management of the developing and implementing and oversight of verifiers 113 approval and oversight system 129 a V&A system for CPIS 165 12.4 Sanctions 114 15.1 Ensuringthe quality of Overview of legislation, 14 12.5 Appeals 117 approval and oversight 129 guidance, and tools in countries 170 DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 7 List of tables TABLE 1 TABLE 12 TABLE 23 Overview of characteristics Actions to address outstanding Good practice concerning of different carbon pricing issues identified in the acceptance of verifiers across instruments 29 verification report 69 borders 111 TABLE 2 TABLE 13 TABLE 24 Considerations for selecting Defining the rules for verification 72 Surveillance and oversight not to verify 37 TABLE 14 of verifiers 113 TABLE 3 Defining the rules on verifiers TABLE 25 Considerations for voluntary, and verifier personnel 77 Type of sanctions 115 partly mandatory, and mandatory TABLE 15 TABLE 26 verification 39 Cost categories for verification Appeals processes for different TABLE 4 during implementation and approval systems 117 Entities involved in V&A systems 43 operation of the system 79 TABLE 27 TABLE 16 TABLE 5 Defining the rules for approval Acceptance of verifiers from Documents involved in and oversight 118 other schemes or countries 80 V&A systems 44 TABLE 28 TABLE 17 TABLE 6 Competence requirements for Training approaches to ensure Activities to be carried out in oversight body and personnel 121 availability of qualified verifiers 81 V&A systems 45 TABLE 29 TABLE 18 TABLE 7 Impartiality of oversight body Approaches for ensuring Roadmap for setting up the quality of the verification and personnel 122 V&A systems 48 outcome 85 TABLE 30 TABLE 8 TABLE 19 Key organisational and Verification at different stages Stakeholder engagement on procedural requirements 124 of CPIs 52 an ongoing basis 90 TABLE 31 TABLE 9 TABLE 20 Defining the rules for approval Types of verifiers 54 Options for approving verifiers 96 and oversight bodies 125 TABLE 10 TABLE 21 TABLE 32 Levels of assurances 62 Considerations for choosing Cost categories for approval types of entities for approval 101 and supervision of system 127 TABLE 11 Options for addressing TABLE 22 TABLE 33 misstatements and Options related to supervision Approaches for ensuring the noncompliance issues 67 and oversight systems 102 quality of approval and oversight 130 8 List of figures FIGURE 1 FIGURE 13 FIGURE 24 Structure of the guidance 30 Steps in designing requirements Example timeline for ensuring for verifiers and personnel 74 timely approval 127 FIGURE 2 Overall MRVA compliance FIGURE 14 FIGURE 25 framework 32 Elements in implementing a Elements in managing approval verification system 78 and oversight systems 129 FIGURE 3 FIGURE 26 Validation vs. verification 33 FIGURE 15 Sliding scale of direct control of Typical frequency of verification 162 FIGURE 4 training governance & delivery 81 FIGURE 27 Mandatory, voluntary, or Example timeline for a no verification? 36 FIGURE 16 Elements in managing a verification starting after the FIGURE 5 verification system 84 end of the reporting period 163 Decision tree: key choices for FIGURE 28 rules in V&A systems 41 FIGURE 17 Example timeline for a Step by step through approval 94 FIGURE 6 verification starting during Stakeholders in different CPIs 42 FIGURE 18 the reporting period 163 Elements in designing an FIGURE 7 approval system 95 Step by step through verification 50 FIGURE 19 FIGURE 8 Sliding scale of direct control Key choices in designing a of governance & delivery of verification system 51 verifier approvals 100 FIGURE 9 FIGURE 20 Typical application of Defining requirements for an international standards 58 approval system 107 FIGURE 10 FIGURE 21 Elements in designing the Activities in the approval process 108 verification system 60 FIGURE 22 FIGURE 11 Steps in designing requirements Activities in the for oversight bodies and their verification process 64 personnel 120 FIGURE 12 FIGURE 23 Implementation of Elements in implementing verification plan 66 approval and oversight systems 126 DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 9 Definitions Accreditation Calibration that might be in place to mitigate them. The The formal recognition by an authoritative In measurement technology and metrology, accounting data flow covers all elements and body of the competence of an organisation this is the comparison of measurement values steps from the generation of primary data (for and/or individuals to work to specified delivered by a device under test with those of example, at a meter or laboratory sample) standards and awarding a status or a calibration standard of known accuracy. through all stages of information consolidation qualification to perform a particular activity. and manipulation (for example, databases or In the context of this guide the term Maintenance and calibration of measurement spreadsheets) through to final output reporting. accreditation is reserved for approvals under instruments is key to reducing the level of the ISO process guided by the International uncertainty in the primary data used for GHG Lead assessor Accreditation Forum and delivered by emissions calculations. A person who is given the overall recognised accreditation bodies. All other responsibility for the assessment of the Control risks verifier and its personnel (see also Assessor). processes are referred to as ‘Approval’. These are risks that any quality assurance and/or quality control processes that have Lead auditor Approval been implemented to mitigate identified An auditor in charge of directing and Different types of recognition processes that inherent risks are not functioning effectively supervising the verification team who is are used to grant a verifier the necessary (that is, are absent, not being implemented, or responsible for performing and reporting on confirmation that it meets the requirement to have broken down) and risks of misstatements the verification of an obligated entity’s report. carry out verification and is entitled to do so for are therefore not detected and/or prevented by a specific programme. The different types of Legal system the obligated entity. recognition processes are indicated in part C. The legal regime of a country consisting Downstream entities of several legal instruments: a constitution, Assessor Entities that are regulated at the point of primary legislation (statutes) enacted by A person assigned by a verifier oversight combustion where emissions are released the legislative body established by the body, individually or as part of a team, to in the atmosphere. constitution, secondary (implementing) perform the assessment of the verifier and legislation (bylaws) made by a person or its personnel. Fiscal bodies authorised by the primary legislation Relating to government revenue, taxes, or to do so, customs applied by the courts Assurance other controlled financial matters. For example, on the basis of traditional practices, and A formal declaration following examination of ‘fiscal metering’ is quality controlled metering principles or practices of civil, common, evidence intended to give confidence to the used for invoicing of fuels, such as gas oil and Roman, or other code of law. users of reported GHG data and information. gas. The control process is usually part of The level of assurance intended is determined legislation for ‘national metrological control’. Level of assurance as part of the scope of work or in the CPI rules. The degree of confidence the intended user Inherent risks may require (or may place) on the GHG Auditor These are risks of misstatements that are statement based on historical information. An individual (natural person) conducting the inherent to an element of the accounting validation or verification work (as opposed to data flow under consideration without taking Materiality a legal person or organisation – see verifier/ into consideration the effect of any quality The concept that individual or the aggregation verification body). assurance or quality control processes of misstatements are significant enough to 10 potentially affect the GHG statement and Project Design Document Validation influence the way that intended users take A document that outlines the essential Systematic, independent, and documented decisions based on the data. The concept is technical and organisation aspects of a process for the ex ante evaluation of a product, used when designing validation/verification and project activity. It describes the project project, programme, service, or system sampling plans and in evaluating the verifier’s activity, the approved baseline methodology against agreed validation criteria. Validation conclusions resulting from the verification/ applied to the project activity, and the looks forward at how obligated entities will validation work in order to determine the nature be monitoring and reporting emissions and/or approved monitoring methodology applied of the opinion to be provided. determining emission reductions. to the implemented project. This document is submitted to the CPI approved validator Midstream entities Verifier for validation against the crediting The legal entity/organisation approved Entities that are regulated at the point of refinement (distributers or electricity CPI’s relevant baseline and monitoring to conduct validation and/or verification generators). methodologies. For CDM the validator is a activities – sometimes called the Verification ‘designated operational entity’. Body.1 The verifier employs or sub-contracts Misstatements the individual auditors that conduct the Errors, omissions, and misrepresentations in Programme of Activities detailed work. the data reported by the obligated entity. The coordinated implementation of a policy, measure or goal that leads to emission Verification Monitoring Plan reduction under the CDM (or other CPI if Systematic, independent, and documented A plan which outlines how an obligated entity specified in the rules), often combining process for the ex post evaluation of emissions should monitor and report its emissions dispersed activities or emission sources or emission reductions against agreed or emission reductions. This plan usually (instead of one central project site). verification criteria, such as a project design contains monitoring boundaries, quantification document, monitoring plan, and requirements methodologies and data collection, and Scope of approval in standards or legislation. Verification looks quality assurance procedures. Activities for which approval of verifiers is backwards to historical information and aims sought. Usually these are the specific sectors to provide assurance that a product, project, Obligated Entity programme, service, or system has complied or activities covered by the CPI. The entity, organisation, facility, project with specified regulations, requirements, or developer, or person that is required by the imposed condition(s). Technical expert CPI legislation to participate or comply with Person who provides specific subject matter- regulatory monitoring and reporting obligations. related detailed knowledge or expertise to Oversight Body the assessment or verification team to The entity that is recognised by the relevant support their work. CPI as responsible for ongoing monitoring of performance of verifiers (and individual auditors, Upstream entities as relevant), ensuring that they maintain their Entities that are regulated under the carbon competence, impartiality, and quality of delivery pricing mechanism at the point of supply. The of verification activities. This might include initial entities must pay tax or submit allowances at or approval of verifiers and auditors. near the point of supply of carbon-based fuels. Note 1 » In some CPIs, individual lead auditors can also do the verification on their own without being part of a verification body or being a legal entity. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 11 Abbreviations AER Annual Emission Report FAQ Frequently Asked Questions PMR Partnership for Market Readiness AO Airline Operator GHG Greenhouse Gas PoA Programme of Activities BAU Business-as-usual GHG RP Greenhouse Gas Reporting REDD Reducing Emissions from Program Deforestation and Forest CA Competent Authority Degradation GWP Global Warming Potential CCEV Compliance Cycle Evaluation RGGI Regional Greenhouse Gas IAF International Accreditation Forum Initiative CCOC California Compliance Offset – the global forum for ISO based Credits National Accreditation Bodies UNFCCC United Nations Framework Convention on Climate Change CDM Clean Development Mechanism ISAE International Standard on Assurance Engagements V&A Verification and Approval/ CDP Carbon Disclosure Project Accreditation 2 ISO International Organisation for CEMS Continuous Emissions Monitoring Standardisation – an independent, VCS Verified Carbon Standard System nongovernmental, international VCU Verified Carbon Unit body comprising 162 national CO2e CO2 equivalent – the emissions standards bodies from all Greenhouse Gases VR Verification Report (GHGs) are converted to a JI Joint Implementation common base expressed in CO2e using an agreed Global Warming JNR Jurisdictional and Nested REDD+ Potential (GWP) for each gas MLA Multilateral Agreements CoI Conflict of Interest MP Monitoring Plan CPD Continuous Professional Development Mechanisms M&R Monitoring & Reporting CPI Carbon Pricing Instrument MRR Monitoring and Reporting Regulation DOE Designated Operational Entity MRV Monitoring (or Measurement), EA European Co-operation for Reporting, and Verification Accreditation MRVA Monitoring, Reporting, ETG Emissions Trading Group Verification, and Approval ETS Emissions Trading System NAB National Accreditation Body EU ETS EU Emissions Trading System PDD Project Design Document 12 Note 2 » See text on page 13 ‘Accreditation’ vs. ‘Approval’ Although the ‘A’ in the terms MRVA and V&A is often used to denote ‘accreditation’, in the context of this guidance the term ‘accreditation’ is reserved for formal ISO based accreditation through recognised accreditation bodies. Throughout this guidance document the term ‘approval’ is used as an umbrella term to indicate different types of processes that are used to issue a formal statement to a party that it is allowed to carry out validation or verification. This can either be qualification, accreditation, certification, recognition, or registration of the party carrying out the validation or verification. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 13 Synthesis: setting up a V&A system 14 Understanding assessed and these parties get official opinion on that data report will be SYNTHESIS permission to verify emissions under a submitted to the regulator responsible for the compliance specific CPI. It is one of the checks and receiving these reports under the CPIs. balances that can be put in place to framework ensure that the outcome of verification Once verifiers have been granted activities is sufficiently robust. the approval to carry out verification Carbon pricing instruments (CPIs) activities, it is important to continue involve large legal and financial interests. Verification looks backwards at the data monitoring their competence in a Trust in the accuracy and integrity of the that has been generated, collected, supervision process. The more robust reported data is therefore a prerequisite and monitored according to validated these processes are, the more trust the for a well-functioning instrument. To (‘approved’) plans (where applicable) and public and market participants have in the ensure accuracy and integrity of data, requirements over the reporting period. competence and independence of parties a robust monitoring, reporting, and doing verification and, consequently, in verification (MRV) system is essential. After verification, the data report that the quality of the outcomes of verification Verification is critical to enhance trust in is being verified together with the and the data being used for legal and/or a carbon pricing system. Where systems verification report that gives the verifier’s trading purposes. have large financial implications, participation is voluntary, or international exchange of units is planned, this trust is paramount for successful FIGURE A.  Overall MRVA compliance framework implementation. This guidebook aims to help regulators to better understand Starting point their options in designing a verification system tailored to their specific needs Validated project Obligated or monitoring plan / entity monitors and circumstances. The guidance: Requirements emissions • Provides an overview of available options and discusses their Regulator Obligated implications on resources and communicates entity drafts corrective action credibility of the system; if required report Verification activities • Helps to avoid missing important elements and making common mistakes that will increase cost of the system or reduce trust; Verifier Report and verifies report • Allows understanding of trade- verification report and issues submitted to offs and how systems can develop verification regulator report over time. In any type of CPI, the obligated Oversight Eligible entity applies entity is required to monitor its verifiers sanctions if emissions according to a plan or required legal requirements. At the end of the monitoring period the monitored emissions have to be reported. Oversight Information entity approves Approval Verification is an independent check exchange verifier activities on the quality of these reported Document data and the compliance with CPI Verification specific requirements. Approval3 is Oversight a process by which the competence Approval entity supervises verifier of parties carrying out verification is M&R Source: authors NOTE 3 » The ‘A’ in the terms MRVA and V&A is used in to carry out validation or verification. This can either be guidance, is reserved for formal ISO based accreditation this guidance for the term ‘approval’ which is an umbrella qualification, accreditation, certification, recognition, through recognised accreditation bodies. term to indicate different types of processes that are used or registration of the party carrying out the validation or to issue a formal statement to a party that authorises it verification. The term ‘accreditation’, in the context of this DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 15 Introducing the FIGURE B.  Steps to set up a V&A system design process Key concepts in verification and approval Setting up the V&A system starts with STEP 1 Determine whether or not to verify an evaluation of design options for the PART A given CPI and planning of the activities STEP 2 Understanding factors that influence V&A system design Getting started to be carried out in the design and implementation process (getting started). STEP 3 Define roadmap and plan stakeholder engagement In designing the V&A system, policy makers take into account factors like PART B Verification system PART C Approval system policy objectives, environmental targets to be achieved, the type of CPIs, the Designing the type of Designing the approval STEP V1 STEP A1 verification system and overnight system country’s available resources, the legal and institutional structure(s), and the Designing the Designing requirements Design STEP V2 STEP A2 policy maker’s long-term plans for verification system for approval evolution of the CPI. Defining requirements Designing requirements STEP V3 STEP A3 for verifiers for oversight bodies Implementing the V&A system involves the identification of measures to facilitate implementation, such as the development of guidelines, resources implications, and the approaches to Implementation of the Implementation of the ensure sufficient verification resources STEP V4 STEP A4 approval and oversight verification system system and competent verifiers. Finally, it is Implementation important to manage the system on an Ongoing management Ongoing management ongoing basis to ensure verifiers and STEP V5 of the verification STEP A5 of the approval and system oversight system oversight bodies remain competent and the system is of high quality. Source: authors FIGURE C.  Decision tree: key choices for rules in V&A systems Getting started Upstream or Based on existing No verification To verify or not to verify? fiscal rules system midstream Existing rules The first choice in V&A for policy makers insufficient Verification system is to determine how accurate they want Carbon with domestic rules Downstream (or need) the emissions data to be as this tax Self-verification No verification, decision defines many of the options that Intl. standards and institutions can help to enhance but inspection & need to be selected – to verify or not, efficiency of setting up domestic systems Automatic data enforcement systems Domestic rules generation and if so, to what level of confidence for Verification system the user of the data? All other cases with domestic rules Not all CPIs have a mandatory verification Crediting Commonly Bilateral system. Some carbon tax systems have mechanisms agreed rules Intl. standards simple monitoring requirements that Domestic system based are based on fiscal rules; in that case, Linking to on international standards verification is not needed as the reports other ETS Self-verification receive basic checks from tax authorities. No verification, but inspection & Emission Automatic data enforcement systems In this first step, policy makers will trading Domestic only generation consider some of the key elements Verification system All other cases with domestic rules impacting the design of the V&A system Source: authors as shown in figure C. 16 Stakeholders to be involved FIGURE D.  Stakeholders in different CPIs SYNTHESIS To set up the V&A system it is important for policy makers to plan the design and Emission trading Carbon tax systems implementation steps in a timely way and to consider: • Policy maker • Policy maker • Regulator implementing the CPI • Company household • When to engage with the various stakeholders in the process. • Company or reporting entity • Tax authority consisting of various facilities/ Stakeholder engagement can take operator of an individual installation • Verifier/individual auditor place in the design process but also or facility/aircraft operator • Party approving verifiers in the implementation phase while • Verifier/individual auditor (oversight entity) evaluating legislation or discussing • Party approving/supervising • Party supervising verifiers practical implementation issues; verifiers (oversight entity) (oversight entity) • Specifically, who to engage with, the • Party enforcing rules level of participation, and priorities for engagement; Offset mechanisms • Different approaches to stakeholder engagement; PROJECT-BASED SCALED-UP • Project developer/implementor/project • Sector associations • Communication lines between policy participant makers, regulators, and stakeholders. • Jurisdictional host (regulators, policy • Project host (location country or owner enforcers in city, region) etc.) (e.g., Designated National Authority) The type of stakeholder involved depends • Designated operational entity (DOE)/ on the CPI itself and the way the V&A • Designated operation entity (DOE)/ verifier/individual auditor Verifier/individual auditor system is structured. Relevant stakeholders • Party approving DOEs/verifiers/ include obligated entities, verifiers, • Party approving DOEs/verifiers/auditors auditors (oversight entity) regulators, and oversight bodies approving (oversight entity) • Party approving/supervising DOEs/ and supervising verifiers; for CPIs that • Party approving/supervising DOEs/ verifiers/auditors (oversight entity) include trading, relevant stakeholders could verifiers/auditors (oversight entity) include market traders and lawyers that structure contracts and the like. Source: authors Setting up key considerations for decision making of monitoring and reporting system, and how systems can evolve over time. available resources, the legal and the verification Which options are selected depends on institutional structure, and the country’s policy objectives, the type of CPI, type plans for the CPI. system FIGURE E.  Step by step through verification Setting up a verification system requires policy makers to take a broad range STEP V1 STEP V2 STEP V3 STEP V4 STEP V5 of decisions. This guide groups these Type of Design of Requirements Ongoing decisions into five steps as illustrated verification verification Implementation on verifiers management system system in figure E. The steps are highly linked, and it is important to ensure that an DECISION ON: DEFINITION OF: ENSURING: ENSURING: ENABLING: integrated approach is taken that fulfills • When to verify? • Verification • Competence • Availability of • Quality assurance the desired objectives of the CPI. principles resources • Type of verifier? • Impartiality • Ongoing capacity • Scope • Supporting development • Selection and • High-quality infrastructure For each of the steps, different elements payment • Level of processes • Information assurance exchange need to be considered and often a range • Rules for verification • Materiality of options is available. The sections Source: authors • Specifics in below outline these options and discuss the verification process DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 17 STEP V1 implementing the CPI verifies the 2. Regulator pays from specifically data report and checks compliance raised funds The type of verification system with the programme specific requirements; 3. Obligated entity selects and pays If verification for the CPI is required, the verifier the next decision is on when to 2. Verification by an independent require verification (at what stage) : expert hired by the regulator: 4. Obligated entity provide funds institutes or experts are hired to collectively pay for a pool of 1. Verification can be used for the design through consultancy projects, verifiers of the CPI: for example, on data used procurement services, or nominated to set a cap or baseline for calculation as preferred experts by the regulator The way a CPI is set-up needs to ensure of allocation of allowances for an and carry out verification activities that the appropriate time is allocated emission trading scheme, to create a on behalf of the regulator; to individual verification activities baseline for a crediting mechanism, or regardless of the ‘fee rate’ determined to set carbon tax rates and baselines 3. Verification by an approved third- as appropriate. Policy makers need for a carbon tax system. This is party verifier: an organisation that to make provisions for that in the important given the financial interests is independent from the regulator legislation. In the early years, a selection involved with CPIs. In the beginning and other parties (that is, the and payment model may be chosen in it may be difficult to get data for the organisation does the verification which government agencies can exercise design of the system and to have it and takes responsibility for the greater control. Over time, selection and verified. However, this can evolve into conclusions and the decision to payment can shift from the government more stringent requirements once the issue a verification report); to the obligated entity encouraging them CPI is up and running. to take more responsibility for the quality 4. Verification by an approved of their own data. 2. Policy makers can decide to require individual independent auditor: verification for the operation an individual person instead When designing the verification of the CPI: to increase the public’s of an organisation (that is, the system and selecting the options confidence on the accuracy of data individual takes responsibility for available it is important for policy makers used as a basis for surrendering the conclusions and the decision to assess how they want to embed the emission allowances, imposing a to issue an opinion statement). selected design options in legislation carbon tax, or issuing credits for and how the legal frameworks and offset mechanisms. The type of verifier model can evolve over rules should be formed. The legal time. In the early years or a pilot phase, framework consists of: For both these stages (verification for it could be that policy makers choose the design of the CPI and verification for to select option 1 or 2 in order to have • primary legislation, the highest the operation of the CPI), policy makers more control over the verification system legislation in a country or region, that need to decide at what frequency the and to build up sufficient competent provides the legal basis for the CPI verification is carried out. This can either verifier resources. Over time a CPI and the associated V&A system; be regularly at set intervals, on demand, usually evolves toward option 3 which or based on predetermined milestones. is the most common model applied in • secondary legislation, delegated Verification for the design of the system CPIs researched for this guide. There or subordinate legislation that will usually be a determined by the length are however also CPIs that use option 3 incorporates more detailed of trading periods or other milestones for from the start as they want to align with requirements for the V&A system. the review of basic design data. During other schemes, link, or choose to apply operation of emission trading schemes recognised international standards. When designing the legal framework and carbon tax systems there is usually policy makers can make the choice an annual cycle of emissions reporting. Highly linked to these options is of whether or not to prescribe In offset mechanisms there is often no the choice policy makers need to international standards on specific frequency set. make on who should pay the verifier. verification such as ISO 14065. Different choices can be made which International standards can support A key decision for policy makers to are influenced by the extent to which the harmonised procedures between make is the type of verifier that regulator wants to have direct control verifiers and mitigate differences will do the verification. Different over the verifier and how the regulator between verifiers in competence and options can be distinguished: wants to ensure impartiality of the verifier: verification approaches. International standards are recognised as accepted 1. Verification by the regulator: 1. Regulators pays from their normal global ‘best practice’ and can thus the regulator responsible for public budget increase the quality and robustness of 18 verification overall. Where international therefore good practice to develop the of verification activities required to SYNTHESIS standards are prescribed, it is still M&R and V&A rules at the same time. reach ‘reasonable’ assurance is much important to create CPI specific more extensive. The effort involved with requirements in domestic legislation Another key concept is the reasonable assurance is considered to because international standards are core level of assurance the verifier be high. Most CPIs apply a ‘reasonable’ frameworks applicable to all types of applies in the verification. The level level of assurance. CPIs. Primary and secondary legislation of assurance relates to the degree will include, in those cases, a reference of confidence the regulator wants to Materiality is a key concept for to relevant international standards as have in the accuracy of the reported the planning of the verification and well as specific interpretations in the data. By specifying a particular level of the assessment of whether misstatements4 domestic legislation. When international assurance, the verifier is given direction or noncompliance issues, individually or standards are prescribed, policy on the depth and breadth of verification when aggregated, have a significant effect makers should be aware that some activities that it conducts. For CPIs, on the reported data. During verification, choices in the verification processes policy makers generally require a high the verifier assesses the likely risks of or competences will be predefined by level of confidence because financial misstatements and noncompliances with the standard. If, for example, ISO 14065 decisions are involved. For general requirements and any likely material effect on the verification of environmental environmental reporting that is used to these have on the reported data. In other information is applicable, certain show trends, a less detailed assessment words, is there a high risk of misstatement requirements on the competence of may be needed for the policy maker to or noncompliance occurring and would a verifier are mandatory. have the necessary confidence in the they result in invalid data if not corrected? data. Policy makers can choose between When assessing this, the verifier looks at a limited level of assurance and a the size of the misstatement (quantitative reasonable level of assurance. A ‘limited’ aspect), the nature of the misstatement/ level of assurance requires less detailed noncompliance, and the specific STEP V2 verification activities but a higher risk circumstances (qualitative aspect). Both that a misstatement or noncompliance aspects have to be taken into account Design of verification system will be missed. The depth and breadth by the verifier. The scope of verification is determined by the tasks the FIGURE F.  Activities in the verification process verifier must perform and the expertise required to achieve the objective of Start verification cycle verification. Policy makers need to be aware that the design of the CPI and the associated M&R system can have Preparation an impact on the scope of verification. Application of specific methodologies, Outstanding issues identified such as continuous emission during verification Next year’s verification measurement technology as compared to calculation-based methodologies Understanding mean that the verifier would have to the entity/project activity do different checks. Sectors, type of The verification process is emission sources, GHG gases, fuels, based on risk Confirming data Issuing and materials covered by the CPI will assessment entered into verification Risk analysis determining the impact the competencies required for registry report extent and detail of verification verification. If a CPI requires obligated activities entities to have a formal documented monitoring plan or project design plan Independent Verification describing the boundaries and monitoring review plan methodologies of an obligated entity, this provides a framework for the verification. Furthermore, defining strict rules on Findings and Implementation quality assurance and quality control verification of verification report activities procedures to be applied by an obligated Addressing misstatements entity can facilitate the verification. Policy and non- makers should take these into account conformities Source: authors when designing the MRV rules. It is (correction/ clarification) NOTE 4 » Errors, omissions, and misrepresentations in the reported data DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 19 For quantitative materiality a STEP V3 STEP V4 threshold needs to be defined in relation to the reported data. If that threshold Requirements on verifiers Implementation of is exceeded the misstatement is verification system material. This is also true if the identified The verifier and its personnel misstatements are aggregated and the involved in CPI related verification Policy makers have to arrange materiality threshold is exceeded. The need to be competent to carry out for the resources that are qualitative aspect of materiality is assigned tasks. Competence is not only needed by the regulator and other particularly important for misstatements about education, knowledge, and skills relevant parties in order to carry or noncompliances below the materiality but also about the application of these out their activities. Costs can be threshold. To determine this the verifier elements to carry out relevant verification incurred by regulators in delivering considers several factors: for example, tasks. The type of competence implementation and enforcement likelihood of reoccurrence, duration of requirements that a verifier should of the CPI, by the obligated entity in the issue, refusal to correct. meet depends on the specific sector monitoring and reporting emissions, by scope in which the verifier is carrying verifier oversight bodies in conducting Materiality is important for policy makers out verification. Verifiers are required to approval and oversight processes, and to understand because: undertake active measures to ensure by verifiers in conducting their work. A competence of their personnel involved distinction can be made between human 1. They may want to define the in verification activities. and financial resources and if costs materiality threshold in the are one-off or recurring. Policy makers legislation (quantitative aspect); Another key requirement is will have to consider the costs to the impartiality of the verifier. relevant stakeholders and arrange for 2. They may want to define in Crucial to any robust verification system sufficient resources in-house, either at a legislation that the verifier should is that the verifier must be independent policy-making level and/or a regulatory also take into account the of the obligated entity whose report or or implementing agency level of qualitative aspects ; project activity is being verified. Risks to government to design, implement, and impartiality can arise from the revenue maintain the verification management 3. It is important to understand that generated by the verifier, direct or system. This requires a direct link materiality should not be defined indirect financial self-interest, familiarity with the budget of the agency or as a tolerance band for obligated which threatens objectivity, and from government department responsible entities; any misstatement and open or secret intimidation of verifiers or for implementation. noncompliance issues need to be individual auditors. Measures to ensure corrected. If it is not possible to impartiality can range from absolute Another important aspect in the correct the issue, the verifier will prohibitions on carrying out verification implementation of the verification assess the material impact of that for certain obligated entities to allowing system is ensuring that there are issue on the reported data; a conflict of interest under certain sufficient competent verifiers in conditions or in certain circumstances. the field. At the start of a CPI it can 4. It enhances understanding of the A common aspect across CPIs is that be a challenge to arrange for enough meaning of verifier’s opinion verifiers are required to take active competent verifiers needed to deliver the statements (verifier’s declaration on measures and implement safeguards required work. Policy makers can make the accuracy of the data). A material to avoid conflicts of interest and risks choices in the design of the approval misstatement or noncompliance to impartiality. system to facilitate the number of prevents a verifier from giving competent persons; they can also take a positive verification opinion Where the use of international specific measures to ensure competent statement, meaning the reported standards such as ISO 14065 and persons are available: data are declared to be unreliable. ISO 14066 is prescribed in the CPI rules, the competence and impartiality 1. Accept verifiers from other The verification process consists of requirements laid down in such CPIs or countries (approved for different interconnected activities as standards are directly applicable. Similar verification by authorities of the illustrated in figure F. To understand how requirements apply to CDM verification other scheme; or ISO accredited). to set up a well-functioning verification on which some countries have based Accepting verifiers from other system, it is important for policy their domestic offset mechanisms. schemes or allowing ISO accredited makers to be familiar with the activities Policy makers should be aware that, verifiers is usually applied when carried out by the verifier. It supports even if these international standards countries do not have many harmonisation if the key steps and apply, it is still important to specify in the resources, the scheme is small, or activities are specified in legislation. rules any CPI specific requirements on it is not possible to get sufficient competence and impartiality that apply. competent national verifiers in time. 20 However, this option can also be Where the regulator is not the same parties is often cascaded internally by SYNTHESIS chosen if the regulator decides to entity as the oversight body that the verifier to their auditors. have an open verifier market. approve and supervise verifiers, there are additional approaches that a  Finally, information exchange 2. Set up training programmes : regulator can implement to ensure high can be a means for regulators and For training programmes, resource quality and have more direct control verifier oversight bodies to keep a needs depend on how much control over the system. In these cases, the close eye on the V&A process whilst the regulator wants to have over regulator can monitor the quality of not duplicating efforts. Information the training. The more control the verification by checking the quality exchange can be organised on both an regulator wants to have, the more and consistency of reported data informal and formal basis (embedded elements of the training process are and verification outcomes. There are in legislation or institutional structures). delivered by regulators. different options available: If multiple regulators are involved in implementation of the CPI, it is good Experience has shown that 1. Basic checks on reports practice to arrange more formal the legislative framework and information exchange lines to ensure key specific legislation outlining the verification 2. Detailed checks on a sample of information is shared. It usually helps system need to be supplemented with reports if there is a central coordinator that more detailed guidance and other can liaise between relevant authorities. implementation measures or tools. 3. Detailed checks on all submitted Templates for information exchange can These elements facilitate the consistent data and reports support communication. implementation of the verification system. Examples include: 4. Option 2 or 3 combined with checks on verifiers internal working papers • Guidance to clarify the requirements and documentation of legislation Setting up the 5. Reverification • Templates for monitoring plans approval system (if applicable), data reports, and 6. On-site inspection by the oversight verification reports body or regulator If a decision is taken to implement a verification system, it is important to • Checklists and tools, examples or Which option is selected depends on the define how and by whom verifiers will Frequently Asked Questions level of direct control the regulator wants be approved and supervised. Decisions to have on the quality of verification and around how to set up, implement and run • IT system or web-based platforms on the available resources of a country. the approval system are also grouped IT systems can facilitate this process. into five steps. These are illustrated in • Regular update training, installing a This is also an aspect that can evolve figure G. central helpdesk, and so on. over time. When designing and implementing Ongoing management can also the approval and supervision system be achieved by continuing different options are available which are to organise training and to keep outlined in the sections below. Which STEP V5 on engaging with stakeholders. option is selected depends on different Continued engagement with stakeholders factors such as policy objectives, the Ongoing management of the can be done by organising annual type of CPI, the available resources, the verification system meetings, ongoing stakeholder working legal and institutional structure and the groups, or other mechanisms, such as country’s plans for the CPI. In any case Once the verification system virtual platforms and ad hoc meetings. policy makers should be aware that a is implemented and operational, A key factor to consider is that it is not selected option may have an impact it is important to monitor the quality only useful for regulators to organise on how the system is subsequently of verification and of the verifiers to these various trainings on a regular structured. The sections below also ensure that the parties involved in basis. Verifiers should also be required provide some information on how the verification continue to be competent and to provide internal training and updates. system can evolve over time and how independent. Ongoing management of the If international standards are applicable, a policy maker can go from one option verification system is normally carried out such internal training is a required to a more robust option as the system by oversight bodies that supervise the element of the continued competence is place for a longer period of time. continued competence and performance process that verifiers must establish. of verifiers and their auditors. Training organised by regulators or other DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 21 FIGURE G.  Step by step through approval In some CPIs both the verifiers and each individual auditor STEP A1 STEP A2 STEP A3 STEP A4 STEP A5 need to be directly approved. This is Design approval Requirements often called ‘dual registration’. In this Requirements Ongoing & supervision for oversight Implementation process the oversight body evaluates for approval management system bodies the processes, documentation and DECISION ON: DEFINITION OF: ENSURING: ENSURING: ENABLING: competencies of the verifier as a whole • Approval/ • Activities to be • Competence • Timelines are • Quality and assesses all individual auditors. oversight carried out in feasible assurance Both the verifier and the individual • Impartiality approaches approval • Availability of • Information auditors will receive a qualification under • High-quality • Involved • Acceptance of resources exchange processes institutions verifiers across a dual registration system. Most CPIs • Supporting & roles and borders that have a dual registration system also infrastructure responsibilities • Supervision have separate sanctions for verifiers • Rules for • Enforcement Source: authors and auditors. In a dual registration approval scheme it is good practice to define clear criteria for the approval of verifiers and control but does not have to conduct individual auditors. STEP A1 all activities itself. This reduces the associated resource requirements making Once the approval system is in Type of approval and use of relevant expertise that they may place and verifiers are approved, supervision system not possess. In some cases international it is important to monitor and law or the application of international supervise them on an ongoing basis One of the first decisions policy standards will predefine the choices for to ensure that they retain the required makers should make when the approval structure (for example, CDM capability. Several options exist: considering an approval and supervision requiring CDM accreditation). system is the approval structure. 1. Review of emission data and Several choices are available: The different options outlined can also verification reports be used to develop the system over time. 1. Approval by the regulator based on Simpler procedures such as under option 2. Training and reexamination assessment of documents submitted 1 may be applied at the early stages of a by the applicant and/or examination CPI, developing into more extensive and 3. Assessment of updated of individual auditors robust approaches as described in options documentation 2, 3, or 5. However, most mature CPIs 2. Approval by the regulator based on include some form of verifier performance 4. Assessment of internal verification witnessing of actual performance of assessment (including witnessing on site). documentation the verifier and its auditors The next choice to be made is 5. Document review, office visit and 3. Certification by an authorised what type of oversight body witness audit personnel certification body of should be selected: that is, whether this individual auditors should be an existing or new institution. The extent to which the regulator wants In some cases the approval structure to have direct control over the ongoing 4. Recognition by an authorised influences the decision of policy makers. supervision of verifiers is an important institute or supranational authority If the approval structure is an ISO factor in determining the design of the not under the ISO standards accreditation by a recognised accreditation system. Ongoing supervision normally framework (such as CDM) body it makes sense to select existing needs to be done by the same party that accreditation bodies within a country. approves the verifiers. If approval and 5. Accreditation by an accreditation body Furthermore, for countries that have limited supervision is not conducted by the same according to relevant ISO standards resources using existing institutions can party, it is good practice to consider clear help reduce costs. However, even where an rules in legislation on the responsibilities The extent to which the regulator wants existing institution is used, it may need to of the different parties involved and to have direct control over the approval develop or adapt existing procedures and formal information exchange. process is an important factor in internal rules to accommodate CPI specific determining design of the approval system. requirements. Most oversight bodies have The choice for a specific type of A regulator having full control will carry public authority. If this is the case it can supervision is in most cases strongly out all approval activities itself. A regulator affect the verifier approval process and linked with the type of approval system relying on other bodies to carry out the rules that may be applicable to the selected. Options 3, 4, and 5 above approval and supervision has less direct approval and oversight of verifiers. regarding the approval system will 22 involve a document review, visit to the FIGURE H.  Activities in the or to open up the market. If verifiers from SYNTHESIS verifier’s offices, and witnessing of approval process other regions, countries or other CPIs are individual auditors on site. In general, accepted, it is good practice to: this is not the case for options 1 and 2 Define scope which only include document review. • Confirm that the foreign verifier is accredited or meets other eligibility When designing the approval criteria; and supervision system and Request for approval selecting from the options available it is • Require foreign verifier to meet the important for policy makers to assess same competence requirements as how they want to embed the selected national verifiers; Assess design options in the legislation and how eligibility the legal frameworks and rules should • Inform verifiers about domestic rules Renewal of approval be formed. The oversight structure needs and requirements; to be embedded in a strong legislative Prepare framework with primary and secondary assessment • Support compliance with national legislation to ensure that approval and requirements by allowing technical supervision is carried out in accordance translators/interpreters to be used with the rules and that there is sufficient Conduct by the verifier; legal basis for imposing sanctions by the assessment oversight body on a verifier. The rules for • Supervise foreign verifiers (with or the approval and supervision system are without separate national registration normally developed together with the rules Issue Decision on or acceptance process). certificate approval for the verification system as these are closely connected. The same observations Once the verifier is approved by Source: authors on the decision to apply international an oversight body, that body standards and their use in domestic should supervise and continuously context can be made for the approval and • Whether, and what sector scopes assess verifiers. The type of approval supervision system. should be established for which the system determines the type of verifier can request approval in a supervision system as well as the CPI. In most CPIs, sector scopes are activities that are carried out during defined closely linked to the sectors the supervision system. A key element covered by the CPI. Each sector in all of the options for supervision is STEP A2 scope requires different technical the frequency of oversight. Policy skill sets from a verifier; makers should define the frequency in The design of the approval and legislation. The objective of supervision supervision system • What documents to provide for the is to check whether the verifier is approval of verifiers, depending complying with the applicable legislation. When designing the basic principles on the approval structure and CPI Where noncompliance issues are not and requirements for approving and requirements; corrected, further investigation is done supervising verifiers, choices can be by the oversight body and follow-up made in the specifics of the approval and • Whether to require eligibility criteria of outstanding issue(s) is required. supervision activities. In order to make for verifiers and auditors; This could mean further investigation the appropriate decisions policy makers or ultimately imposing sanctions. It is need to be familiar with the concepts • How to conduct an assessment: essential for ongoing surveillance to and processes of the approval and what checks to carry out, what document all actions taken, evidence oversight of verifiers and/or auditors. procedure to follow, and how collected, as well as findings. to assess the competence and The approval process consists of performance of auditors; Part of the supervision system several steps that are interconnected and is the ability for the oversight interdependent. Although the basic steps • Content and validity of an body to impose sanctions on are largely the same in most CPIs, the type approval ‘certificate’. verifiers that have not complied with the of approval process affects the specifics applicable rules. Different sanctions can of the various steps and the precise Policy makers need to decide be distinguished: activities to be carried out in the process. on whether to accept verifiers Choices can, for example, be made on: from another CPI, region or country 1. Suspension : The verifier’s approval to ensure sufficient competent verifiers is maintained but the verifier is DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 23 temporarily not allowed to carry out STEP A3 large group. In particular, if the oversight verification activities in full or for body assesses the performance of part of the scope of approval. After Designing requirements on verifiers, personnel involved in that termination of the suspension the oversight entities assessment need to have detailed verifier is again allowed to carry out knowledge to be able to do actual verification. Once the objective and key assessment of the verifier properly. concepts of the approval and 2. Withdrawal of the certificate supervision structure have been Another key concept is the or registration : The approval is defined, it is important to design and impartiality and independence canceled in full which means that the define requirements related to of the oversight body and its verifier loses its ‘licence to operate’ the oversight body and personnel personnel. The oversight body should and cannot carry out any verification involved in approval and supervision be independent from the verifier. For activities. themselves. Personnel involved in example, the oversight body must have approval and supervision of verifiers no relations with the verifier (that is, not 3. Reduction of scope: The approval should be competent to carry out their owning shares in the verifier company, is canceled for part of the scope assigned tasks. Competence is not only not being in top management). Oversight which means that the verifier loses about education, knowledge, and skills bodies’ policies and procedures should its ‘licence’/certificate to operate in a but also about the application of these be nondiscriminatory for all parties. This particular sector scope but maintains elements to carry out relevant activities. does not mean that there cannot be the approval in other scopes for eligibility criteria for the approval of the which it has approval. As the oversight body evaluates whether the verifier; however, these criteria must be verifier is capable of assessing the M&R for applied fairly and equally to all parties. 4. Fines. obligated entities, this means that personnel involved in approval and supervision of All personnel that could influence the 5. CPI specific sanctions, such as verifiers should have knowledge and approval and supervision process must imprisonment in case of serious understanding not only of the V&A system act objectively, be impartial, and be free fraud, blacklisting, and so on. but also of the requirements of the M&R from commercial, financial, or other system. It depends on the approval pressures that could cause risks to the In most cases a sanction would have and supervision structure what specific impartiality of the oversight body. It is immediate effect once the decision competence requirements apply for good practice that persons involved in the is made to impose it. Normally this is personnel carrying out these activities. If the evaluation of verifiers do not take the final regulated in national legislation, as this approval of a verifier consists of a training decisions on approval of verifiers. makes it is easier to enforce and there and examination, different criteria apply is more legal certainty. In most CPIs to where the oversight body assesses the Where standards such as ISO 17011 are more than one option is implemented in verifier’s performance during the verification applied, it should be noted that these legislation. itself. Technical experts can support (lead) are programme neutral standards. They assessors on specific subject matters (for set out a framework for control but do Once a penalty is imposed it is essential example, language and technical issues, not specify every detail. This means to exchange related information with the such as GHG accounting, understanding that if policy makers want to cover regulator,5 the public, obligated entities, of metering equipment, or laboratory specific competence and impartiality and other stakeholders. requirements). requirements this needs to be included in the CPI legislation, design, and/ In general appeals can be Oversight bodies should be required to or rules. The creation of such rules is launched if an oversight body undertake active measures to ensure the recommended so as to ensure that the takes a decision: for example, a decision competence of their personnel involved approval and supervision is tailored to to impose sanctions or a decision whether in approval and supervision activities. the application of CPI rules. or not to approve verifiers. It is good It is good practice for oversight bodies practice to have clear communication and to organise periodic update/refresher legal rules on appeals, procedures, training of personnel involved in approval and legal effects of appeal decisions. and supervision of verifiers. One of Legal rules should regulate in which cases the main challenges encountered in STEP A4 appeals can be raised, the timelines for the majority of CPIs is in arranging for procedures, the requirement for oversight qualified personnel to evaluate verifiers. Implementation of approval bodies to set up procedures for appeal, Lessons learnt show that it is better to and oversight system and requirement to exchange information intensively train a select group of persons on the outcome of appeals with relevant to carry out assessment at the start of the To ensure proper implementation, stakeholders. CPI rather than giving basic training to a policy makers should make sure NOTE 5 » Where that regulator is different from the 24 oversight body that is imposing a sanction that the timelines for approving verifiers The oversight body’s staff involved in the it is important to monitor the quality SYNTHESIS are feasible and that approvals of verifiers approval or supervision of verifiers needs of approval and oversight. Measures can be delivered in a timely way within to be trained in a timely way on how to ensure ongoing quality or approval the overall programme time frame. When to assess verifiers and their personnel. and oversight include: designing the approval system, policy Where new institutions are set up makers should be aware that a verifier more training may be necessary. For 1. Information exchange between needs to be approved sufficiently far in existing oversight bodies it is necessary oversight bodies and other parties. advance of the verification report needing to train existing staff on CPI specific to be submitted to the regulator to give elements, in particular the specific MRV 2. Regular training of personnel the obligated entity confidence that they requirements. It is important to spend involved in the approval and can comply with rules on verification. sufficient time on informing oversight oversight. They need to be kept bodies on the CPI specific elements. informed of updates in the CPI The design of the approval system specific rules. determines what timelines could be Arranging for qualified trainers and appropriate. The timeline for an approval getting sufficient competent experts to 3. Monitoring of the oversight system where only documentation support oversight bodies may be difficult body. This is usually done by the submitted by the verifier is reviewed at the start of a CPI. This is particularly policy maker that has established or an examination is held is likely to be true if the actual performance of verifiers (or recognised) the oversight body. shorter than the timeline for an approval is assessed. Mechanisms to facilitate system where a document review, visit this process include hiring experts 4. Peer review: on a regional or to the verifier’s offices and witnessing from existing mandatory environmental international level. This may include of an audit at work on site is planned reporting programmes or technical an assessment organised by a (full scope approval, see figure J for an institutions, and peer-to-peer knowledge regional or international organisation example timeline). sharing between CPIs. Countries can whereby different bodies peer review also get support from international a particular oversight body and The oversight body and its projects that help national governments evaluate its procedures, processes personnel need to be in setting up CPIs. and competencies. This is a required sufficiently prepared. This means that step for ISO accreditation. the policy maker has to arrange for the Where a country has decided to accredit human and financial resources that verifiers under the ISO framework, it is The approval structure can determine are needed for the oversight body to carry recommended that the accreditation body what option is taken. ISO accreditation out the approval and supervision activities. of that country becomes a member of the usually involves a peer review of The type of resources needed depends International Accreditation Forum and the accreditation bodies whereas a simple strongly on the choices that are made in relevant regional accreditation networks. information structure in general will the design of the approval and supervision follow less extensive options. In some system. Less resources are required for Experience has shown that CPIs a combination of options is used. an approval and supervision system that the legislative framework and This can be a situation that evolves over is based on document review and/or specific legislation outlining the approval time. However, this is not necessarily the examination than for a system in which the and supervision system need to be case. If the policy maker wants to have actual performance of the verifier will be supplemented with more detailed control over the quality of approval and tested in witness audits of its personnel guidance and other implementation oversight, more rigorous monitoring can and visits to the verifier’s premises. measures or tools. Measures also be done from the start. facilitating implementation are similar to In addition, the institutional framework those for verification. Because of the links Good cooperation and information for oversight bodies needs to be set with verification, such supporting tools exchange can be a means for regulators up. Existing institutions may only need are usually developed together. and oversight bodies to keep a close to adapt procedures and processes to eye on the V&A process. Information accommodate CPI specific requirements: exchange can be organised on an for example, competence criteria, new informal and formal basis (embedded assessment criteria, new checklists, and in legislation or institutional structures). new criteria for imposing sanctions. For STEP A5 This is crucial if sanctions are imposed new institutions quality management by an oversight body or if the regulator procedures, appeal procedures, Ongoing management of the has identified issues in their normal procedures for imposing sanctions, approval and supervision system work processes that are relevant for and so on need to be designed and the oversight body to know about a implemented. This may require additional Once the approval and supervision particular verifier. resources and time to set up. system is implemented and operational, DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 25 Be aware that verification is a Define the contents of the Minimum risk-based tool consisting of steps verification report : these are often that are interlinked: an obligated based on international standards and requirements entity with low risk may require need to reflect key issues identified less extensive verification whereas during the verification consistent with for setting up a complex obligated entities have the CPI design; generally higher risks and could verification system lead to more extensive verification. Define specific rules related to Similarly, two identical operations verifier’s site visit(s) and consider may have distinctly different levels the possibility of allowing waiver of Define the scope of verification: of verification risk depending on site visits under certain conditions; the boundary and tasks involved in the way they are managed and the the verification. The more complex the approach they take to account for Recognise the timeline needed to CPI is, the more detailed and complex their emissions; deliver verification so that verifiers (or the scope of verification may be; regulators) can properly plan training Set minimum requirements to ensure competent personnel; Define the level of assurance to be for verification: for example, delivered: this is essential for the design requirements for the verifier to Define requirements on the of verification activities. Most CPIs allocate sufficient time to deliver all competence and impartiality apply a ‘reasonable’ level of assurance; verification activities, requirements for of the verifier and of individual obligated entities to provide certain auditors: both concepts are essential Define a materiality threshold information to the verifier; the verifier’s in a robust V&A system and CPI that the verifier can use to plan risk analysis; what checks to carry specific requirements are needed; the verification and to assess out during verification; key principles the significance of errors and of sampling, recording information, Define procedural requirements noncompliance issues. Materiality and evidence in internal verification for verifiers, including requirements is not a tolerance band for reporting, work papers; requirements for on confidentiality of information, it is a decision-making tool for obligated entities to correct errors quality assurance, and control the verifier; and noncompliance issues; procedures. Ensure a level playing field : eligibility criteria, sanctions that can Minimum where verifiers from other CPIs be imposed against infringements, or other countries are accepted, criteria for performing the requirements for the importance of informing them assessment, contents, and validity about domestic rules is important of the approval certificate, frequency setting up the to ensuring that these verifiers of supervision, reapproval of verifiers, are supervised and that action competence, and impartiality of approval system can be taken if these verifiers are personnel involved in the approval noncompliant. It is good practice and supervision. for a foreign verifier to meet the Define the entities involved : same competence requirements as consider that the use of existing national verifiers. This process can be institutions and structures may help facilitated by the use of international to reduce costs; standards and the application of the ISO Multilateral Agreements which Design effective training : ensure enables mutual recognition that staff within the oversight body are of accredited verifiers; properly trained in a timely manner; Set minimum requirements for Ensure timely approval : timely documentation : it is important planning of the approval process to set minimum requirements on ensures that there are sufficient documentation to be provided competent verifiers in the field; as part of a request for approval, 26 1 Introduction DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 27 Carbon pricing is an important This is a guide8 on verification of at a maximum allowed level. Each instrument in addressing climate reported data and the approval of participant needs to have sufficient change. This aims to factor in the cost parties carrying out such verification in emission ‘rights’ or ‘allowances’ to to society caused by harmful emissions the context of CPIs. The guide provides cover its emissions. It can achieve – known as external cost. A number advice to policy makers, government this by either reducing emissions of different instruments are available officials, and practitioners that are in in-house or by buying allowances to policy makers to put a price on the process of, or are contemplating, on the market from participants with carbon. Which one is most appropriate setting up and implementing verification excess allowances. in a given context will depend on a and accreditation/approval systems variety of factors.6 Across the world a (V&A systems). This section provides • Carbon tax: the regulator (directly or number of countries have implemented, information on: indirectly) imposes a levy on emitters are preparing to implement, or are of CO2 (or GHG) emissions, which contemplating introducing some form • the type of CPIs that are covered in increases the cost for those emitters of carbon pricing instruments (CPI).7 this guidance; and potentially for downstream Robustness and credibility of data are parties, such as consumers. key elements of all such systems. • the objectives and scope of the Emission reduction measures taken guidance; and voluntarily result in lower emissions Carbon pricing instruments (CPIs) and hence lower cost. involve large legal and financial interests. • further explanation of the structure Trust in the accuracy and integrity of the and visual elements guiding the • Crediting mechanisms : unlike reported data is therefore a prerequisite reader on the use of different emissions trading or taxes, which for a well-functioning instrument. To sections of the document. put a price on emissions, crediting ensure accuracy and integrity of data mechanisms reward activities that a robust monitoring, reporting, and reduce emissions compared to a verification (MRV) system is essential. (historical or projected) emission Verification is critical to enhance trust in baseline. The earned credits can a carbon pricing system. Where systems Overview of 1.1 be sold on the market to entities have large financial implications, that can use them for compliance participation is voluntary, or international carbon pricing with voluntary targets or mandatory exchange of units is planned, this obligations. As a result, the trust is paramount for successful instruments emissions of the buyer are allowed implementation. This guidebook aims to be equivalently higher than in the to help regulators to better understand The most common CPIs are emissions absence of the purchased credits. their options in designing a verification trading schemes, carbon tax systems, These mechanisms are often based system tailored to their specific needs and offset crediting mechanisms9. These on individual projects or sets of and circumstances. The guidance: three instruments are the prime focus of projects, but could also be operated this guidance, and their characteristics on a broader sectoral or policy • Provides an overview of available can be explained as follows: basis, often referred to as ‘scaled options and discusses their up’ crediting mechanisms. As the implications on resources and • Emissions trading : in an emissions requirements for V&A are similar to credibility of the system; trading system, the emissions of a project-based crediting, they are not group of participants are capped distinguished in this guide. • Helps to avoid missing important elements and making common mistakes that will increase the cost Throughout the guide icons will be used to indicate the type of information of the system or reduce trust; provided. The icons for individual types of CPI are used in cases where information is specific to a particular CPI. Where no CPI icons are used, information is applicable across CPIs and applicability may depend on other factors. • Allows understanding of trade-offs and how systems can develop over time. Emission trading Carbon tax Crediting mechanisms Note 6 » For discussion of these factors, see, for example: Note 7 » For more information see: World Bank; Ecofys. Note 9 » Note – throughout this document the terms Partnership for Market Readiness (PMR). “Carbon Tax “State and Trends of Carbon Pricing 2018.” World Bank, offset mechanism and crediting mechanism are used Guide: A Handbook for Policy Makers.” World Bank, May 2018. https://openknowledge.worldbank.org/ interchangeably March 2017. https://openknowledge.worldbank.org/ handle/10986/29687. handle/10986/26300; Partnership for Market Readiness Note 8 » This guide is based on the practical experience (PMR). “Emissions Trading in Practice: A Handbook on of the authors and survey respondents; where it draws on Design and Implementation.” World Bank, 2016. https:// information related to a specific jurisdiction the legislation openknowledge.worldbank.org/handle/10986/23874. 28 and associated documents are listed in Annex 14. Effective policy instruments need to process for checking the data and the is carried out, how MRV systems are be credible and trusted, in particular if application of methodologies that led designed, and how rigorous they need to economic consequences are involved to these data. Ex ante validation of be in terms of quality assurance through as is the case with CPIs. This means carbon accounting methodologies and regulators, verifiers, or both. Some of INTRODUCTION that the underlying data needs to be ex post verification of reported data are the systems being developed across accurate. Accuracy can be largely important aspects of a CPI. the world are based on internationally achieved by a robust monitoring and recognised standards, while others are reporting (M&R) scheme. However, it The way a CPI is set-up determines how more nationally orientated. also requires a robust and transparent the monitoring, reporting and verification TABLE 1.  Overview of characteristics of different carbon pricing instruments Carbon Pricing Incentive for GHG instrument reductions Level of MRV required Financial flows Nature (Potentially) Increased cost Robust to ensure Between participants in Mandatory10 of emitting, determined by compliance, in particular the scheme or on the open Emission cap on amount of allowed if multiple and complex market trading GHG emissions sectors are involved Increased cost of emitting Depending on whether tax From entities to regulator Mandatory is levied upstream (fuel import) or downstream Carbon tax (consumers) Financial reward for GHG Robust to ensure Between participating Mostly voluntary11 emission reduction compliance in particular for entities (including ETS/tax Crediting larger projects obligated entities that can mechanisms use credits) Objectives and 1.2 or Verified Carbon Standard since there is choices for designing and existing guidance that provides sufficient implementing such a system. A scope of guidance information on these systems.14 key factor in designing a system is a proper understanding of how This guide is intended for policy makers This guide aims to provide practical verification is carried out, including: and government officials responsible for advice on the steps that need to be setting up and implementing verification taken to design, implement, and manage – what common principles apply; and approval (V&A) systems for CPIs. The an appropriate V&A system for a CPI. focus is on implementation of domestic The objectives of the guidance are to: – which institutions to involve; V&A systems but includes insights on how international standards can be applied • Highlight commonalities and – what rules to develop; in a domestic context. This includes differences between existing V&A information on how a country can build systems; – what activities are conducted; on international standards and what a country needs to consider to be able to • Outline steps needed to design – what to consider concerning conform with international standards, legislative and institutional competence and impartiality of if these are applicable. This guide does frameworks for V&A in CPIs; parties doing verification. not provide specific guidance on the V&A systems for Clean Development • Provide guidance on what is • Provide guidance on what is needed Mechanism (CDM)12 or voluntary crediting needed to design and implement to design and implement a system to mechanisms such as the Gold standard13 a verification system and available approve and qualify verifiers, including: Note 10 » Note that voluntary systems also exist, but offsets on the market that were either created through Note 13 » Further information can be found on: they are usually less effective as there is limited incentive CDM or in the voluntary market. In most cases https://www.goldstandard.org/project-developers/ to buy emission units in such a system, i.e., it would have participants have a choice to participate in the scheme. standard-documents sellers but no/few buyers, therefore limited trade and low However, this may not always be the case. Note 14 » Further Information can be found on: carbon prices. Note 12 » Further Information can be found on: http://verra.org/project/vcs-program/rules-and- Note 11 » Offset crediting provides opportunities for https://cdm.unfccc.int/Reference/Standards/index.html requirements/ participants to offset their emissions by purchasing DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 29 – how approval of verifiers is set-up FIGURE 1.  Structure of the guidance and implemented; Key concepts in verification and approval – how to organise ongoing supervision of verifiers; STEP 1 Determine whether or not to verify PART A – which institutions to involve; STEP 2 Understanding factors that influence V&A system design Getting started – what rules to develop; STEP 3 Define roadmap and plan stakeholder engagement – what activities are carried out in an approval and ongoing supervision PART B Verification system PART C Approval system mechanism; Designing the type of Designing the approval STEP V1 STEP A1 – what else to consider when verification system and overnight system designing a system. Designing the Designing requirements Design STEP V2 STEP A2 verification system for approval Where differences exist in the V&A systems for specific CPIs, this is Defining requirements Designing requirements highlighted in the guidance. It is noted STEP V3 STEP A3 for verifiers for oversight bodies that mandatory or voluntary greenhouse gas reporting programmes are often used to monitor and report data or as an initial point of data collection to establish ‘baselines’ for forthcoming CPIs. Implementation of the Implementation of the STEP V4 STEP A4 approval and oversight This guidance is also relevant for such verification system system programmes. Similar principles also apply Implementation to verification of international transactions. Ongoing management Ongoing management STEP V5 of the verification STEP A5 of the approval and system oversight system Source: authors How to read 1.3 the guidance engage stakeholders and considerations discuss them separately for verification for determining the roadmap for design and approval : identifying the type of Section 2 first introduces the key and implementation of the system. system, designing and structuring the concepts in V&A, including the overall system, designing system requirements, compliance and governance framework, Part B and part C of the guide break and implementation and ongoing the role of V&A, and some definitions down the design and implementation management of the system. and concepts fundamental to the design activities into five main steps and of V&A systems. This step-by-step guide is then structured into three subsequent parts Where options are available to policy makers and practitioners, these as illustrated in Figure 1. options and their implications are outlined to support decision making regarding design, implementation, and management of a V&A system, indicated through this icon. Part A Getting started. This focuses on understanding whether a V&A system This guide also provides information on options to improve the system over time, discussing what constitutes minimum requirements for the is necessary; what form it can take; initial phases of a CPI and which requirements can be developed when and how the type and set-up of the strengthening the system over time. Where the guidance explains how CPI influences this (section 3). It also choices may affect further development of the V&A system and what a highlights which factors impact design policy maker needs to consider, you will see this icon. of the V&A system and the stakeholders Throughout the guide, case studies, experiences, and lessons learnt from involved, as well as their roles and countries or regions that have an operational V&A system for a CPI are responsibilities (section 4). Section provided, marked by this icon. 5 then provides guidance on how to 30 2 Key concepts in verification and approval DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 31 For a CPI to function effectively, reliable FIGURE 2.  Overall MRVA compliance framework and accurate data are needed to know how much carbon tax can be imposed, Starting point how many emission allowances should be surrendered,15 or how many credits can be Validated project Obligated or monitoring plan / entity issued. Reliable and accurate data can be Requirements M1 achieved by designing and implementing Monitor a robust monitoring, reporting, verification, emissions and accreditation/approval (MRVA) V4 system. In this section we explain: R1 Communicate Draft monitoring corrective Monitoring report action • The key elements of a MRVA system report that underpin a CPI; Regulator Verification activities • The general concepts of V&A; Verification report V1 • The added value of V&A. V3 Verify report and Check reports issue verification report V2 Key elements of a Submit reports to regulator 2.1 MRVA compliance system Verifier Eligible verifiers list A1 Approve Information In an MRVA compliance system, exchange emissions16 are monitored over a period of time, generally called the reporting (or A2 Approval crediting) period (see action M1 in Figure Supervise activities 2). The monitoring of data is carried out Document by the obligated entity according to CPI Entity specific monitoring methodologies and Verification action A3 quality control requirements as well as Oversight Sanctions Approval action in some CPIs a validated monitoring entity Other action plan or project plan. At the end of the reporting period, a report is compiled Note » For an explanation of the different elements Source: authors (R1) containing emission (and potentially (and letters used), see the description in the text. emission reduction) data as well as underlying data substantiating these.17 verifiers. The verifier will be incorporated in the form of a verification report The report is verified (V1) by an in a list of eligible verifiers from which an which includes an opinion statement on independent party, the verifier, which obligated entity can choose. The oversight whether the reported data are accurate must have the appropriate permission or body will also supervise verification (A2) and compliant with the requirements. ‘licence’ to carry out such verification. In and impose sanctions on verifiers in cases Both the reported data and the general this ‘licence’ is obtained through of noncompliance with requirements (A3). verification report will be submitted an approval process (A1) by a designated (V2) to the regulator responsible for oversight body responsible for approval, The verifier will communicate the results implementation of the CPI. Good oversight, and supervision of those of its work to the obligated entity, usually practice for a robust MRVA framework Note 15 » In emission trading schemes emission reductions are calculated by subtracting the monitored Systems for Corporate/Facility-Level Reporting.” World allowances equivalent to the verified reported emissions actual emissions from the baseline emission level (e.g., Bank, 2016. https://openknowledge.worldbank.org/ must be surrendered in the registry before a certain CDM, JI). In carbon tax systems fuel consumption (or handle/10986/23741?locale-attribute=es; Partnership deadline. One emission allowance is equal to one tonne production, import, and sale) are monitored and used for Market Readiness (PMR). “Guide for Designing of CO2 emitted. to calculate the tax obligations. Denmark, Sweden, and Mandatory Greenhouse Gas Reporting Programs.” France, for example, do this on the basis of the Excise World Bank, 2015. https://openknowledge.worldbank. Note 16 » Note that ‘monitoring of emissions’ here can Movement and Control System. For more information, org/bitstream/handle/10986/21981/Guide%20For%20 refer to the monitoring of fuel, energy and material use, please see: PMR. “Carbon Tax Guide,” 142. Designing%20Mandatory%20Greenhouse%20Gas%20 from which emissions are then calculated. It can also mean Reporting%20Programs.pdf?sequence=1&isAllowed=y. that emissions from flue gas are directly measured in the Note 17 » For additional information on M&R see, for stack of a facility by a continuous emission measurement example: Partnership for Market Readiness (PMR). 32 system. In some offset mechanism projects, emission “Greenhouse Gas Data Management: Building is that the regulator performs additional deliverables. The section also indicates Defining verification checks (V3) on submitted reports such where in the guidance the choices are Verification is the systematic, as completeness checks or cross checks discussed in more detail. independent, and documented process with other data. Issues identified in the for the ex post evaluation of emissions verification report or in the regulator’s or emission reductions against agreed review should be followed up by the verification criteria such as a project obligated entity or the verifier depending design document, monitoring plan, and What is KEY CONCEPTS on the finding (V4). The extent to which 2.2 requirements in standards or legislation. this is organised depends on the level of verification In literature, third-party verification control that the regulator wants to have is an external process where the on the quality of verification. assurance is performed by person(s) and approval from an independent entity or an independent auditor, while second-party The verified data are subsequently used as the basis for trading and surrendering of verifiers and verification is an external process (for example, verification of a supplier where emission allowances in an ETS system,18 why are both there is a relationship between the two to impose tax in a carbon tax system or parties). First-party (self) verification to issue credits to participants in an offset is an internal process performed by a project or scaled up crediting mechanism. important? person(s) from within the obligated entity that is independent of the area being audited. In addition, regulators can carry This whole cycle of monitoring, reporting, The concept of verification out verification (this is not considered verification and approval of verifiers is third-party verification). called the MRVA compliance system. Verification is an independent check Independent in the context of this of reported data, among other guidance means that the verifier is not Each stakeholder involved in an MRVA requirements. This is different from part of the entity that is generating compliance system is responsible validation. Whereas validation looks the emissions data (that is, the for specific actions, documents, and forward and is an evaluation of proposed ‘obligated entity’) or any party that is deliverables. Policy makers need to methodologies, monitoring plans or associated with it in terms of emissions quantification (for example, consultants). be aware of the available options and project design documents against recognise that choices can impact requirements in legislation or standards, the design and implementation of verification looks backwards at the data the system. Section 4.3 provides an that has been generated, collected, To check the accuracy of the data the overview of decisions that need to be and monitored according to validated verifier will assess the whole data flow, taken related to these stakeholders, (‘approved’) plans and requirements over following each specific step in that specific actions, documents, and the reporting period. data flow from primary source data (via calculations, conversions, and other data processing19) to final reported output. FIGURE 3.  Validation vs. verification In addition, compliance is checked with the programme rules, approved • Forward-looking methodologies, and, where relevant, • Focus: methodologies for the implementation of project plans or Validation monitoring and for setting monitoring plans20 validated by regulators baselines / calculating emissions reductions or independent third parties. In some CPIs Pre-monitoring period Post-monitoring period the regulator responsible for receiving Monitoring period the data report does some checks on the report, but this is not verification. In • Backward-looking Verification verification the verifier conducts detailed • Focus: reported data checks on the data and checks compliance with the requirements in a much more Source: based on training material by Planet & Prosperity Ltd extensive way than basic sense checks on the emission report by the regulator. Note 18 » In an emission trading scheme emission Note 19 » Data processing: any activities that are allowances equivalent to verified emission allowances must necessary to move from primary source data to final be surrendered. Surplus of emission allowances can be reported data: e.g., any mathematical calculations/ sold whereas a shortage of emission allowances means that conversions that are done on primary data to convert it to the company has to buy emission allowances from another the required output parameters for reporting. participant in the ETS scheme or on the open market. Note 20 » In some CPIs a monitoring plan or project design document validated (approved) by the regulator or independent third party is prescribed. The verifier will check against the plan or document in that case. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 33 Verification can take different forms Importance of a robust obligated entities, and other market and can be applied in various ways for V&A system participants in the functioning of different CPIs (see section 6). Because the CPI and avoids any perception of these differences the requirements MRVA is the backbone of a well- of conflict of interest on behalf of for verification can vary depending on functioning CPI. As a CPI usually involves a regulator, particularly where they the design of the CPI, and its specific large financial interests, trust in the both approve an entity’s monitoring purpose, and may differ even within one accuracy and integrity of the reported plan and conduct audits of the data programme. data is an essential requirement. A generated from implementation of robust V&A system has the following the approved plan. It also enhances The concept of approval and benefits: the trust of participants that they are supervision of verifiers treated equitably and fairly. • Improved reliability: Verification An important factor for ensuring the is an independent check on • Avoid fraud : Verification is an quality of verification is the question compliance with the CPI specific effective tool to avoid fraud as it of who monitors those doing the requirements. The quality of output involves an independent check verification. This is a key aspect of data is checked by the verifier as on the data on the basis of formal quality assurance of data used in CPIs a function of the completeness, evidence. and is covered by a process of initial accuracy, and consistency of the approval and continuous supervision of input data, so V&A improves the • Avoid double counting and verifiers. accuracy of output data. increase transparency of the data : A robust verification system In an approval process a regulator, • Access to resources and will be an effective mechanism to accreditation body, or other oversight know-how: Regulators often do ensure accuracy of data. body assesses the competence, not have the necessary resources impartiality, financial stability, and and competencies to assess risks Various checks and balances can be performance of the verifier. If that in the data flow of an obligated put in place to ensure the outcome assessment is positive, the approving entity participating in a CPI; to of verification activities is sufficiently body will recognise this by issuing, check their quality management robust, including the quality of the for example, a ‘licence’ for the verifier systems and procedures; or to approval and supervision process to carry out verification in a particular evaluate the technical aspects of of verifiers. The more robust these sector or multiple sectors covered by sampling, laboratory analysis, and processes are, the more trust the a CPI. Such an approval process and measurement instrumentation that public and market participants have in formal recognition gives the wider may form the basis of reported data. the competence and independence of public confidence that the verifier is A check by experienced third parties parties/persons doing verification and, independent from the obligated entity, can be an effective way to gain therefore, in the quality of the outcomes is competent, and has no conflicts of access to such expertise to support of verification. interest. Continuous supervision of the identification of errors in data as that verifier by an oversight body will well as noncompliance issues. subsequently ensure that the verifier remains competent, financially stable, • Enhanced trust : Verification by and independent, and continues to independent and competent parties comply with legislation. increases the trust of the public, 34 Part A Getting started DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 35 3 STEP 1 Determine whether or not to verify One of the first choices confronting FIGURE 4.  Mandatory, voluntary, or no verification? policy makers is whether or not to require verification for a CPI. Not all Plus fiscal rules No verification CPIs have a mandatory verification 1 Upstream / system. Some CPIs have voluntary midstream verification or require verification only Operational phase No fiscal rules when the obligated party applies a specific monitoring methodology. In some cases verification is not needed at Carbon Domestic CPI rules Mandatory tax 4 verification all. Figure 4 outlines different options for Downstream verification requirements: if verification is Aligned Combined with ETS or required at all, if it should be voluntary or to relevant crediting mechanism CPI rules mandatory. The tables then discuss the reasons for taking a particular option and No verification its impacts. The numbers in the figure 1 reflect the options in the tables which Pilot phase provide more information and examples Voluntary 2 verification of where different options are applied. Partly Apart from the two cases illustrated Emission Exceptions for mandatory trading scale or method 3 verification here, Table 2 discusses a few other Operational situations where policy makers may phase Mandatory select not to verify. General applicability 4 verification For use under Mandatory the UNFCCC* 4 verification Voluntary Pilot phase 2 verification For use in ETS systems Offset Mandatory Operational phase mechanisms 4 verification Voluntary Based on domestic rules 2 verification For voluntary use Based on intl. standards Mandatory 4 verification Source: authors * ‘For use under UNFCCC’ means that the offset Note » option numbers refer to the options presented mechanism is based on rules largely determined in Table 2 and Table 3 internationally: i.e., currently through the CDM (likely to build on that for future mechanisms under the UNFCCC). This could thus also include domestic offset mechanisms that are using CDM rules. 36 TABLE 2.  Considerations for selecting not to verify When is this option Option considered appropriate? Important considerations Examples Simple set-up of carbon • In a carbon tax system the regulator Carbon tax systems in European 1 tax system responsible for receiving the report countries do not have a verification has to assess it and check whether system as most carbon tax systems No verification Upstream or midstream tax; the fuel sales correspond with the are midstream or upstream, and Monitoring is based on fuel sales; report. data are determined based on fuels GET TING sales underpinned by financial STARTED The fuels sales are subject to • The policy maker should arrange for accounting systems. The tax authority existing mechanisms for checking resources within the tax authority does basic checks on tax reports accuracy; to check the data and monitor unless a discrepancy is found and WHETHER TO VERIF Y compliance of the obligated entities. further investigation is initiated. In a Monitoring is in that case very • Instructions need to be developed few cases checks are done as part simple and its accuracy guaranteed INFLUENCING on how to check tax reports. of financial or energy audits, for FACTORS by these mechanisms; 21 Checklists can help this process. example, if participants want to apply The carbon tax is not linked to an for a refund of the carbon tax. offset mechanism; 22 • Legislation needs to include roles STAKEHOLDERS & ROADMAP and responsibilities of stakeholders, Basic checks by a tax authority data that need to be reported, are sufficient to guarantee high instructions on how to calculate accuracy of data. the tax and consequences if there is noncompliance, applicable sanctions. Self-verification or self- • The regulator needs to have high Under RGGI25 the obligated entity certification combined with strict confidence in the quality and must designate a representative within enforcement robustness of the CEMS or quality the company for certifying, signing control. This means that the system and submitting the GHG report. The The monitoring methodology and must meet stringent requirements emissions are monitored continuously quality assurance is robust; 23 on calibration which must be by a CEMS in the stack. Electronic There is high confidence of checked by the regulator in the quarterly reports are submitted to compliance by the obligated entity; inspection/ enforcement regime. the Environmental Protection Agency (EPA) using an EPA provide software There is a strong inspection and • CEMS can be expensive and is not tool. Certification is carried out before enforcement policy implemented by always appropriate for determining reports are electronically transmitted. the regulator. the emissions. Examples of where a The EPA uses quarterly report data to CEMS may be appropriate are power assess compliance, by comparing each Such an option does not provide the station or refinery flue stacks24. unit’s reported CO2 mass emissions same confidence as verification by an • The strict enforcement regime against the number of allowances held. external party. should not only include periodic The EPA’s Greenhouse Gas Reporting inspection but also a strict penalty Program (GHGRP) tracks facility-level and enforcement regime. emissions from the largest sources • Usually not suitable for countries of greenhouse gas emissions in the where: United States: generally facilities emitting more than 25kt from stationary – companies have limited combustion and a variety of process resources; sources. There are strict requirements on the quality assurance. The regulator – confidence in the accuracy of decided that additional verification by data is not high; or an independent party was not needed, – retrofit of CEMS to old facilities given the strong enforcement policy often cannot be demonstrated to performing ad hoc facility audits. If the meet accuracy requirements. company is noncompliant significant penalties can be imposed. (continued on next page) NOTE 21 » If this is not the case, the monitoring and Note 23 » E.g., monitoring data that is measured by a and there are a number of smaller flues it is unlikely reporting will be more complex, and verification is continuous emissions monitoring system (CEMS) under to be cost effective to fit a CEM system on each flow necessary to achieve the necessary confidence in the the obligated entity’s control is automatically transferred specifically for carbon accounting. accuracy of the data from a CEMS to the regulator responsible. Note 25 » U.S. Regional Greenhouse Gas Initiative Note 22 » If linked to an offset mechanism, the system Note 24 » CEMS measure the CO2 content of output is likely more complex with multiple sectors covered and flue gases such as those in power station chimneys and more complex monitoring and reporting mechanisms. refinery flue stacks where output gases are consolidated Verification is necessary to achieve the necessary into a single flow. Since CEMS are expensive to install confidence in the accuracy of the data. and operate, where output gases are not consolidated DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 37 (Table 2 continued) When is this option Option considered appropriate? Important considerations Examples Automatic generation of emission • The external system should be Small aircraft operators in the EU report without input from highly reliable and regulators need ETS emitting less than 25kt CO2 obligated entity to have high confidence in the per year can opt to have an emission quality and robustness of data from report automatically generated from The data report of the obligated the ETS Support Facility provided by the external system. This means entity is automatically generated EuroControl. This system contains that the system must meet stringent from an independent external flight data, can calculate emissions requirements on quality assurance system or source that is not under and generate emission reports and control; and be an independent control of that company. automatically from the system. The data source that cannot be The data report generated by that manipulated by the obligated entity. operator can download a report and system or source is submitted to submit it to the regulator without • Usually applies to simple alteration. Verification is not needed the responsible regulator without programmes and smaller entities in that case. Data comes directly from any changes or input from the where the data can be generated the system without any input from company concerned. from an external source. the aircraft operator. The regulator also has access to the ETS Support Facility and cross checks whether data in the system is the same as that in the report. Testing the system in pilot phases • The regulator checks the data reports. In pilot phases compliance of obligated entities may not be (fully) • Usually the regulator has high enforced as it is considered a period confidence in the compliance of the to test the system. company. Voluntary participation in CPI • In general applied to facilities Tokyo Cap and Trade System : that are small or medium sized medium sized and small facilities are In some CPIs smaller or medium- and are less essential for meeting not required to reduce their emissions sized facilities can voluntarily environmental targets and for which with the cap and trade system. participate in the CPI. Verification is costs can be prohibitive. Verification is not required for these then not always required. facilities. • The regulator checks the data reports 38 TABLE 3.  Considerations for voluntary, partly mandatory, and mandatory verification Option Possible reason(s) for adoption Important considerations Examples Voluntary reporting processes Voluntary verification is used for many The mandatory reporting 2 reporting mechanisms which use programme in the UK aims to get Can be used where the reporting companies to identify information that GHG/emissions/energy accounting. Voluntary requirement is not linked to a Typically these processes use the triggers internal discussions around verification regulatory carbon trading GHG Protocol Corporate Accounting the level of emissions and what can mechanism or equivalent process for be done to manage or reduce them. and Reporting Standard and/or the GET TING which high accuracy is required. Making GHG reporting a part of the STARTED ISO 1406426 series of standards as the basis for reporting and assurance. annual financial report and accounts The reporting organisation can usually means that it has to go through the WHETHER choose which particular monitoring Board review process for sign off for TO VERIF Y methodology will form the basis of its publication. This ensures that emissions reporting and assurance (if it chooses information is seen by the senior INFLUENCING to have its report verified). management and that the aggregated FACTORS information is available to shareholders. However verification is not obligatory as STAKEHOLDERS it is not essential that the data be highly & ROADMAP accurate, and reporting may include elements of the company’s footprint for which data collection parameters and quality may be highly uncertain. Carbon Disclosure Project (CDP) : Submission of verified emissions to CDP gains the reporter additional ‘points’ in the CDP process when their submission is evaluated. Mandatory verification for • Policy makers need to be clear on • Tokyo Cap-and-Trade System : 3 specific entities or application of the type of entities that would fall verification is mandatory for the methodologies under this obligation. Legislation large facilities where consumption Partly needs to include criteria for what of fuels, heat and electricity in the mandatory This covers a situation where parties are required to monitor previous fiscal year is 1,500 kL verification verification is only required for a and report and under which or more in crude oil equivalent. particular type of entity in the CPI or Those facilities are required by circumstances verification is where the obligated entity chooses legislation to monitor, report, and required. Policy makers need to to apply a specific monitoring verify emissions and emission set the rules in such a way that methodology for which verification is reductions. Smaller and medium- competitive distortion or perverse required. size companies can choose to incentives are avoided. Careful consideration needs to be given participate in the CPI and in that to placing a cost on some entities case they do not have to carry out and not on others, particularly if verification. treating companies in the same • New Zealand ETS : verification industry differently could have an is required only if a unique (site impact on their ability to compete. specific) emission factor is applied • The environmental objectives which requires sampling and and targets of a CPI determine analysis of the fuel. If a default which entities are covered by emission factor is used, verification the scheme and which entities is not required. Detailed checks on should be required to monitor and reported data will in that case be report and have their emissions or carried out by the regulator. emission reductions verified. • Where verification is required only if a specific monitoring methodology is applied, robust internal validation and quality controls should be applied. Policy makers should have high confidence that entities that do not fall under the obligation to verify will still meet M&R requirements. (continued on next page) Note 26 » Annex 5 provides a summary of the relevant international standards DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 39 (Table 3 continued) Option Possible reason(s) for adoption Important considerations Examples Most emission trading schemes, • This option provides the public with • Emission trading schemes : in 4 offset mechanisms, and a high level of confidence in the California and the Republic of Korea downstream carbon taxes reliability of reported data – usually (Korea), EU ETS, Chinese pilot Mandatory to the level of reasonable assurance ETS, Chinese national ETS, some verification This applies if the CPI system (see section 7.2). Canadian provincial schemes. requires robust verification for all obligated entities to provide • Legally binding legislative • Offset mechanisms : CDM, assurance on the accuracy of data framework is important to underpin JI, Japanese Joint Crediting reported. This is the case when the V&A system. Mechanism, Chinese Certified there are large financial interests Emissions Reductions (CCER), at stake, involving multiple sectors Australian Emission Reduction with larger companies and project Fund. developers. In that case M&R is more complex, and risks of inaccurate data • Carbon tax : in particular, are higher requiring more assurance downstream covering participants that the system is working properly. that are regulated at the point of fuel combustion where emissions released in the atmosphere result from burning fuel or industrial processes. This is, for example, the case in Singapore, South Africa, and Colombia. 40 4 STEP 2 Understanding factors that influence V&A system design GET TING STARTED Use of WHETHER TO VERIF Y 4.1 applied and in which cases international and associated institutions can be standards can play a key role. useful to enhance efficiency of setting international up the system and increase trust in INFLUENCING FACTORS In some cases, participation in system robustness. The potential use standards international schemes, such as the of international standards is discussed STAKEHOLDERS CDM, will require mandatory application in more detail in the relevant sections in & ROADMAP Section 2.1 outlines the elements of of specific international standards, parts B and C. the general MRVA compliance cycle, which will limit the choices of policy including the different entities involved, makers at the national level, but also required documents, and the specific potentially reduce the need to set up actions to be carried out in V&A. Apart domestic regulation. For purely domestic from the question of whether to verify systems, a strong link to international Understanding 4.2 or not as previously discussed, key standards can be useful if linking with factors determining which options other schemes in other jurisdictions is relevant are the most appropriate for each of envisaged. However domestic schemes these elements are the type of CPI, can also use international standards to framework how it has been set up, and whether it form their V&A system. applies international standards or conditions not. The following figure illustrates where In any case where verification systems domestically defined rules are usually are set up, international standards Apart from the type of CPI and whether international standards apply, other factors can also play a role in selecting a particular option for setting up the V&A FIGURE 5.  Decision tree: key choices for rules in V&A systems system. These include: Based on existing No verification Upstream or fiscal rules system • Legal structure: the legal structure midstream Existing rules within a country can impact the design insufficient of the system. For example: Verification system Carbon with domestic rules Downstream tax – It can require policy makers to make Self-verification No verification, Intl. standards and institutions can help to enhance but inspection & use of local or regional regulators to implement the CPI.27 This can lead efficiency of setting up domestic systems Automatic data enforcement systems Domestic rules generation to an increased need for coordination Verification system and information exchange between All other cases with domestic rules regulators. Crediting Commonly Bilateral mechanisms agreed rules Intl. standards – Existing laws need to be taken into account when designing the system. Domestic system based Linking to on international standards For example, general legislation on other ETS fraud may be applicable to verifiers. Self-verification No verification, Public access to information acts but inspection & Emission Automatic data enforcement systems may be relevant for emission reports trading Domestic only generation Note 27 » This is, for example, the case in the Chinese Verification system All other cases with domestic rules national emission trading scheme where provincial authorities will be involved in approving monitoring plans and receiving emission reports. It also occurred in a number Source: authors of EU countries such as Poland, the UK, and Austria. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 41 and parts of verification reports countries covered by the EU ETS. In • Level of ambition : the country’s once these have been submitted all European countries verifiers that environmental objectives and to the regulator. These would are carrying out verification must be ambitions, including its emissions have an impact on how to define accredited by an accreditation body reduction target(s) and commitments, instrument specific requirements on according to the regulation and EN may influence the need for, and sanctions or confidentiality in the ISO 14065. design of, the V&A system. This legislation that regulates the V&A factor is highly linked to the resources system and may involve referring to • Available resources : where a country has available. It can force other legislation. resources are limited, it may be policy makers to identify specific more appropriate for a country to priorities in the design of the V&A – Some countries are required to design its V&A system to use existing system. If countries plan to link with follow international or regional law processes and institutions rather CPIs from other regions/countries that determines how they have than set up new systems. Another or if they envisage transforming to implement the CPI and how to option is that policy makers may from one CPI to another type in the design the V&A system. For example, choose less robust approaches in future, this can impact decisions on EU regulation on accreditation and the initial stages of implementation structure and set-up. Policy makers verification is directly applicable to all and evolve over time. may, for example, be inclined to put in place at the start of the programme the necessary systems to allow for an easier transition. It can also mean FIGURE 6.  Stakeholders in different CPIs that policy makers may want to base the V&A system on international standards. Emission trading Carbon tax systems • Accuracy: The required accuracy • Policy maker • Policy maker level for the reported data29. • Regulator implementing the CPI • Fuel users: company, household, etc. The following sections will refer back • Company or reporting entity • Tax authority consisting of various facilities/ to these factors and explain how they operator of an individual installation • Verifier/individual auditor can influence the choices that can be or facility/aircraft operator made for certain options in the design, • Party approving verifiers • Verifier/individual auditor (oversight entity) implementation, and management of the system. • Party approving/supervising • Party supervising verifiers verifiers (oversight entity) (oversight entity) • Regulator enforcing rules Understanding 4.3 Crediting mechanisms choices in the V&A PROJECT-BASED SCALED-UP system design • Project developer/implementer/project • Sector associations participant Figure 2 in section 2.1 outlines different • Jurisdictional host (regulators, policy • Project host (host country, e.g., enforcers in city, region) elements within the MRVA compliance Designated National Authority) system - main stakeholders, documents • Designated operational entity (DOE)/ involved and activities performed. • Designated operation entity (DOE)/ verifier/individual auditor Verifier/individual auditor Related to each of these elements a • Party approving DOEs/verifiers/ number of choices can be made when • Party approving/supervising DOEs/ auditors (oversight entity) verifiers/auditors (oversight entity) designing the V&A system. This section • Party approving/supervising DOEs/ provides an overview of what these • Party approving methodologies verifiers/auditors (oversight entity) choices are and where in the guide the • Party issuing credits more detailed discussion of each choice and its implications are. Source: authors Note 28 » Commission Regulation (EU) 2018/2067 of Note 29 » This is impacted by both the quantitative 19 December 2018 on the verification of data and on the materiality threshold selected (see section 7.3) and accreditation of verifiers pursuant to Directive 2003/87/ the level of assurance (reasonable versus limited) (see EC of the European Parliament and of the Council. section 7.2). https://eur-lex.europa.eu/legal-content/EN/TXT/ 42 PDF/?uri=CELEX:32018R2067&from=EN. Stakeholders related to each of the stakeholders in Figure 6 provides some examples of the system and indicates where in the how the involved stakeholders can vary Roles and responsibilities of all players guidance the choices are discussed in between CPIs. involved in a V&A system should be more detail. Some of these decisions clearly outlined in legislation. The will be taken together with setting up the following checklist provides an overview M&R system and are closely connected of decisions that need to be taken to that. GET TING TABLE 4.  Entities involved in V&A systems STARTED Entities Checklist for policy makers Impact of choices on V&A WHETHER TO VERIF Y Obligated Define the sectors covered by the CPI ( section 7.1) The choice of sectors, obligated entities, and type of INFLUENCING entity M&R system can affect how the verification is carried FACTORS Define the type of obligated entity under the CPI and applicable out and what checks the verifier makes. This influences thresholds if relevant ( section 7.1) the definition of scope, level of assurance, materiality STAKEHOLDERS Define the type of M&R system and requirements applicable to threshold, and the options in the verification process ( & ROADMAP sectors and obligated entities ( section 3) Table 6) Verifier Define the type of verifier ( section 6.2) These decisions affect the design of system and how to arrange for the availability of financial resources and Determine the approach to selection and payment of verifier ( sufficient competent verifiers ( section 9.1 and 9.2) section 6.3) Ensure competence ( section 8.1) Ensure impartiality ( section 8.2) Ensure key organisational and procedural rules ( section 8.3) Regulator Define the institutional set-up of the regulator (e.g., whether The institutional set-up of the regulator and the the policy maker is the same authority as the regulator coordination between different regulators is defined implementing/ enforcing the CPI) ( section 5) when setting up the overall CPI. This can affect certain actions in the compliance chain: e.g., arranging for Determine whether to arrange for a centralised regulator or use information exchange and coordination if multiple multiple local/regional regulators regulators are involved ( section 10.2 and 10.3) Oversight Whether to use existing or new institutions ( section 11.2 The type of oversight body affects the design of the body approval and supervision system ( section 11) and how Ensure competence ( section 13.1) to arrange for resources ( section 15) Ensure impartiality ( section 13.2) Ensure key organisational and procedural rules ( section 13.3) Whether the oversight body is the same as the regulator ( section 11) Section 5.1 provides information on Required documents and formats and, if appropriate, deadlines how the various stakeholders can deliverables for submission. Table 5 provides a contribute to the design, implementation, checklist of decisions that need to be and management phases of a V&A A number of documents are potentially taken related to each of the documents system and highlight the importance relevant in the V&A process as outlined and indicates where in the guidance the of involving stakeholders during the in Figure 2, for example, monitoring choices are discussed in more detail. design of the legislative and institutional plan, emission report, verification report. framework. Annex 3 provides examples Policy makers need to define which of stakeholder engagements in different documents are required, the necessary country CPIs. levels of detail in the documents, DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 43 TABLE 5.  Documents involved in V&A systems Documents Checklist Impact of choices on V&A Monitoring Define whether obligated entities need to have monitoring Affects the criteria that a verifier takes into account when plans plans outlining how they will monitor and report emissions checking the accuracy of data ( section 7.1). A monitoring and comply with relevant rules or standards. These plans plan can facilitate verification and reduce verification costs, are specific to the entity ( section 7.1 and 7.4). especially if that plan is of good quality. Define who will validate required monitoring plans. For emissions trading schemes this is usually the regulator. For CDM this is the designated operational entity ( section 7.1). Not all ETS or offset mechanisms require a monitoring plan. PDD Define whether to require obligated entities to have PDDs Affects design of system and how to arrange for resources outlining how baseline emissions will be determined, ( section 9). explaining how the selected monitoring methodology is applied and estimating ex ante the emission reductions ( section 7.1). Determine whether the PDD will be validated and who will validate the PDD. For CDM (and often domestic offset mechanisms) this is a designated operational entity ( section 7.1). Submission Define how to submit data (electronically, excel template, The type of submission can affect the efficiency of the of documents word template, or no template) ( section 9.3). scheme, in particular if multiple parties are involved. Whether to require obligated entities to submit Deadlines can affect the timelines for verification required documents before a certain deadline. This has ( section 7.4) and trading. advantages for enforcement. Monitoring Define level of detail of content of the required documents Can affect the verification. More detail in the monitoring plan plan or PDD ( section 7.1 and 7.4). and emission reports facilitates verification. However, too (if relevant), much detail in an emission report can complicate it ( section 7.1 and 7.4). Report, Verification report Eligible Once the verifiers are approved, compile a list of eligible No real impact on the V&A system, only with CPIs where verifier list verifiers. verifiers can only be selected from the list.30 Activities to be carried out in 2.1. These are closely related to the in Table 6 provides an overview of verification decisions regarding stakeholders and decisions that need to be taken related documents required. Figure 3 shows to each activity and indicates where in A range of decisions is required for each the relationship between stakeholders, the guidance the choices are discussed activity illustrated in Figure 2 in section documents, and activities. The checklist in more detail. Note 30 » For example, in the Swiss ETS and in the domestic offset mechanism only verifiers from the list of 44 eligible verifiers may be selected. TABLE 6.  Activities to be carried out in V&A systems Actions Checklist Impact of choices on V&A Verification Determine whether to carry out verification at all, and if Affects the type of stakeholders involved and actions that are so, voluntary or mandatory ( section 3) taken to ensure accuracy of the report Define the scope of verification ( section 7.1) Define the level of assurance ( section 7.2) GET TING STARTED Define the materiality threshold ( section 7.3) Define the specifics in the verification process which are WHETHER highly connected to the M&R system ( section 7.1) TO VERIF Y Checking of Determine whether to perform checks on submitted Issues found in the review can feed into the oversight of INFLUENCING FACTORS reports emission reports and verification reports ( section 10.1) a verifier and can result in sanctions where a verifier is noncompliant ( section 12.4 and 12.5) Determine how to check these documents ( section 10.1) STAKEHOLDERS & ROADMAP Approval of Determine how to design the approval system Affects the design of the system and how to arrange for verifiers ( section 11) resources ( section 6.3 and 9.1) Determine whether to accept verifiers from another CPI or another country ( section 9.2 and 11.4) Supervision Whether to supervise verifiers (and if so, how) Affects the design of the system and how to arrange for of verifiers ( section 11.4 and 12.3) resources ( section 6.3 and 9.1) Sanctions Define the type of infringements and the type of sanctions Has implications for the eligibility of the verifier to carry out ( section 12.4) verification and for the acceptability of verification reports (about to be) submitted Decide when to impose sanctions and who can impose them ( section 12.4) Define the appeals procedures ( section 12.5) Information Determine whether to arrange for information exchange Can support the processes of the stakeholders involved and exchange between various stakeholders ( section 10.3 and 15.2) improve the efficiency and quality of the system Define how to exchange information and who to involve in the process ( section 10.3 and 15.2) Determine what type of information to exchange ( section 10.3 and 15.2) DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 45 Example How does compliance and governance work in EU ETS? The European Commission has developed an M&R Regulation and an A&V Regulation. These regulations are directly applicable to all countries participating in the EU ETS, that is, all EU Member States of the European Union and Iceland, Liechtenstein, and Norway. The M&R requirements relate to the operator of stationary installations and ‘aircraft operators’. The operator of the installation submits an installation specific monitoring plan to the regulator which validates (approves) this monitoring plan. The operator monitors its emissions during the calendar year (the reporting period). After the reporting period has ended the operator compiles an emission report that is verified by an independent third-party verifier. That verifier is accredited by a national accreditation body according to EN ISO 14065 and the requirements in the A&V regulation. The national accreditation body supervises the verifier in annual surveillance and reassessment of the accreditation. The operator of the installation submits its emission report together with the corresponding verification report to the regulator which carries out checks on the reports. There are requirements on information exchange between the regulator, accreditation body, and verifiers. More information can be found on the European Commission website: https://ec.europa.eu/clima/sites/clima/files/ets/ monitoring/docs/exp_guidance_1_en.pdf How does compliance and governance work in the offset mechanism in Australia? The Emission Reduction Fund (ERF) is a voluntary offset scheme with a mandatory verification system. If the project participants want to initiate a project under the Emission Reduction Fund they must register the project with the Clean Energy Regulator. Participants must use one of the ERF’s methodologies to estimate likely emissions reductions from undertaking the project. The ERF has methodologies for agriculture; energy efficiency; mining, oil, and gas; transport, vegetation management, waste, and wastewater. The project is run according to the method selected and must meet the requirements laid down in the carbon credits legislation. Project participants submit regular reports on the project and have them verified by an individual auditor registered with the Clean Energy Regulator. Mandatory verification audits are required across the life of the project. The required frequency depends on the size of the project’s abatement (typically every three to five years). To be eligible as a verifier the individual auditor must meet specific eligibility requirements. The Clean Energy Regulator monitors the auditors by carrying out inspections. The project monitoring report, together with the verification report, is submitted to the Clean Energy Regulator. Based on the emissions in the report, the project participants can claim Australian carbon credit units (ACCUs) for the emission reductions achieved and sell them. For more information please see annex 1. How does compliance and governance work in the Mexican carbon tax system? The carbon tax in Mexico is applied to import and sales of fossil fuels. The M&R system is simple as it is built on the fiscal system. Regular reports on the volume and price of fuels sold are submitted electronically to the tax administration service SAT. The data reported is stored and processed by the Secretariat of Finance and Public Credit. There is no verification system which means that part of the compliance framework is not applied for this carbon pricing instrument. Similar approaches appear in carbon tax systems in Europe. Tax authorities receive reports and carry out common sense checks on the reports. 46 5 STEP 3 Define roadmap and plan stakeholder engagement GET TING STARTED WHETHER TO VERIF Y This section aims to provide an overview • Define who to involve from • Define priorities for stakeholder of these design and implementation different stakeholders : this engagement: for example, on which INFLUENCING activities. A key element in activities is depends on the type of stakeholder. part of the V&A system to involve FACTORS the involvement of stakeholders in order stakeholders first. to achieve higher levels of public support • Define the level of participation STAKEHOLDERS and higher levels of trust in the CPI. for stakeholders : informing, getting • Develop communication lines that & ROADMAP feedback, or active participation. are tailored to the type of stakeholder engagement to be used. • Identify when to involve stakeholders : there can be Planning 5.1 different stages of stakeholder engagement consisting of informal stakeholder and formal engagement in the Defining 5.2 design phase, implementation engagement phase, and ongoing stakeholder a roadmap engagement. Early stakeholder Several existing PMR guides31 provide engagement32 is primarily focused The activities needed for the a step-by-step guide on how and on obtaining input on technical and development of V&A systems are when to involve stakeholders. Similar functional matters, whereas later usually conducted in different stages as processes apply when planning stakeholder engagement33 is mostly described in Table 7. The different stages stakeholder engagement for the design used to promote the V&A system, and steps form a roadmap for setting up and implementation of a V&A system. raising awareness and building the V&A system. The table also outlines As the V&A system is closely interlinked public confidence in the robustness what type of stakeholder engagement with the M&R system, it is good practice of the system, and improve takes place at each stage. to combine the stakeholder engagement common understanding of rules for both processes. The M&R processes and any issues likely to arise in its need to be auditable by the verifier; implementation. It is good practice hence verifiers’ input to the design of to arrange for early and timely M&R rules is crucial. stakeholder involvement. When planning stakeholder engagement, • Define approaches for it is important for policy makers to take stakeholder management in the following steps: different phases : such approaches can include meetings, official • Identify the stakeholders consultation rounds, information to involved : potential stakeholders the public and stakeholders, and for the CPIs are outlined in section other mechanisms, depending on 4.3. This includes obligated entities, objectives, time in the development verifiers, regulators, and oversight process, and available resources. bodies. Note 31 » PMR. “Carbon Tax Guide.”; PMR. “Emission May 2018. http://www.climateactiontransparency.org/ Note 33 » Stakeholder engagement that is public and Trading in Practice.”; PMR. “Guide for Designing icat-guidance/stakeholder-participation/. designed to raise awareness and promote the V&A Mandatory GHG Reporting Programs.” World Bank, system; it may also request expert review from a wider Note 32 » Stakeholder engagement that is often not 2016. https://openknowledge.worldbank.org/ set of parties than early stage stakeholder engagement. public and is carried out by the regulator on an unofficial handle/10986/21981; Initiative for Climate Action basis. It is usually a group of selected stakeholders Transparency. “Stakeholder Participation Guidance.” chosen by the regulator for their expertise. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 47 TABLE 7.  Roadmap for setting up V&A systems Activities needed for the design of the V&A system, the rules, and the Stage measures to facilitate the implementation of the system Stakeholder engagement Stage I • Design of the CPI Informal stakeholder discussions with people selected by the policy maker Design of the • Design the type of M&R and V&A system. It is recommended that policy in order to inform decisions on the key system makers discuss and make choices for both systems at the same time because design elements of the system from a they are very much interlinked practical and functionality perspective. • Make decisions on which institutions to use and how to set up the institutional framework • Develop a detailed roadmap for designing and implementing the V&A system, based on the basic design choices made and the existing institutional and legal system • Start considering the type of legislation depending on the legal system of a country • Start considering whether to apply international standards Stage II • Development of CPI specific primary legislation. As these acts generally Early involvement of selected undergo a longer legislative process, policy makers need to time this properly. and relevant stakeholders in the Development Policy makers will first start with the development of primary legislation which development of sector-specific rules of legislative includes the legal basis for further rules in secondary implementing legislation and more detailed requirements on framework MRV. Stakeholder engagement is more • When developing primary legislation policy makers start to design the informal in this stage. secondary legislation. It is good practice to start developing these rules while drafting the primary legislation to ensure that rules in secondary legislation Once the legislation is in final draft the have a proper legal basis and that nothing will be missed. official mechanism for stakeholder engagement of all identified relevant • It is good practice to develop secondary legislation on M&R and V&A at the stakeholders that is normally used for same time developing legal rules will take place. Design of institutional framework How the stakeholder engagement is carried out depends on the legal • Timing and approaches for designing this depend on the legal system and system. For MRVA systems it is whether new institutions need to be created. crucial to carry out this stakeholder engagement. Stage III • Finalization phase of the rules for the V&A system and CPI Stakeholder discussions when developing guidance to ensure Development of • Development of guidance material, templates, IT systems, and other tools/ guidance responds to the needs implementation checklists. Ideally guidance on M&R as well as V&A is developed at the same of obligated entities and works in tools time. It is important for policy makers to realise that obligated entities need to practice when applied. have the rules and guidance in place before they start monitoring. • Design internal checklists and instructions within the regulator to manage the CPI. • Set up a helpdesk to support obligated entities and verifiers once the CPI starts. • Training of obligated entities, regulators, verifiers, and verifier oversight body Stage IV • Start of the compliance cycle for entities (M&R) Continual stakeholder discussions in meetings, training, or other fora. Start of CPI • Start of the approval process for verifiers. Duration of approval process depends on type of approval process. • Maintenance of helpdesk for entities and verifiers Stage VI • Start of verification 48 Part B Setting up the verification system DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 49 Part B details the steps to be taken V3 How to design the requirements Policy makers need to have a clear to design, implement, and manage a that are applicable to verifiers : view of how verification works in verification system. Individual sections this step is a key element in practice so as to be able to set up discuss the options available within each the design as it concerns the the verification system and develop step that can be selected to fit the local competence, impartiality, and other rules. This guide provides information context and priorities. Figure 7 below key requirements applicable to on what principles and concepts are provides an overview of the steps, which verifiers. This guide helps policy important in verification and summarises are further detailed below. makers to identify where they how verification is carried out and what activities are performed. Equally important is how the overall design of the FIGURE 7.  Step by step through verification CPI and the M&R system influences the design of the verification system. This guide also contains information on what STEP V1 STEP V2 STEP V3 STEP V4 STEP V5 policy makers need to consider for the Type of Design of verification verification Requirements Implementation Ongoing design of the verification system. on verifiers management system system A number of commonly accepted DECISION ON: DEFINITION OF: ENSURING: ENSURING: ENABLING: principles form the basis of any • When to verify • Verification • Competence • Availability of • Quality assurance principles resources verification system and are essential • Type of verifier • Impartiality • Ongoing capacity • Scope • Supporting development to underpin requirements imposed on • Selection and • High-quality payment • Level of processes infrastructure • Information verification processes by legislation • Rules for assurance exchange as well as the requirements imposed verification • Materiality on verifiers and individual auditors. • Specifics in These principles inform the conduct of the verification process Source: authors verifiers when they undertake verification activities. They originate from the financial accountancy world and from When designing the verification system, need to define requirements and international accounting assurance it is important for policy makers to have what options they have for defining standards such as ISAE 300034 and a clear view on how to structure the requirements; are included either in international ISO system, including: standards or in CPI national (primary) V4 How to implement the verification legislation. These principles provide the V1 What type of verification system to system : this step involves the legal basis and framework for the more select: this step includes decisions on: identification of measures to facilitate detailed requirements on verification implementation, how regulators can discussed in the following sections. • At what stages of the CPI data/ arrange their resources, and the Annex 3 outlines the common principles information will be verified; approaches that can be followed that apply to both approval and to ensure sufficient verification verification processes. • What type of verifier to use, and which resources and competent verifiers; other parties to involve, as well as the role of these parties; V5 How to manage the system on an ongoing basis to ensure • How to select and pay the verifiers; that parties involved in verification continue to be competent and the • What type of rules to develop to system remains of high quality. regulate the verification system. When implementing the various steps V2 How to design the verification and defining the structure and design of system itself: in this step policy the verification system, policy makers makers define the concepts used in need to consider what crucial and verification such as the verification minimum requirements are needed principles, the required level of from the start of the CPI and what assurance, and materiality. Decisions requirements can be strengthened over will need to be made on how to time as the CPI evolves. At the end of structure verification activities to be each section in the following sections carried out and what to specifically recommendations are provided for the include in legislation; development of requirements. Note 34 » ISAE 3000: International Standard on 50 Assurance Engagements 6 STEP V1 Designing the type of verification system As discussed in Part A, different how different factors may influence the determine when verification takes place choices can be made when designing decisions of policy makers. and at what frequency it is carried out. the structure of a verification system. There are two stages in a CPI for which Each option has advantages and The key choices that policy makers verification can be considered. disadvantages. Which options are consider under this step are listed in selected primarily depend on factors Figure 8 and explained in the following 1. Data collected for the design of such as the legal structure, available sections. the CPI resources, and the level of ambition VERIFICATION SYSTEM in terms of environmental objectives 2. Verification of data when CPI is and the level of robustness policy operational T YPE OF makers want to achieve with the V&A system. This section outlines the 6.1 When to verify Table 8 provides more detail on the VERIFICATION different options, the impact of those two stages. DESIGN options, as well as their advantages When designing the verification VERIFICATION and disadvantages. It also describes system policy makers should REQUIREMENTS FOR VERIFIERS FIGURE 8.  Key choices in designing a verification system IMPLEMENTING VERIFICATION MANAGING VERIFICATION When to verify Type of verifier Selection and payment of verifier Legislative frameworks for verification Source: authors DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 51 TABLE 8.  Verification at different stages of CPIs Stage When to verify Important considerations Examples Mandatory or voluntary Usefulness of verification A number of CPIs were preceded by 1 reporting schemes can mandatory reporting schemes that • There will be higher confidence in the applied rigorous monitoring, reporting, be used to collect data Data collected accuracy of baseline data and hence to inform the design and and verification requirements to provide for the design/ calculations based upon it. This is development of the CPI. the input data for establishing the cap or adjustment of important given the financial interests to determine tax rates. This includes the the CPI involved. Californian and Korean ETSs, some of the Considerations for policy makers at Chinese pilot systems, and the planned the start of CPI: carbon tax system in South Africa. ETS : for determining the cap or to set the baseline • At the beginning when the CPI starts it For the carbon tax in South Africa 2018 for the calculation of may be difficult to get reliable data and data are collected using mandatory national emission allowances to impossible to have robust data. The CPI reporting mechanisms intended for GHG be allocated. For these is new and relevant data may be missing emission inventory reporting. purposes historical data are or quality control measures not yet in Example of an evolving system with collected before the start of place so that the data are not as reliable. frequent verification of baseline data the trading period. However, verification of baseline data is recommended for determining the cap for In the EU ETS the allocation of emission Offset mechanisms : ETS or baselines more accurately, or at allowances for the third (2013-2020) setting of crediting least to understand the likely uncertainty and fourth trading period (2020-2028) baselines before the associated with the data. is determined based on benchmark scheme is implemented. data. Each operator must submit activity This is the case for scaled • Accuracy of the data is less important data (production, heat or fuel use, or up crediting mechanisms.35 at this initial stage than when the CPI is process emissions) depending on the operational and is used for imposing tax applicable benchmark. These data need Carbon tax systems : or trading emission allowances/offsetting to set up the scheme to be collected according to a specific credits. Then accuracy is crucial for the methodology and subsequently verified (e.g., determine tax rates, functioning of the system and the trust in it. baselines, in particular by a verifier accredited by a national for downstream hybrid • When verification is considered at this accreditation body. Once the trading period schemes) stage, it is recommended to define starts, annual emission reports must be mandatory rules for verification, in verified by a verifier accredited by a national particular on competence and eligibility of accreditation body. Although the process of verifiers as well as what data needs to be verification is similar for verification in both collected and checked. phases, specific requirements apply to the competence of the verifier, and the checks • Existing mandatory reporting schemes to be carried out as benchmark data are set up for other purposes can be used or different from annual emission data. adapted for these purposes. • It may be difficult to get competent verifiers to verify baseline data unless the market is opened to verifiers from other programmes or regions or timely capacity building is organised. The regulator should therefore consider training or a stakeholder consultation at a sufficiently early time. Considerations on needs for a CPI that has evolved When new data needs to be collected to determine updated baselines, caps, and allowances to be allocated, a higher quality of data can be obtained. More detailed requirements for verification are then required. This is in particular true for ETS systems. (continued on next page) Note 35 » Crediting mechanisms that take the principles of offset project crediting and apply them on a larger scale, e.g., at a sector level or through the application of specific policies to incentivize change. An example is the Jurisdictional and Nested REDD+ (JNR) process for 52 government-led REDD+ programmes. (Table 8 continued) Stage When to verify Important considerations Examples This concerns the actual • The frequency with which verification In most ETS schemes there is an annual 2 implementation phase when is carried out should be regulated in cycle of reporting and verification: e.g., EU the CPI is operational. mandatory legislation. ETS, but there are exceptions: Verification of data when CPI The frequency of verification • It is important to recognise that in In the Swiss ETS verification is required is operational depends on the nature of ETS schemes where multiple sectors after the first year of the trading period. the CPI, its needs, and the and complex industries are covered Following that first year, the regulator can time frame associated with annual verification is good practice as decide if another verification is required.36 local legislation and the it is important to check the accuracy The regulator checks the monitoring reports compliance cycle. of data and proper implementation of in detail, cross checking with data from methodologies and quality assurance/ other sources such as data collected in For emission trading control procedures on a regular basis. the carbon tax system. Some programmes schemes and carbon tax in North America (e.g., The Climate systems there is usually an • There are differences between the Registry and those based on the annual cycle of emissions verification of baseline data and the Western Climate Initiative) allow for a reporting. In most cases verification of annual data in terms of the ‘less intensive verification’ in intervening verification is done on an data required and the methodology for periods with full verification every three annual basis. However, in collecting data. This impacts how the years to reduce the transaction costs for some CPIs the frequency basic steps of verification are carried VERIFICATION operators. Before applying the same first SYSTEM may be established out, where the risks of misstatement or year plan it relies on the verifier confirming differently (see examples). nonconformance lie, and hence on what during the first verification that the In offset mechanisms areas the verifier will focus its attention operator’s internal controls are robust and T YPE OF there is, in some cases, no and effort. VERIFICATION can be relied upon37 and that nothing in the specific frequency set. • In general, the type of verifier is the same obligated entity’s activity and accounting for both stages, although there can be systems has changed at the next DESIGN VERIFICATION minor differences in the approval of verifications compared to the first year. verifiers and the criteria for competence. REQUIREMENTS FOR VERIFIERS IMPLEMENTING Determine the 6.2 It implies that the regulator conducts body that employs or subcontracts VERIFICATION essentially similar activities as would individual auditors; type of verifier be conducted by an independent MANAGING VERIFICATION third party and carries out detailed 4. Verification by an independent Once policy makers have decided to checks on data, application of third-party auditor (individual): set up a verification system, the next methodologies, and compliance of in some CPIs both the verification question is what type of verifier should do the obligated entity; body and the auditors as individuals the work. In this regard, verification can are approved under the CPI and be organised in different ways: 2. Verification by nominated can carry out verification. For other institutes or experts on behalf of CPIs only the individual is approved 1. Verification by a regulator: a government agency or regulator: regardless of whether they are the regulator responsible for institutes or experts would be hired employed by an entity or operate implementing the CPI would through consultancy projects or as a freelance auditor. verify the data report and check procurement services or nominated compliance with the programme as preferred experts by the regulator. specific requirements. Where a They would basically carry out similar monitoring plan and/or a project activities as third-party verifiers or or programme design document carry out detailed checks on data, is prescribed, the regulator would application of methodologies, and verify whether this approved plan or compliance of the obligated entity; document has been implemented. This is a different process from the 3. Verification by an independent regulator checking returned reports. third-party verifier: a verification Note 36 » When data in the monitoring report is not Note 37 » This is a normal aspect of reasonable clear. This decision was made because a small number assurance verification and would result in a verification of facilities were involved, and these facilities were programme tailored to the level of risk, so is essentially using standard commercial fuels and applying simple a part of any reasonable assurance verification under monitoring methodologies such as fiscal metering and ISO 14064-3 even if it is not mandated within the default values for emission factors. programme rules. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 53 TABLE 9.  Types of verifiers Option Considerations for policy makers When is this option appropriate? 1 • Where the regulator wants to retain direct control over the whole process. Verification by regulator • In a trial phase when the regulator is unable to set requirements for verifiers and wants to test the processes. • If the regulator does not have confidence that it can get appropriately competent third-party verifiers. This is generally found only in the early stages as the supply of verifiers develops or where there is a marketplace open only to nationals. • Small schemes with limited number of companies involved.38 • The monitoring methodology is not complex: e.g., using only default values for calculation factors and the amount of fuel is measured by fiscal quality regulated metering. • Where existing systems are in place: e.g., for carbon taxes, the national tax office may have existing systems for checking data. Examples of application: The Norwegian emission trading scheme was not yet linked to the EU ETS in 2005-2007. For these years the Norwegian regulator verified emission reports. This decision was made because the ETS was small and only a limited number of facilities were covered; the M&R requirements were not complex because of the sectors involved, and existing structures and institutions were used to develop the ETS, building on other environmental legislation applicable to the industries. Advantages Disadvantages • High level of direct • Perception of, or actual, conflict of interest if the different functions of the regulator in delivering control by regulator verification and approving monitoring plans or methodologies are not clearly separated. on the quality of the obligated entity’s • Administrative and resource burden on the regulator from setting up new systems, compliance with processes, and training requirements; requirements and • The regulator does not always have the necessary expertise to conduct systems and data data accuracy. verification as opposed to regulatory compliance inspections. • The regulator gets • Loss of impartiality over time as the regulator conducts verifications of the same companies to know the facilities every year (familiarity risk). very well. • Less independent check on data from a different perspective to the regulator’s view (compared to option 3). Observations : • Regulator would have to implement procedures on how to check and verify data reports and other relevant information. • In some cases (e.g., where the M&R process is straightforward and uses reliable external data sources such as commercial fuel data, fiscal metering, and default factors) a desk review may be sufficient. In other cases it may be necessary to go on site and check implementation, quality control systems, equipment, and compliance with requirements. • Policy makers need to be aware that verification of emission reports in CPIs often occurs in a particularly condensed time of the year (in line with the compliance cycle), concentrating the resource needs. When is this option appropriate? 2 • If the regulator does not have confidence that there will be appropriately competent third-party verifiers, but does not Verification itself have the internal resources/knowledge available to do the verification (see option 1 above). by institutes or selected • If there is no, or limited, verification experience or infrastructure (e.g., no existing verifiers or processes that can be used). experts • If the regulator wants to have more direct control over the process but needs technical support from external parties, either from an expertise or resources point of view. • This can often occur when countries are doing a pilot phase or at the very start of a CPI. (continued on next page) Note 38 » Although, it can be more cost effective to use an existing body (e.g., an ISO National Accreditation Body) if available rather than setting up new internal systems and processes within a regulator and training up staff as assessors or verifiers. 54 (Table 9 continued) Option Considerations for policy makers Examples of application: In some Chinese ETS pilot systems research institutes or experts were selected by the regulator to carry out verification as the provinces were not able to get sufficient competent verifiers into the system in the early stages. These experts and institutes were paid by the regulator. Some European countries in the early years of the EU ETS assigned an institute (e.g., an energy agency) or in some cases one existing auditing organisation to carry out verification. That party worked under the authority of the regulator and had close contact with that regulator. In general these were parties with an environmental management and auditing background. Advantages Disadvantages • Less administrative • Less direct control by the regulator on the quality of verification (compared to option 1). burden for the regulator. • May require budget for payment of external party/parties. • Allows use of • Less formalised and transparent requirements than option 3 as the regulator does not use an specialist experts in actual approval processes to ensure competent experts, for example. the areas requiring VERIFICATION SYSTEM verification. • Some separation T YPE OF of responsibilities VERIFICATION to avoid conflict of interest. DESIGN VERIFICATION Observations : REQUIREMENTS • Regulators would have to set up appropriate procurement and quality assurance procedures and ensure that the FOR VERIFIERS institutes and/or selected experts are competent to do the verification (as opposed to having purely technical competence). IMPLEMENTING • It requires strict conditions and instructions on how the institutes/experts must carry out verification and what VERIFICATION requirements they must adhere to in order to ensure consistency, accuracy, and transparency. • The regulator’s budget cycle can influence when and how institutes and experts are selected to do the work, which can MANAGING VERIFICATION impact when verification can be done and the amount of time available for verification before reporting deadlines are hit. • Policy makers need to be aware that verification of emission reports in ETS and carbon tax systems occurs in a certain condensed time frame of the year (in line with compliance cycles). Institutes and experts should be arranged so that they are available in a timely way. • This option is less appropriate for CPIs that are running for a longer time as no official approval or recognition process is applied. There could be a risk to the impartiality of experts (e.g., familiarity if the same experts are involved in carrying out the verification) or conflicts if they also provide consultancy in similar areas to the CPI. When is this option appropriate? 3 • In more complex CPIs such as ETSs and offset mechanisms that cover many different sectors, many participants and/or Verification have more complex M&R requirements. by third-party verification • If regulators have made the decision to implement international standards such as ISO 14064-3 and ISO 14065 or CDM body standards, or have plans to do so in the future. • If the CPI is set-up for eventual linking with one or more compatible systems.39 • The regulator considers third-party verification essential for the credibility of environmental targets and robustness of the scheme to increase the confidence of the public and/or the trading market in the data being reported. Examples of application: • In most ETSs (EU ETS, Korean ETS, Chinese national ETS, California ETS) and offset mechanisms. (continued on next page) Note 39 » When CPIs are linked, the linking countries will accuracy of data and hence allowances/credits from have to have confidence in the quality of the MRV system either can be accepted in both schemes. International that they are joining to; so the rules of both programmes standards increase the harmonisation of practices and should be sufficiently close that there is confidence that could support this process. 1 tonne of carbon in one system represents the same quantity in the linked system as there is compatible DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 55 (Table 9 continued) Option Considerations for policy makers Advantages Disadvantages • Less administrative burden for the regulator than if it carried out verification itself. • Less direct control by the regulator on the • Independent check on data from a different perspective than the regulator’s. perceived quality of • Independent check on obligated entity’s application of legal requirements. It allows the verifier verification. to see whether the regulator has missed anything or whether it has inappropriately approved Less independence some aspects of a monitoring plan that might not be fully in compliance with the rules. of the verifier from the obligated entity. Observations : Policy makers should: • Develop programme specific requirements on how to do verification (e.g., what level of assurance is required, how materiality is applied, any mandatory tasks) to ensure different third-party verifiers carry out the verification in a similar manner. • Develop requirements on impartiality and competence of verifiers. • Develop a mechanism for approving independent verifiers. • Be aware that verification of emission reports in ETS and carbon tax systems occurs in a compressed time frame of the year and sufficient competent verifiers need to be approved in time. When is this option appropriate? 4 • In simpler CPIs or for simple sectors. If sectors are large and complex it may be difficult for a single auditor to cover all Verification competence requirements and manage the complexity and scale of the verification. by individual third-party • If the legal system requires a country to allow for individual auditors or if the regulator wants to make use of a system of auditor individual registered professionals (e.g., engineers or certain type of auditors). Examples of application: • The New Zealand ETS scheme uses individual financial accountants if the company requests to use a unique (site/ fuel specific) emission factor. The Australian Emission Reduction Fund uses individual auditors. In Germany for the first two trading periods of the EU ETS auditors of environmental management systems and EMAS compliance carried out verification of emissions reports. Advantages Disadvantages • As for verification by a • Being dependent upon individuals potentially without support network or back up. third-party verification body. • Difficulty in obtaining impartial and independent technical review of the auditor’s work before the opinion is issued (see section 7.4 under point 8). This is specifically relevant if ISO 14065 • Approval is granted is prescribed. to an individual and sanctions can • Difficulty for individual auditors to meet the same requirements as verification bodies (e.g., be imposed on an implement quality control procedures and impartiality measures such as rotation of Lead individual rather than Auditors). a whole organisation • Potential pressures from paying clients impacting impartiality (without the shielding that a verification body can offer its personnel). Observations : • See observations for option 3 • If a country allows verification bodies and individual persons to verify reports, they would both have to meet the same requirements, e.g., for level of competence, impartiality, quality control, etc. If there is a distinction in competences or in how verification is carried out, it could risk the integrity of the CPI system (both environmental and financial). • It is not possible for individual auditors to get accreditation by an ISO accreditation body against ISO 14065. Only verifiers as organisations or bodies are able to obtain such accreditation. 56 The type of verifier model can 3. Obligated entities provide funds Legislative 6.4 evolve over time. In the early years to collectively pay for a pool or a pilot phase, policy makers may of verifiers. Verifiers for reporting frameworks for choose to select option 1 or 2 to have entities are selected from the pool by control over the verification system and the company or regulator42 but paid verification to ensure sufficient competent verifier from the pooled funds. resources. However there are emerging Domestic legislation systems that use third-party verification Which option to choose strongly from the start40 or apply international depends on the nature of the CPI, Verification systems need to be standards41 because they want to align the legal system in the implementing embedded in a strong and with international systems. Over time country, the level of direct control mandatory legal framework to ensure a CPI usually evolves toward option 3 government agencies want to have over government agencies and oversight which is the most common model. verifiers and verification, and the level bodies can enforce requirements on of ambition in designing the system. verifiers and obligated entities.43 A clear Whichever approach is used, the ‘cash legal framework is needed, consisting of funds’ available should not dictate primary legislation that contains the the amount of work done. The way a main principles and describes roles and Selection and 6.3 CPI is set-up needs to ensure that the responsibilities of the different parties, appropriate time is allocated to individual as well as secondary legislation that payment of verification activities regardless of the outlines more detailed requirements for VERIFICATION SYSTEM ‘fee rate’ determined as appropriate. verification and verifiers. a third-party Annex 4 outlines the pros and cons of T YPE OF different payment approaches. The type of rules selected will have an verifier effect on how to design the system and VERIFICATION In the early years, a selection and vice versa. When understanding the DESIGN If the option selected is to have payment model may be chosen in which design and making design choices, it is VERIFICATION a verification system using third- government agencies and regulators therefore important to assess which type party verifiers, there are different choices can exercise greater control to ensure a of rules are appropriate for the design REQUIREMENTS FOR VERIFIERS for how these verifiers are selected and sufficient number of competent verifiers options. Sections 7 and 8 provide how they are paid. The type of selection are established, to ensure the quality of the more information on what to include in and payment model can have an impact verification system, and to reduce costs primary and secondary legislation. IMPLEMENTING VERIFICATION on how requirements are defined for a for obligated entities (option 1 and 2). Over CPI. Different selection and payment time, selection and payment can shift from Application of internationally MANAGING models include: the government to the obligated entity. recognised standards VERIFICATION 1. The regulator selects and pays How this is done depends on the CPI, A key question for policy makers is for the verifier: the institutional framework, the level of whether to apply internationally ambition of the implementing country, recognised standards for verification – Payment from regular public and the maturity of the obligated entities. or to develop their own national/regional budget ; The latter refers to their understanding of (domestic) standard. This is often why robust verification is necessary and dependent on the type of CPI and the – Payment from specifically raised how it can help them deliver compliance type of V&A system developed for that funds, for example, through in an effective and efficient manner. An CPI. Figure 9 illustrates the most typical revenues obtained by auctioning example where the payment model has application of international standards emission allowances in an ETS or evolved over time can be found in some for different types of CPIs. As shown in through revenues from carbon tax EU countries. In the first years of the Figure 9, the type of approval system systems or fees collected for other EU ETS (2005-2007) regulators in some has implications for applicable standards purposes; countries selected verifiers and directly and legislation (or vice versa). contracted them to carry out verification. 2. The obligated entity selects and Over time this gradually changed to a pays the verifier; payment by obligated entity model. Note 40 » Turkish CPI which is largely build on EU ETS, Note 41 » Singapore CPI will use international standards. Note 43 » Obligated entities can have requirements Chinese national ETS scheme that has implemented The same applies to Korean ETS. under a verification system: e.g., the requirements to a third-party verification system selected by national provide relevant information to the verifier during the Note 42 » Where the regulator controls the pool funds authority. verification. that are brought in by obligated entities. (Although, there are examples in other mechanisms where a third-party not-for-profit organisation has managed such pool funds and selection process). DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 57 Reason for applying • Countries wanting to facilitate Applying the ISO standards international standards involvement of foreign verifiers in a framework means a country can use national or regional marketplace (for an existing recognised accreditation For situations where the policy example, to increase the available body and only have to adapt or maker has flexibility to opt for using pool of competent verifiers) are supplement existing procedures. international standards the following more inclined to adopt international This is less work than building reasons can apply. standards as their harmonised institutions from scratch. Using approach simplifies the acceptance international standards also means • Countries that intend to link their CPI of foreign verifiers. that domestic legislation can build on with other CPIs in the future: linking these standards, possibly requiring a can be facilitated by the use of • Using international standards can less extensive legal drafting process. recognised standards such as support countries that have limited ISO 14065; this encourages a resources and want to use existing common approach. institutions or existing structures. FIGURE 9.  Typical application of international standards Example No verification No use of intl. standards Primary legislation Primary legislation is usually among the Carbon highest legislation in a country or treaty tax Verification See under emission trading in a region. It depends very much on the legal system whether it is an act of parliament, order of council, or other type of legislation. In general, it provides the legal basis for the CPI and the CDM / JI CDM / JI standards for V&A associated V&A system. Example of primary legislation: VCS / Gold standard rules The National Greenhouse and Energy VCS / Gold Standard for V&A Reporting Act in the Australian domestic Offset offset mechanism (the Emission mechanisms Reduction Fund), which establishes the Flexibility to use requirement that verification must be Domestic international standards carried out by an auditor, the type of (CDM, ISO 14065, etc.) audits that are carried out, the main roles and responsibilities, and how registration of auditors works. Options for setup Mandatory ISO 17011 / of approval system NAB under ISO / IAF ISO 14065 IAF guidance / (see page 120) CPI specified law Secondary legislation Usually ISO 17011 and ISO Secondary legislation is delegated or Accreditation Non-ISO NAB 14065 but could be other subordinate legislation. In general this standards / CPI specified law legislation is used to work out detailed requirements for the V&A system. Examples of secondary legislation: Certification ISO 17024 / CPI specified law The National Greenhouse and Energy Reporting Regulation in the Australian offset mechanism specifies eligibility Emission Flexibility to use ISO 14065 requirements and standards of trading Performance assessment and CPI specific law OR professional conduct for registered only national law greenhouse and energy auditors. National rules / internal Examination / doc review rules of regulator Source: authors 58 Advantages of applying • Determine whether an international • Be aware that application of international standards: standard is required because of international standards predefines the CPI concerned or the approval certain choices to be made in core • Lessons learnt from the verification system selected (see section 11.1). As requirements for verification and systems of a variety of CPIs across mentioned above in some cases the verifiers. Sections 7 and 8 explain the world show that harmonised application of a standard is required; where CDM standards or ISO procedures and requirements standards determine what elements mitigate differences between verifiers • Study the international standard and need to be followed in the process in competences and verification assess which parts offer flexibility, or what requirements apply; approaches. Harmonisation where additional requirements are increases the quality of verification needed and (if the standard is not • Determine whether domestic overall. International standards can required) which parts of the standard legislation should refer to the support these harmonised processes to use; standard or whether requirements and are recognised as accepted of the standard should be included global ‘best practice’ in the approach • Define which programme specific in legislation. This depends on the to verification and accreditation requirements are needed in legal system of a country or whether activities. domestic legislation in addition to the the standard is required for a CPI in international standard framework; primary legislation. • Enhanced confidence in the robustness of the applied V&A VERIFICATION SYSTEM system, which is an important aspect for a CPI in particular the more complex ones such as ETSs and Example T YPE OF VERIFICATION hybrid systems. DESIGN Requirements in ISO 14065 From the countries that have VERIFICATION implemented a CPI to date, the The verifier shall not use personnel with an actual or potential conflict of interest. The majority have prescribed the use of an verifier shall not validate and verify GHG assertions from the same GHG project unless REQUIREMENTS internationally recognised standard allowed by the applicable GHG programme. FOR VERIFIERS in their legislation or based their legislation on (part of) these standards. IMPLEMENTING VERIFICATION How has this requirement been made programme specific in the EU ETS? Annex 3 provides more detail on the internationally recognised standards Article 42 of the Accreditation and Verification Regulation for the EU ETS contains MANAGING that are applied to verification systems specific impartiality requirements. A verifier is not allowed to verify the emission report VERIFICATION of an installation for which the verifier (or any part of the same legal entity) provides across the world. consultancy services to develop part of the M&R process outlined in the monitoring plan of that installation. The verifier is also not allowed to be involved in the development of that How to apply international installation’s monitoring plan, emission report or monitoring system/data management standards in the domestic system used for the EU ETS. context Compared to CDM standards which How has this requirement been made programme specific in California ETS? contain detailed rules on how to validate A number of impartiality requirements have been included in California’s mandatory GHG project design plans and how to verify reporting regulation. Any: emission reductions and removals, other • employee of the verifier, or standards such as ISO 14064-3 and ISO 14065 provide more of a framework • employee of a related entity, or of what good practice should cover. • subcontractor who is a member of the verification team cannot verify the report of an This means that it remains necessary obligated entity for which they have carried out certain services listed in the regulation to include programme specific within the past five years. Furthermore, there is a mandatory rotation of the lead auditor. requirements for verification where A lead auditor cannot verify the same facility or reporting entity for more than six years. After the 6 years a mandatory break of three years must be taken by the lead auditor for the standard leaves choices or where that particular entity. programme specific requirements are more relevant. A country that wants to apply international standards in the domestic context must consider the following: DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 59 7 STEP V2 Designing the verification system To design an effective verification (if relevant) the verifier must take • Activities in the verification system, policy makers need to into account when assessing the process : How specific verification understand the principles and concepts accuracy of data. This is very steps are carried out; and what used in verification as well as how much influenced by specific M&R verification activities are performed; verification is carried out. This section approaches used in the CPI; outlines the key elements in verification • Legal structure (rules for system. These are: • Robustness (level of assurance verification) : How the rules of and materiality) : How verifiers verification are defined. • Scope of verification : How to determine the depth and detail define what the verifier must check of verification needed to have These options are explained in the and what verification criteria such confidence in the accuracy and sections below. as legislation and monitoring plan reliability of reported data; FIGURE 10.  Elements in designing the verification system Scope of verification Level of assurance Define materiality Verification process Considerations for defining rules for verification Source: authors Define the scope 7.1 responsibilities of the verifier. The scope of should consider the following elements verification is determined by the boundary when defining the scope in legislation and of verification of the tasks the verifier must perform associated guidance: and the expertise required to achieve the When defining the roles of objective of verification: to ensure that the • What is included in the scope the regulator and the verifier in emissions and data have been monitored and system boundaries of the the verification system, it is important in accordance with the CPI’s specified CPI: for example, which sectors, for policy makers to consider the scope requirements and that correct and reliable type of emission sources, fuels of verification as this influences the data are reported. The policy maker and materials are covered by the 60 scheme; do thresholds apply for compliance with requirements, involved. Policy makers must set the level facilities or entities falling under the effectiveness of obligated entities’ of assurance that is required from the scheme; which technical units may quality assurance and quality control verification system. Good practice over a be excluded; systems and the accuracy of data. This number of years has identified two47 levels is true in all CPIs that have a verification of assurances, these are largely drawn • Which emissions are included in the system. Annex 6 provides examples of from concepts in financial assurance: CPI: for example, direct emissions or how the choices mentioned above affect indirect emissions44 (or both), gases; the scope of verification. Some of these • Limited level of assurance: This choices can facilitate verification and is defined in various international • Which party is required to monitor improve the accuracy of data. standards as a level of assurance and report emissions: a project where the nature and extent of the developer, a reporting entity verification activities have been consisting of multiple facilities45 or designed to provide a moderate a specific individual facility, a fuel confidence in historical data and producer or supplier, and so on; Minimum information. • Whether to require the obligated requirements • Reasonable level of assurance: This entity to have a monitoring plan46 is defined in various international or project design document Defining the scope of verification is a step standards as a level of assurance validated ex ante by a regulator or that needs to be taken in any verification where the nature and extent of the VERIFICATION SYSTEM an independent third party; and the system. In an emerging CPI where not verification activities have been detail to be included in such a plan many (industrial) sectors are involved or designed to provide a high but T YPE OF or document. Where a monitoring requirements are rather simple, the scope not absolute level of confidence in VERIFICATION plan is prescribed, the verifier of verification is different than in CPIs historical data and information. checks the implementation of a plan where many sectors are involved and rules DESIGN that is specific for the obligated are complex. The scope of verification Obviously, a limited level of assurance VERIFICATION entity and validated by a regulator is highly influenced by the set-up of the requires less detailed verification or independent third party. The M&R system and decisions on precisely activities than a reasonable level. The REQUIREMENTS FOR VERIFIERS advantage of this approach is that what the verifier is signing off on. When depth and breadth of verification activities the verifier has a tailored framework designing the A&V system the policy required to reach reasonable assurance of assessment criteria to take as a maker should pay close attention to M&R is much more extensive, affecting the IMPLEMENTING VERIFICATION starting point for the verification; system (and vice versa since decisions type and detail of checks to be carried made in the M&R process can have out as well as the areas48 to be checked. MANAGING • Which specific monitoring fundamental impacts on the A&V process). The effort involved with reasonable VERIFICATION methodologies to prescribe in the assurance is considered to be high. scheme: for example, whether to In practice it means that with a limited allow for continuous emissions assurance, elements of the accounting measurement or only calculation- process, including some quality control based methodologies, what Define level 7.2 procedures may not be checked, while requirements to apply to sampling with reasonable assurance such checks and analysis for the determination of assurance would be made to give the verifier of emission factors; sufficient confidence that the data are In any verification, the degree of free from material misstatements.49 • Which requirements for quality assurance over the accuracy of assurance and quality control apply. data that a verifier provides through its The two levels of assurance result in verification opinion statement is important. a difference in the way the verifier’s The choices that are made regarding The level of assurance required plays a opinion is expressed: these elements can affect the specifics crucial role in determining the depth and of verification as the verifier checks extent of verification work to be conducted • For reasonable assurance, the completeness of data and emissions, and the level of verification risk that is opinion is expressed in positive Note 44 » Generally known as scope 2 emissions (but Note 46 » A monitoring plan outlines how data are to be Note 48 » What areas of an operator’s emissions may include scope 3 emissions – see the GHG Protocol monitored and reported by the obligated entity or how accounting system to check is to the professional for definitions). projects or programmes are to be implemented in the judgment of the verifier and is difficult to predefine. case of some crediting mechanisms (such as CDM). Note 45 » This is, for example, the case in some Chinese Note 49 » What checks are carried out and the precise pilot schemes and the national emission trading scheme. Note 47 » In theory there is a third – Absolute Assurance level of detail involved under reasonable or limited Reporting entities consisting of different facilities are – but this cannot be provided without the auditor assurance depends on the professional judgment of required to monitor and report emissions in one report; conducting its work in parallel with and checking every the verifier and cannot be predefined. It is a common similarly, the Korean ETS requires entity reporting where all step of the total accounting process – no verifier will offer concept used in auditing and comes from international facilities owned by one entity report data in a single report. absolute assurance. accountancy standards. Some examples are provided in ISAE 3000 and 3410. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 61 terms: “on the basis of the checks we data. The concept is not applicable defining benchmarks used for allocation have undertaken, the reported data to the validation of projected data in ETS or baseline development in are materially correct” because an opinion with either level crediting mechanisms.) of assurance cannot be given on the • For limited assurance, the opinion is basis of assumptions or forecasts of Although requiring a reasonable level of expressed in negative terms: “on future developments. An opinion that assurance can impose a higher direct the basis of the sample of checks we is issued based on assumptions can cost on the obligated entity (because have undertaken, no issue has been prove to be invalid in the future once the more work is required by the verifier), identified to suggest that the reported reporting period has ended. However, in practice it might be considered good data are not materially correct” an assurance opinion can be provided value from a regulator’s perspective if on historical data that may be input it ensures better compliance. Both levels of assurance are applied to forecasts or for use in allocation only to the verification of (historic) processes (for example, historical data TABLE 10.  Levels of assurances Assurance level Level of detail Direct cost Advantages/ Disadvantages Outcome Limited Lower Advantage : A degree of confidence at lower cost. May act as a No evidence 1 stepping stone to reasonable assurance, getting companies on to suggest the path to good quality assurance activities that data are Limited not materially assurance Disadvantage : limited confidence, risk of missing an error is correct higher, less suitable if CPI and M&R system is complex and requires high degree of accuracy (e.g., for trading) High Higher Advantage : Substantial degree of confidence, risks that errors Evidence to 2 are missed is substantially lower, more suitable for complex show that systems. reported data Reasonable are materially assurance Disadvantage : higher costs, which can be mitigated to a correct certain extent by approaches based on concepts such as risk analysis and the materiality level that aid the planning of work and the focus, extent, and breadth of testing to be done Minimum The primary legislation should define Reasonable level assurance is done which level of assurance is required. on a risk basis. Once a full scope requirements: reasonable assurance verification A limited level of assurance will give lower has been conducted, the verifier Defining the level of assurance required confidence in the accuracy of reported may be able to plan less work to is essential for the design of the data and might not be appropriate if the be conducted in subsequent years. verification system. financial stakes are high. However, this is only true when the risks in the accounting process are When considering what level of A limited level of assurance may found to be low, the internal controls assurance should be defined for a reduce initial verification costs but being applied can be relied on, and specified CPI, the following should can cause complications later and no changes in the entity, facility, or be considered: entails higher risk. project/programme under evaluation or its monitoring or internal control Most V&A systems of CPIs prescribe processes have occurred. a reasonable level of assurance. 62 Define 7.3 misstatement or noncompliance and to decline to correct identified assesses whether these aspects errors. It is good practice for policy materiality individually or in aggregate can cause makers to specify in legislation that the verifier to decide, in its professional misstatements and nonconformities The concept of materiality judgment, that the misstatement or identified by the verifier must be plays an important role at different noncompliance has material impact. corrected regardless of whether or stages of verification. Materiality is the A misstatement below the materiality not these are material. concept that individual errors or the threshold can thus also be material aggregation of errors, omissions, and where the nature, size, or particular misrepresentations could affect the circumstances of the misstatements or GHG emissions data50 sufficiently to noncompliance can influence decisions influence the decisions of the user of that of the user of the reported data. Annex 7 Understanding 7.4 data. The concept of materiality is an provides more information on materiality. intrinsic part of planning and designing the verification verification activities as well as a tool for drawing conclusions on the results of process the verification. Annex 9 provides more information. Minimum The verification process consists of different interconnected During verification the verifier assesses requirements: activities. To understand how to set up VERIFICATION SYSTEM the likely risk of misstatements and a well-functioning verification system, noncompliances with requirements51 Policy makers need to consider the it is important for policy makers to be T YPE OF and any likely material effect these have concept of materiality and whether to familiar with the activities carried out VERIFICATION on the reported data. The verifier will define a materiality threshold. Materiality by the verifier. This allows the policy focus its activities on those areas that is not a tolerance band for reporting, it is maker to understand what specific DESIGN are deemed to have a higher risk.52 This a decision-making tool for the verifier. requirements need to be included in VERIFICATION allows the verifier to tailor its approach to legislation to ensure the objectives of the each individual verification, affecting the The materiality threshold is system are met by implementation of the REQUIREMENTS FOR VERIFIERS nature, timing, and extent of verification usually a certain percentage of required activities. The basic activities activities. the total reported data value. For are the same for any verification in a CPI consistency across all verifications, because they are based on recognised IMPLEMENTING VERIFICATION Materiality is also used to determine a predefined threshold in legislation financial assurance standards applicable whether the reported data are is considered good practice. More to any data audit. However, different MANAGING acceptable. Reported data with material recommendations concerning the options are available for how these VERIFICATION misstatements cannot be considered threshold are made in annex 6. steps are designed and how specific ‘verified as satisfactory’ and would lead verification activities are carried out. to a ‘no verification’ opinion statement. In some CPIs the qualitative aspect These are discussed below. In determining whether misstatements has been specifically regulated in law have material effect, the impact of each (for example, for the EU ETS), in other Basic activities of the verifier individual misstatement as well as the CPIs it derives from international in the verification process aggregate of these misstatements are standards such as ISO 14065 and considered in the context of the final53 recognised financial accountancy Figure 11 outlines the basic activities total reported data. Materiality has both standards. to be carried out by the verifier in any a quantitative and qualitative aspect. verification process; these activities are The concept of materiality is explained in the sections below. For quantitative materiality a threshold difficult for verifiers to apply and needs to be defined: if that threshold is can cause problems (see annex exceeded the misstatement is material. 6). Policy makers and regulators The qualitative aspect of materiality should consider this when preparing Activity 1. comes into play for errors or anomalies guidance or training material. Preparation of the verification below the materiality threshold. In the qualitative assessment the verifier Materiality is not a tolerance band for Before verification starts, the verifier takes into account the nature, size, the participant to use in presenting must determine whether there are risks or particular circumstances of the their data nor as a justification involved for the verifier in undertaking the Note 50 » Or emission reductions / removals. Note 52 » This risk could, for example, be increased Note 53 » I.e., if errors are identified, the data accounts because the element is a large contributor to the final are updated to correct the error, and the total declared Note 51 » This can be requirements in legislation and/or, reported total; the potential for breakdown in internal value is updated; the final update is used as the if relevant, the monitoring plan or project design plan. control is high or the determination of a key emission denominator in the materiality analysis. factor is complex and therefore prone to error. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 63 FIGURE 11.  Activities in the verification process Minimum Start verification cycle requirements: Verifiers need to ensure that time allocation 1 (and related resource requirements) are Preparation sufficient to meet the level of assurance 10 Address outstanding issues specified for the verification. Policy makers identified during verification Next year’s together with oversight bodies should be verification aware of this and develop key principles on 2 time allocation. Understanding the entity/project activity The verification As time allocation is a key aspect process is 9 3 based on risk in the preparation phase, it is good Confirming data Issuing verification assessment practice to regulate in legislation entered into report and opinion Risk analysis determining the registry statement extent and detail that the verifier must allocate the of verification appropriate time needed, taking into activities account certain factors. 8 4 Independent Define technical review verification plan In any verification system the allocation of appropriate time should be a case-by-case evaluation for 7 5 individual obligated entities. In some Draft findings Implementation and verification of verification CPIs, specific guidance has been report 6 activities developed to support the verifier Addressing misstatements in determining an appropriate and non- conformities Source: authors time allocation (see Annex 14 for (correction/ information on available guidance). clarification) Where the regulator selects and pays for verifiers, it must avoid using pre- fixed budgets as the time allocation is a case-by-case evaluation. verification. This determines whether the A key element to also consider at this verifier can accept the engagement. During stage is the allocation of time needed Experience from longer running CPIs this step the verifier analyses whether: for delivery of all verification activities for indicates that it is important to facilitate an obligated entity. The verifier should adjustment of time originally allocated • It has the necessary authorisation ensure that the scope of the verification to the verification in the contract to do this specific type of verification work and the time allocated is consistent if higher than anticipated risks are (that is, it has been approved by with the risks identified with respect to the identified during the actual verification, the CPI programme regulator or obligated entity’s processes. Insufficient showing that more time is needed. nominated oversight body); time may pose a risk for the verification. The time allocated is appropriate if all • It can assemble a team that has the required elements can be delivered in required competencies to do the enough detail and rigorousness to collect Activity 2. verification in line with programme sufficient evidence to meet the level of Understanding the obligated specific requirements; and assurance specified for the verification. entity’s activities or project/ This should be a case-by-case programme activities • It is impartial and has no (potential) assessment based on individual factors conflicts of interest. such as the risks involved, the robustness It is common practice that the verifier first of the obligated entity’s internal quality aims to understand the activities carried If the analysis shows that the verifier control system, the complexity of the out by the obligated entity that impact the is not authorised to do the verification obligated entity or project/programme reporting of relevant data. This includes or does not have the necessary activity, and specific sector related factors the likely nature, scale, and complexity competencies it should not accept the that might apply. This exercise must be of operations (including facilities and, verification engagement. done regardless of who has selected and if applicable, other locations), sources, who will pay the verifier. use, and cross-boundary flows of fuels 64 and materials; the project or programme Activity 3. no significant changes in the obligated activities; and so on. Risk analysis entity’s operations or its M&R processes. The more complex the activities and A key element of verification is to An important aspect of the risk analysis data accounting processes within an focus on areas where there is a high is that it is an iterative process, subject obligated entity or project the more likelihood of risk of misstatements and/ to change where necessary. If, during complex and extensive verification or noncompliance with specified legal the verification, it becomes apparent is likely to be. During this stage the requirements.54 During verification, that identified risks are higher or lower verifier will also consider any relevant the verifier assesses these risks and than expected, the risk analysis should changes to the monitoring methodology, evaluates their likely impact on the be updated and the planned depth and boundaries, and other elements, reported data. If the verifier has identified focus of verification can change as a as these changes can affect how risks, it evaluates whether they have result. Where additional misstatements verification activities are designed. a potentially material impact on the are spotted, or deficiencies in quality reported data. The outcome of this assurance/quality control measures risk analysis determines how, and to identified, it is important for the verifier what extent, verification activities are to be aware that these may affect the designed, planned, and implemented. relevant risks and thus the risk analysis Minimum The risk analysis is thus an important and the nature, timing, and depth of tool to focus verification on the most planned verification activities. requirements: relevant areas (for example, where data VERIFICATION SYSTEM are processed manually and human Regulators need to be aware that intervention is involved or where there T YPE OF obligated entities need to provide is potential for equipment malfunction verifiers with access to all information the or failure of data transmission or archive Minimum VERIFICATION verifier considers necessary to conduct processes).55 These areas then need the verification. Definition in legislation is in-depth checks. The verifier will assess requirements DESIGN VERIFICATION recommended for enforceability reasons. different types of risks including risks in the data flow (inherent risks) and risks in Risk analysis is an important tool in any REQUIREMENTS FOR VERIFIERS It is good practice to regulate in the quality control system (control risks). verification, including verifications in legislation what minimum information emerging CPIs. Policy makers need to an obligated entity is required to During its risk analysis, the verifier will be aware that the risk analysis tailors the IMPLEMENTING VERIFICATION provide so that the verifier can plan identify and evaluate all potential risks verification to the risks associated with and design appropriate verification as well as the robustness of quality a specific obligated entity. Defining this MANAGING activities. Lessons learnt from assurance and quality control processes step in rules or referring to applicable VERIFICATION existing CPIs show that delivery of implemented by the obligated entity. international standards is recommended. such information is difficult to enforce On the basis of the analysis the verifier without such a legal obligation. The will determine the nature, timing, and Risk analysis is a key aspect in all precise information to be provided will depth of specific verification activities verifications, and it is good practice depend on the specific requirements that will lower the verification risk56 to clearly define this in legislation of the CPI concerned and the design to an acceptable level. This means and further explain the concept in of its M&R system. that the verifier will be able to issue a guidance. verification opinion statement with the At the start of a CPI, it may be difficult required level of assurance stating that Experience has shown that the risk to specify which type of information the reported data are free from material analysis is a powerful tool for tailoring will be needed. It is recommended misstatements. The higher the risks verification activities. The more to include a requirement that the involved, the more detailed the verification internally organised and ‘in control’ obligated entity must provide the activities should be. If the risks are low, the obligated entity is of its M&R information that the verifier considers a less extensive verification may be system, the lower the risks in the data is necessary to plan and complete the undertaken even within the context of flow and the quality control system verification. When the CPI has run for reasonable assurance. Often, when the are, the more efficient and effective a longer time, this can be specified final risk analysis indicates low risks in the verifier can be in its work and the in more detail in terms of the type of the first year, less intensive reasonable lower the amount of time and cost information an obligated entity should assurance verification can be done in that may be incurred in delivering the provide. subsequent years, provided there are verification. Note 54 » This includes any monitoring plan or project/ Note 55 » In EU ETS extensive guidance has been Note 56 » Verification risk is the overall risk that the programme design plan if this is prescribed by the CPI. prepared on the verifier’s risk analysis in KGN II.2 on risk verifier issues an inappropriate verification opinion by analysis accompanied by two examples. This guidance not conducting sufficient breadth and depth of checks to can be found on: https://ec.europa.eu/clima/policies/ capture all potential and actual misstatements and cases ets/monitoring_en#tab-0-1. of noncompliances. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 65 Activity 4. Minimum How sampling of data or quality Define verification plan control measures is done cannot requirements: be defined precisely in legislation. Based on the risk analysis the verifier Guidance can help verifiers plan the sets up its verification plan and designs The verification plan is connected to the verification. detailed verification activities. This plan risk analysis and forms the basis of the describes in general: verification. Policy makers need to be In some CPIs specific guidance aware that the verification plan is not set and tools on verifier sampling have • The activities to be carried out during in stone. It can be subject to change if the been developed. Annex 14 provides the verification, what locations will risks of errors or noncompliance changes. information on available guidance. be visited, which people will be This is a common step in any verification. interviewed, what documentation will Reasonable assurance verification be assessed, and so on. At the start of the CPI it is not always associated with a multilocation a priority that sampling principles are entity that has been sampled will not • What and how data will be tested – included in legislation or standards. provide the same level of confidence including the nature, size, scope, and However, it is good practice in as reasonable assurance verification method of sampling from within the emissions trading schemes and offset of an individual installation. It is for overall data set (and subsets); mechanisms that cover multiple this reason that some CPIs (especially sectors and obligated entities to emissions trading systems) • What checks will be carried out on include basic sampling principles in require verification at an individual quality assurance and quality control legislation over time. installation/facility level. systems and how these will be done. In some cases the data flow can be quite extensive, particularly for large samples57 it needs to take, what the Activity 5. entities, so sampling of data or quality sampling size and selection approach Implementation of verification assurance/quality control measures should be, which types of tests or activities may need to be applied. Depending on checks it should undertake on each the verifier’s analysis of likely inherent sample, and what should be done if the During this stage the verifier will and control risks, the verifier determines results of the sample check indicate that implement the verification plan and whether sampling is justified, what there are problems.58 collect and document evidence upon FIGURE 12.  Implementation of verification plan Implementation of verification activities Checking the implementation of Substantive data testing programme specific specifications Data verification Checking monitoring Checking data flow Checking data by applying different test methods: e.g. boundaries • Tracing reported data back to primary data • Tracing the data back to primary source • Completeness of data sources sources (fuels, materials, • Checking each step in the data flow, activities and • Cross checks with sources sources, emissions) persons responsible for each step • Plausibility checks Correct application of • Checking data management systems used Analytical procedures methodologies Checking quality assurance and quality • Analysis of fluctuations and trends in reported • Checking calculations control measures data • Correct application default • Measurement equipment / calibration • Checking inconsistencies in data values • Corrections / data review procedures and measures • Evaluating connections and relations between • Representativeness sampling data sets • Checking whether measures and procedures • Analysis of emission factors / are documented, implemented maintained and • Checking for deviations and anomalies parameters effective to mitigate the risks Source: authors Note 57 » Any subset of the total population of data or Note 58 » The sample could include a check on the formulae as part of data recalculation. If there are issues control activities and procedures that is selected application of internal controls (e.g., quality assurance identified, a bigger sample of data should be checked. for checking. of the measurement equipment, procedures) or could include rechecking of the application of factors and 66 which conclusions and the verification Activity 6. requirements. Normal practice is for the opinion can be based. Figure 12 Addressing misstatements verifier to report these to the obligated indicates the activities carried out in and noncompliance issues entity and to require correction and/or this stage by the verifier. The verifier clarifications. Several options for dealing will perform checks on the data and During verification the verifier with such issues can be distinguished will assess the obligated entity’s may identify misstatements and/ depending on the nature of the CPI. implementation of, and compliance or noncompliance with the CPI’s with, CPI specific requirements and the monitoring plan or project/programme design plan, where applicable. The verifier will apply selected auditing TABLE 11.  Options for addressing misstatements and noncompliance issues methods and procedures such as interviews, observation of how an Option Considerations obligated entity carries out quality assurance and control, inspection of • For ETS schemes that prescribe the use of monitoring plans it is measurement equipment, recalculations, 1 necessary for an obligated entity to contact the regulator to update and data checks, and so on. reapprove these plans. To maintain independence, the verifier should not Whether to become involved in any corrections or updates being made, other than to involve the confirm that they are reasonable solutions for the identified issue. regulator • In offset mechanisms, there may not be direct contact between the VERIFICATION regulator and the obligated entity. The verifier would request the obligated SYSTEM Minimum entity to correct or clarify misstatements and noncompliance issues. Direct contact may only take place between the verifier and the regulator. T YPE OF requirements: Issues resolved during verification are recorded in internal verification VERIFICATION 2 working papers by the verifier. In some CPIs such as CDM these issues DESIGN When defining the M&R rules, policy are also included in the external verification report. VERIFICATION makers need to be aware that the M&R How to record corrected issues rules have an impact on what checks the REQUIREMENTS FOR VERIFIERS verifier makes during verification. In all CPIs the verifier assesses the material impact of identified issues. Some monitoring methodologies 3 This impact, along with any unwillingness to correct by the obligated IMPLEMENTING VERIFICATION entity, will influence the conclusions expressed in the verification opinion require specific verification checks to How to deal with statement. In offset mechanisms that are based on CDM rules, the be carried out: for example, additional issues that are verifier does not sign off the report if the issues are not corrected by MANAGING checks must be carried out to assess not corrected VERIFICATION the obligated entity. In other mechanisms such as ETSs it depends on before issuing a continuous emission measurement whether the misstatement is material. the verification system, the accuracy of the report measurements, and the application of required standards, such as quality control standards. In some CPIs policy makers have specified in legislation or guidance Minimum They also need to define what to include how a verifier should deal with in the verification report, how verifiers specific monitoring situations such as requirements: must report issues, and what happens addressing data gaps, dealing with with unresolved issues (see activity 10). continuous measurement, or carbon Policy makers need to define the process capture storage. Annex 14 provides to be followed if the verifier identifies any Lessons learnt from various CPIs information on where such legislation misstatements or noncompliance. It is show that it is good practice and guidance can be found. essential that identified misstatements to regulate in legislation that and noncompliance are corrected by misstatements and noncompliance the obligated entity. Policy makers issues must be corrected by the need to be aware that there can be obligated entity. circumstances where the regulator needs to be involved in the process. It Good practice also suggests is important for policy makers to clearly requiring in legislation that verifiers define roles and responsibilities in these include outstanding misstatements cases, as well as communication lines. and noncompliance that are not DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 67 corrected before issuing the independent of the work that has been Minimum verification report in this report. conducted. The technical review covers These issues should be followed up all steps in the verification process from requirements: after the verification (between the precontract stage to final reporting and regulator and the obligated entity). has several functions: Policy makers need to define what information should be included in the For offset mechanisms that are based • A check on whether all the verifier’s verification report. on CDM rules, the verifier cannot internal procedures as well as due issue an opinion if misstatements and professional care and judgment The following issues are relevant for noncompliance are not corrected. have been applied during verification consideration by policy makers: activities; In a number of CPIs, detailed • A final check to confirm that there are requirements on the content of Activity 7. no technical errors or omissions and verification reports are included Draft findings and the whether sufficient evidence has been in legislation which supports a verification report obtained to support the conclusions harmonised approach between in the verification opinion statement; verifiers. Annex 14 provides information When concluding on its findings on where such legislation can be found. the verifier has to ensure that it has • An overall quality review of the work obtained sufficient objective evidence papers and opinion statement to Experience with a number of different to support statements to be made in ensure they are defensible. CPIs show that it is good practice the verification opinion. Whether the to include specific elements in a verifier has obtained such evidence verification report. These elements depends on its risk analysis and the are described in annex 7. When detailed verification activities required Activity 9. applying ISO standards these to reach the CPI’s specified level of Issuing verification report and elements are required. assurance. Sufficient evidence supports verification opinion statements the verifier in its assessment of whether It is good practice to develop the reported data are free from material In general, the verifier will issue a templates or file format specifications misstatements and whether a positive verification report and opinion statement if IT systems are used. This will verification opinion statement can be to the obligated entity. However, in most ensure harmonised approaches given. The source, the type of evidence, offset mechanisms that are based on between verifiers and facilitate the and the particular circumstances of CDM, the verifier will send the verification ease with which regulators can review the verification will determine whether report directly to the regulator59 together verification reports (see section 10.1). the evidence obtained is reliable with a verification statement (if required). and sufficient. Once the verifier has The verification report will be submitted determined it has sufficient information along with the corresponding data report to come to a justified and defensible to the regulator responsible for receiving Activity 10. conclusion, it can draft the verification relevant CPI reports. In most CPIs this Address outstanding issues opinion statement. needs to be submitted by a certain identified in the verification deadline. Where a data report is not verified as The key element of the verification report satisfactory, the reported data cannot be Activity 8. is the opinion statement because this used to meet obligations under the CPI. Independent technical review describes whether the reported data are The data in that case is considered not acceptable for the purposes required by materially correct and action needs to be Not all existing CPIs require an internal the CPI. There are a number of different taken to determine how legal obligations independent technical review. However, opinions that can be offered; these are or other requirements can be met by the it is considered good practice and based on those defined in recognised obligated entity. Different approaches mandatory for verifiers where standards financial assurance standards, and are used in different CPIs, and examples such as ISO 14064-3 are prescribed. An in general60 are outlined in annex 7. of such approaches are outlined in Table independent internal technical review is Basically, the data report is verified as 12. These examples occur mostly in ETS a final internal check by someone within satisfactory if the data are free from systems. Noncompliance issues should the verification body that has not been material misstatements. also be corrected. If relevant, legal a part of the verification team and is enforcement action can be taken by imposing sanctions on obligated entities. Note 59 » In the case of CDM this is the Executive Board. Note 60 » Specific terminology may vary from standard to standard, but essentially they all come down to 68 meaning verified, verified with comments, or not verified. TABLE 12.  Actions to address outstanding issues identified in the verification report Option Consequences Considerations The regulator requires the obligated entity to correct Advantage : fewer resource requirements for the 1 material misstatements and have the corrected report regulator, accurate data because of reverification, second verified again usually by a second verifier (meaning a independent check on the whole data set by a fresh pair of Reverification complete reverification). eyes. of the reported data (complete Disadvantage : time-consuming, more costs for the reverification obligated entity, the possibility that deadlines are not met from the start) meaning that penalties may have to be applied. The regulator requires the obligated entity to correct Advantage : fewer resource requirements for the regulator, 2 material misstatements and have the corrections in the accurate data because of reverification of corrected data, report reverified. reduced costs for the obligated entity compared to option 1. Reverification of reported This is the approach taken by UK regulators in relation Disadvantage : possibility that deadlines are not met, the data focusing to the EU ETS, for example, where an error is identified verifier’s risk analysis can change as a result of correction, only on the in one part of an emissions report that has already been so it may be necessary to reperform certain steps in the corrected data submitted. verification process related to other aspects of the data set. VERIFICATION SYSTEM The CPI regulator conservatively estimates the data based Advantage : less complicated process, no additional costs 3 on information from the obligated entity.61 for the obligated entity. T YPE OF Conservative Disadvantage : VERIFICATION estimation of emissions by • It can be resource intensive for the regulator to provide the regulator an accurate conservative estimation of emissions, for DESIGN VERIFICATION example, if they have to go on site.62 • It is not always possible to ensure emissions are REQUIREMENTS conservatively (over)estimated but also reasonably accurate. FOR VERIFIERS It is good practice to define a clear methodology for conservative estimation in the CPI rules with specific criteria IMPLEMENTING that the regulator can use in determining its approach. VERIFICATION This action can be taken, either in combination with one or Advantage : this approach is relatively simple and imposes MANAGING 4 more of the approaches described above, or separately. It no extra costs on the obligated entity. VERIFICATION includes: Request for Disadvantage : additional effort on the side of the correction • A request from the regulator to the obligated entity to regulator and potential problems in assessing whether the without correct the misstatement, after which the regulator then misstatements were, in fact, corrected in an appropriate reverification checks whether the misstatement has been corrected. manner. Therefore, this approach is not always possible in cases where it is difficult to correct the misstatement. • Enforcement action by the regulator against the obligated entity followed by sanctions, if applicable. It depends If this approach is selected as a stand-alone action, it is on the legal system of a country as to how and whether usually applied where there is strong communication between sanctions and enforcement actions can be imposed. obligated entities, verifiers, and regulators; resources are low; and misstatement and the correction thereof is straightforward. In most ETSs, misstatements and assurance/control measures; applying check whether these issues have been noncompliance that are not material and approved monitoring methodologies resolved or take this into account in were not corrected during the verification correctly; or including missing sources, forming its conclusions. Issues identified are still required to be addressed by the fuels, materials, and so on in the in a prior year’s verification opinion obligated entity. This can range from monitoring system. Noncompliance statement are one source of information correcting any noncompliance by, for issues with requirements often need that should feed into the risk analysis for example, updating a monitoring plan; immediate action. In the next cycle of the subsequent year’s verification. This implementing improvements in quality verification, the verifier63 would need to approach is not applicable to CDM related Note 61 » Conservative estimation can be done Note 62 » However, in other cases safety factors are Note 63 » Whether this is a new or existing verifier. in several ways. In most cases emissions will be used, where the regulator can use information that overestimated or determined by the regulator in on- was input to the verification or where the regulator just site inspection. In the EU ETS, specific guidance has overestimates emissions, it may not have a significant been developed on approaches that can be used to impact on the administrative burden. conservatively estimate the emissions (see annex 14). DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 69 verification because in that case the Policy makers need to balance the Importance of internal verifier cannot issue a satisfactory opinion requirements for environmental verification documentation if there is noncompliance with the rules. integrity and accurate emission (reduction) data with the costs to the The verifier needs to ensure that there Where a country has limited resources regulator and the obligated entity is a complete trail of plans, evidence, at the start of the CPI, a conservative involved with an approach mentioned evaluations, and decisions made estimation or requesting correction in Table 12. Reverification may not during the verification, including any without reverification (options 3 and be the most appropriate approach updates resulting from findings. This 4 above) are more likely to be used. in all cases. documentation should contain, for However there are CPIs such as example, a record of the strategic analysis some of the Chinese pilot ETSs where and the risk analysis, the information reverification was required from the start. obtained, and verification activities 64 The choice strongly depends on the Timeline of verification planned and carried out during each step type of control a regulator wants to have. of the verification process, including, Over time CPIs evolve, in general, to A key factor in delivering an efficient and where necessary, justifications and options coexisting next to each other. In effective verification process is to ensure evidence used when making decisions. any case, it is important for countries to that the verification starts sufficiently early require the correction of misstatements so that the required deadline for submitting Internal verification documentation and and noncompliance issues, sanctions, emissions and verification reports is work papers need to be transparent and and infringements and follow-up of reached without significant stress on the drafted in such a manner that the internal issues in the legislation. verifier or the obligated entity.65 For policy technical reviewer and the verifier oversight makers the timeline for verification is body can understand the contents of the important to consider because: documentation and how the conclusions expressed in the opinion statement have • When setting the frequency of been arrived at. These people, who are Minimum required verification activities, it is independent of the verification team, good practice to take into account should be able to follow the complete audit requirements the timeline of the verification trail showing links between the evidence, while keeping in mind the level of the assessments of risks, tests planned Policy makers need to define the actions assurance required, the complexity and their outcomes, and the conclusions to be taken when there are outstanding of sector activities, the CPI reached from the findings. issues in the verification report. concerned, the size of the scheme, and the type of obligated entities and Good quality internal verification Most countries that have a CPI verifiers involved; documentation and work papers require in their legislation or regulatory are essential for the oversight body guidance that obligated entities correct • Policy makers or regulators should supervising the verifier as they will use misstatements and noncompliance. plan the development or updating the documents to assess competence of of guidance material and other tools individual auditors and compliance of the The type of infringements and before the verification period starts; 66 verifier during supervision cycles. sanctions or legal enforcement action that can be taken in case • The policy maker, regulator, and/or of noncompliance varies between oversight body should plan training countries as this is very much or stakeholder meetings before the dependent on the national legislative verification period starts; framework and legal system. • Regulators and oversight bodies It is good practice to provide guidance Most countries have regulated in should be aware of the risks to the on what type of information to include law what to do if there is a negative outcome of the verification if work in internal verification documentation verification opinion statement and the has not started sufficiently early. and to stress the importance of proper data cannot be accepted. However, recording by the verifiers. Lessons learnt approaches vary between countries; More information on appropriate starting from some CPIs are that the quality of in some cases a combination of times for verification activities and internal verification documentation is approaches is applied depending on associated considerations are given in higher when there is such guidance at individual circumstances. annex 10. least in terms of minimum requirements. Note 64 » The verifier was selected by the regulator in Note 66 » This may be before the end of the reporting that case. period as compliance checking is not time dependent. Note 65 » In the case of the verifier, stress on the individual auditors gives rise to the increased potential for errors to be made and inappropriate conclusions to be formed. 70 Importance of on-site visits Where the obligated entity consists of sites, not visiting a location significantly multiple facilities, the site visit plan should increases the verification risks. For On-site visits are an important aspect of be based on the degree of homogeneity reasonable assurance verification it verification. During a site visit the verifier of the different facilities and their would usually be necessary to carry out is able to gather appropriate evidence by contribution to total entity emissions, as site visits to all the individual facilities. interviewing staff, reviewing documents well as the verifier’s risk analysis. Only and records held there, and assessing visiting the entity’s head office would For some CPIs mandatory site visits are the obligated entity’s procedures in not be sufficient as it would not allow required for every verification, for others practice. Other activities conducted the verifier to assess implementation a site visit is required in the first year of during a site visit can include: and actual practice on the ground at the verification and subsequently every few primary source of data generation. In the years. Alternatively, a mandatory site visit • Checking monitoring boundaries, the case of heterogeneous activities and/ is the default option but the verifier can data flow (from primary data sources or accounting processes used across waive a visit if strict conditions are met. through to aggregate reported data), completeness of applicable fuels/ materials and sources; • Actual testing of quality assurance Minimum applicable, the implementation of a or control measures and assessing monitoring plan or project design plan. implementation of procedures (that requirements VERIFICATION SYSTEM is, seeing how they work in practice); Practical experience suggests that In any verification system policy makers it is efficient to carry out a site visit T YPE OF • Obtaining physical evidence through should define in the rules whether it: because it enables the verifier to VERIFICATION assessment of measurement review documentation, observe and equipment, monitoring systems, and • Requires mandatory site visits for inspect actual practice on site and DESIGN processes, and so on; each verification to rapidly follow up questions with VERIFICATION relevant personnel. • Interviews with involved • Requires mandatory site visits but REQUIREMENTS FOR VERIFIERS stakeholders; allows waiver of site visits under Where policy makers consider waiving strict conditions and whether the site visits under certain conditions, • Checking how a planned offset regulator’s approval is necessary for it is important to have clear criteria IMPLEMENTING VERIFICATION project is implemented. such waiver of site visits. It is good on when such a waiver is justified. practice in any verification system to The role of the verifier’s risk analysis MANAGING The initial risk analysis is key to specify this in the rules. In emerging should also be a key factor in deciding VERIFICATION determining which locations at a site CPIs it is important that the verifier whether a site visit can be waived. need to be visited, when to visit, and how carries out site visits as the system often to visit. The verifier’s risk analysis is new for all stakeholders. This is In the CPIs that allow waiver of site should also be used to determine which especially true in ETSs. For offset visits, site visits were carried out at members of the verification team should mechanisms it depends on whether least for the first verification and when conduct site visits: for example, lead domestic rules are based on CDM; significant changes to the operations auditors, auditors, or technical experts if so, then generally the conditions or monitoring methodologies (if the verification team lacks certain outlined in the CDM rules are occurred. In most CPIs verifiers’ site technical competence). If the site visit applied. visits are an important element in results in an increased risk compared to delivering a robust verification, and the anticipated level or the verifier is not When defining requirements for the more conditions apply. able to find sufficient evidence during a verification, the following are important site visit, it may decide to do more tests, considerations for policy makers: It is good practice to have the interviews, sampling, document reviews, verifier’s risk analysis determine which and follow-up site visits. In such a case, Site visits are considered vital for locations need to be visited on site it may be necessary to adjust the initial verifiers to assess implementation (or which sites within a multisite entity time allocation for the verification. of, and compliance with, programme are visited) and at what stages of the specific requirements and, if verification site visits are required. Note 67 » E.g., at what stages in the verification process. Note 69 » In CDM on-site visits can also be waived provided this is justified by the verifier’s risk analysis, under certain conditions laid down in the CDM rules. the information can be accessed remotely, it is not the Note 68 » In the Californian Cap-and-Trade System This also applies to some of the domestic or regional first verification, and there have been no significant at least one approved auditor, including the sector offset mechanisms that are based on CDM rules such as changes. Strict criteria have been imposed for what type specific auditor, if applicable, shall make one site visit Japanese Joint Crediting Mechanism. of facilities and under what conditions site visits can be as a minimum during each year where full verification is waived. The regulator’s approval is needed for waiver of required, to each reporting facility. Note 70 » For some CPIs such as EU ETS site visits can site visits to large installations. be waived for certain type of facilities every few years DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 71 Considerations 7.5 The previous sections outlined an overview of what policy makers need the key elements for delivering to consider when drafting the legislation for defining rules verifications to provide policy makers with or rules. For further information on an understanding of what the verification guidance documents and other tools that for verification process entails. This section provides supplement legislation, see section 9.3. TABLE 13.  Defining the rules for verification Considerations Elements to consider Observations What to In most CPIs, primary legislation outlines: It depends on the nature of the specific CPI and the include in implementing country’s legal system what detail can be primary • The roles and responsibilities of different parties, included in primary legislation. However, it is important legislation including obligated entities, verifiers, regulators, and to ensure that the primary legislation is mandatory and oversight bodies; provides a sufficient legal basis for implementation and • Deadlines by which data reports need to be submitted; enforcement of all key elements. • Sanctions that can be imposed; • A legal basis for any more detailed requirements for accounting and verification including approval and supervision of verifiers. What to In general, the secondary legislation regulates more It is important for secondary legislation to include include in detailed aspects such as: mandatory rules to ensure that they are enforceable and secondary to give the verifier a formal backstop when they require legislation • Definitions and thresholds of materiality; information or action from the obligated entity. Guidance • What information an obligated party needs to submit to usually elaborates on the requirements laid down in the verifier; legislation especially where there may be different means of achieving the outcome laid down in the legislation. • Whether or not site visits are required; • Principles of sampling for both data/control systems and site/location selection; • The minimum content of verification reports; • The requirement to correct misstatements and cases of noncompliance identified during verification; • Requirements for follow-up of any outstanding issues identified in the verification report • What action should be taken if the verification opinion is negative; • The requirement to adjust allocated verification time where the verifier thinks more time is needed than was anticipated on the basis of its initial planning work. • In some CPIs the core steps of a verification process as mentioned in section 7.4 are included in legislation. Applying Section 6.4 explains how international standards can be Policy makers will need to maintain a watchful eye on any international applied in the domestic context and why international updating of international standards as this may have a standards standards can be useful. It depends on the legal system subsequent impact on national implementation measures how international standards may be included in legislation. and legislative requirements. They will have to assess This can either be done by referring to the standard in the whether the national legislation needs to be adapted, legislation or including parts of the standard in legislation. whether some specific deviations from the standards need to be specified, or whether reference to the standard is still In some jurisdictions the content of an ISO standard may justified. first need to undergo an approval process before it can be included in legislation. Section 6.4 contains examples of how programme specific requirements can be included in legislation. (continued on next page) 72 (Table 13 continued) Considerations Elements to consider Observations Measures The concept of materiality and the verifier’s risk analysis are important tools to minimise transaction costs whilst not limiting the to reduce quality of verification. They allow verifier efforts to be focused on significant or complex aspects of data monitoring and accounting. transaction costs of Simple facilities with low risks may require a less extensive verification whereas complex facilities have generally higher risks verification and would thus require more extensive verification. On the other hand, simple or small obligated entities often do not have the resources to spend sufficient time and effort on their data monitoring and quality control to ensure that it runs smoothly, which can increase the risks and verifiers may in fact have to spend more time than expected. The amount of time and effort required to conduct a verification depends on the extent to which the obligated entity is ‘ready for verification’. The following requirements for obligated entities can facilitate verification: • To have formalised internal control processes and procedures; • To apply monitoring processes regularly (e.g., monthly or quarterly); • To include regular internal data validation; and • To conduct internal audit/evaluation of data accounting and quality control processes. For some CPIs, specific requirements have been included in legislation for small and medium-size entities or projects, e.g., to make provision for simplified approaches to monitoring or verification. An example of specific requirements for VERIFICATION SYSTEM verification of small scale projects can be found in CDM where the verifier can determine whether a bundle of small scale projects are verified together. Similar rules are applicable to China Certified Emission Reductions (CCER). T YPE OF California has two mechanisms for simplification of its mandatory reporting rule: VERIFICATION a. Streamlined verification – for the first year, all verification requirements must be implemented – this includes a site visit, verification plan, sampling plan, review of the data management system, and data checks, etc. However, in the DESIGN VERIFICATION second and third years, verification effort may be reduced to include emissions data checks based on the sampling plan developed in the first year provided that it resulted in a positive verification opinion. REQUIREMENTS Triennial verification – certain obligated entities are eligible for this. A full verification is required every three years; in the b. FOR VERIFIERS second and third years, verification of the emissions data report is optional. However, operators may choose to have a streamlined (less intensive) verification – see (a) – during these years. IMPLEMENTING VERIFICATION Mechanism (b) gives rise to challenges for a market instrument that requires regular reporting since there would be allowances surrendered/traded without formal confirmation of validity threatening market trust; therefore California requires annual verification for parties obligated under their ETS rules. MANAGING VERIFICATION What M&R • The requirement for a formal (standardised) monitoring plan which contains specific monitoring elements. Such plans requirements would then be validated upfront by the regulator or other party and form a basis for verification. In particular, for complex can facilitate CPIs such a monitoring plan can be useful and may help to harmonise approaches within sectors; this is, for example, verification required in the EU ETS and the CDM and is planned for the Chinese national ETS. • Requirements for quality assurance/control measures (e.g., instrument calibration, documented procedures, information security, etc.). This can lead to a robust monitoring system which in turn facilitates and simplifies verification; • Requirements on the minimum content of data reports which facilitates the verifier’s review of these reports. The use of a standard template can also be helpful to harmonise reporting by obligated entities and can be beneficial for both the verification and the regulator’s review of such reports. • The requirement to record changes to monitoring methodologies and monitoring boundaries as well as other changes so that the verifier is aware of changes and looks for their impact on the quality of data produced. In general, such information should be retained for a number of years which can vary depending on the CPI; • Where changes to the obligated entity’s activities impact any benefits or obligations under the defined CPI (e.g., the allocation of allowances for an ETS), it is important to require validation by the regulator of significant changes so that the verifier knows the regulator’s opinion of any statements that the obligated entity may make in relation to changes. In some CPIs, such as the CDM and some domestic offset programmes based on CDM, there are requirements for postregistration changes to the project to be verified. Arrangements An independent technical review is an additional check by a person (employed or contracted by the verifier but who has to help the not been involved in the actual verification) of the documented output of the verification work and associated evidence verifier’s collected by the verification team. This person also checks that risks to the impartiality of the verification team and any impartiality potential for conflicts of interest have been adequately evaluated and addressed at the start of the contracted verification. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 73 8 STEP V3 Defining requirements for verifiers Once the objective of the verification ensuring high quality within these verifiers may not deliver the desired system has been defined, and it has boundaries is essential. Key to this is quality if they are not impartial in their been determined what that means for the competence of verifiers and their assessment and some key organisational the scope and level of detail of activities, personnel. However, highly competent requirements are not in place. FIGURE 13.  Steps in designing requirements for verifiers and personnel Competence of verifiers Impartiality of verifiers Organisational requirements Considerations for designing rules on verifiers Source: authors Ensure 8.1 legislation to data and information auditing auditing skills. It also requires verifiers skills and the ability to carry out specific to establish, document, implement, competence of verification tasks. Of utmost importance and maintain a formal competence is the requirement that auditors and management process and to take verifiers and lead auditors have appropriate technical certain measures to ensure continued knowledge applicable to the CPI’s M&R competence of all its relevant personnel specifications and requirements. Where personnel.72 Such a competence relevant, at least one person in the process is a verifier internal process The verifier and its personnel verification team should have knowledge to ensure that all personnel involved in involved in CPI related verification of the sector of the obligated entity that the verification are, and continue to be, need to be competent to carry out is being verified (for example, in relation competent for tasks allocated to them. assigned tasks. Competence is not only to applicable activities, technologies, Such processes should be documented about education, knowledge, and skills and processes). and include: but also about the application of these elements to carry out relevant verification Where the use of standards such as • Defining competency requirements tasks in an appropriate way. ISO 14065 is required by the CPI, the for all relevant roles at the verifier competence requirements laid down participating in the CPI verification In most CPIs, specific competence in associated standards such as ISO process; requirements are included in secondary 1406671 have to be complied with. ISO legislation for auditors and lead auditors, 14066 contains general competence • Ensuring job role descriptions ranging from minimum requirements for criteria related to GHG emissions are defined to meet specified education and knowledge of relevant monitoring and on information and competency requirements; Note 71 » See section 6.4 for more information on ISO Note 72 » Relevant personnel are not only the members of and people peripherally involved in the verification that can 14065 and ISO 14066. the verification team (auditors, lead auditors, and technical have an impact (e.g., sales and marketing personnel that 74 experts), but also technical reviewers, decision makers, submit quotes of time and costs to clients). Minimum For some CPIs the actual performance Example of verifiers and their personnel is not requirements monitored and assessed. In such cases Programme specific requirements the regulator or other body responsible on verifier competence in CPIs Regulators need to define competence for approving and supervising verifiers applying ISO 14065 and ISO 14066 requirements in legislation and be aware assesses whether the verifiers and its that different technical competence auditors meet specific competence • The Californian Climate requirements apply for the various criteria based on document review Registry has programme specific sectoral scopes. Where international and/or examination or sometimes requirements on competence standards apply verifiers are required to interviews. In general, the competence included in its Accreditation establish and implement a process for requirements in these countries cover Guidance: continued competence which contains, requirements on the number of years of https://www.theclimateregistry. for example, specific competence auditing experience of the auditors in a org/wp-content/uploads/2014/12/ criteria and internal training. specific sector or specific credentials TCR-Accreditation_May-2008.pdf and education records. Based on experience across a range of • In the EU ETS, programme specific CPIs, a number of considerations should Auditors, lead auditors, technical requirements have been included be taken into account when specifying experts, and technical reviewers need in the Regulation on Accreditation competence requirements: to have knowledge and understanding and Verification which have been not only of the V&A system but also of VERIFICATION SYSTEM elaborated in Key Guidance Note It is good practice to look beyond the requirements of the M&R system II.7 on competence: experience and education when the obligated operator is required to T YPE OF https://ec.europa.eu/clima/sites/ assessing the competence of a implement, as they are tasked with VERIFICATION clima/files/ets/monitoring/docs/ verifier. The performance of individual evaluating its implementation for kgn_7_competence_en.pdf staff members during verification compliance. DESIGN is equally important. In many CPIs VERIFICATION verifiers are required to take internal Technical experts can support auditors • Training (internal or external and internal measures to ensure the competence and lead auditors on specific subject REQUIREMENTS FOR VERIFIERS evaluation of auditor performance; of their personnel. Furthermore, in matters (for example, language and some CPIs actual performance is technical issues, such as inspection of • Maintenance of competence as the assessed by an oversight body as metering equipment). These technical IMPLEMENTING VERIFICATION CPI evolves over time through refresher part of the approval and supervision of experts are operating under the direct training and/or continuing professional the verifier (see section 11.1 and 11.4). control of the lead auditor and need to MANAGING development mechanisms. be competent on their subject matter. VERIFICATION The detailed requirements on Similar requirements apply to CDM competence depend on the When defining competence verification.73 As some domestic offset complexity of the sectors covered requirements for verification in a specific mechanisms are based on CDM rules, by the CPI, the M&R rules, and the CPI it is good practice to look at the similar competence requirements apply specifics of the verification system general competence requirements in to such domestic schemes.74 designed for the CPI. ISO 14066 and assess how these can be made more relevant to suit the specific CPI. Programme specific requirements Example are needed because auditors, and lead auditors must be knowledgeable about Competence requirements when domestic CPI specific requirements programme specific rules and M&R are applied methodologies. In EU ETS, specific competence requirements have been included in the EU accreditation and verification regulation. For example, an auditor must have knowledge of and experience in the sector specific technical monitoring and Note 73 » The CDM Accreditation Standard includes specific requirements on competence of designated reporting aspects that are relevant for the activities that are carried out in the operational entities, their personnel, technical experts, installation in whose verification that auditor is involved. For example, they should and teams that are carrying out verification activities. It also includes specific requirements on internal processes have knowledge of and experience in assessing how to analyse information to ensure continued competence. and data to confirm whether the monitoring plan is implemented; assessing Note 74 » The Chinese Certified Emission Reduction the completeness of sources and source streams; assessing the installation’s programme (CCER) has similar rules to the CDM. In activities, measurement equipment, relevant processes, calibration devices, and the Japanese Joint Crediting Mechanism designated operational entities accredited according to CDM rules compliance with tiers and uncertainty thresholds. Sector specific requirements are are allowed to carry out verification. CDM rules on included in Commission Guidance (Key Guidance Note II.7 on competence). competence apply in that case. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 75 Ensure 8.2 • Self-interest : risks of a verifier or has conducted a significant number individual auditor acting in its own of consecutive verifications for the impartiality of interest (for example, financial self- same obligated entity; interest, where an auditor or one of verifiers and their relatives receives remuneration or • Intimidation : risks that a verifier or reward from circumstances affected individual auditor is being coerced personnel by a specific opinion being issued); openly or secretly to achieve a specific verification outcome, or A lack of impartiality is a potential • Self-review: risks that a verifier the perception that such a situation verification risk that may or individual auditor reviews its arises, implies a risk to be addressed compromise a verifier’s ability to make own work; for example, assessing or reported to a supervisor. unbiased decisions.75 M&R activities of a client to whom the verifier’s own, parent, or Crucial to any robust verification system This can have a number of sources: sibling organisation has provided is that the verifier must be independent consultancy related to the CPI would of the obligated entity whose report or • Revenues : risks related to be such a self-review risk; project activity is being verified. Both the the obligated entity paying for verifier as a legal entity and its auditor verification of its report; risks that a • Familiarity (or trust): risks from a personnel should be impartial; this is specific obligated entity comprises verifier or individual auditor being also true for personnel that may be a significant portion of the verifier’s too familiar with the obligated entity subcontracted, such as technical experts. annual income or that another part or too trusting of the judgment or Consequently, certain programme specific of the verifier’s organisation is being opinion of another person instead requirements on impartiality are likely to paid for consultancy work or support of seeking objective verification be needed to ensure that processes are in in relation to areas that are subject to evidence; this can arise where the place and enforceable to manage risks to the CPI’s verification process; same verifier – or same lead auditor – impartiality and independence. In most CPIs programme specific requirements on impartiality are included When defining requirements on in legislation, standards, or guidance. Minimum impartiality policy makers need to The type of requirements can vary, consider the following: ranging from absolute prohibitions on requirements carrying out verification for obligated Where ISO 14065 or CDM entities to allowing the conflict of interest Policy makers should be aware that accreditation has been prescribed, under certain conditions or in certain specific impartiality requirements need general requirements on impartiality circumstances. A common aspect to be defined in legislation. Impartiality in those standards or rules are across CPIs is that verifiers are required of the verifier is essential in any robust mandatory. Programme specific to take active measures and implement verification system. Where international requirements on impartiality may well safeguards to avoid conflicts of interest standards apply, verifiers are required also be needed even if ISO 14065 or and risks to impartiality. Annex 8 provides to establish and implement a process CDM rules are prescribed. examples of situations that have led to to ensure continued impartiality. Such impartiality risks; it also outlines what type a process includes: When designing rules on impartiality of safeguards or measures can be taken it is good practice that policy makers to mitigate or avoid these risks. • Defining criteria for what constitutes balance the different interests unacceptable conflicts or loss of involved. For example, having the impartiality; verifier do both the validation and verification may be more efficient, but • Defining and implementing could pose risks to impartiality. measures to address a possible internal conflict, for example, Requirements on impartiality should when commercial pressure (from be set up in such a way that the either the client or the verifier’s regulator or oversight body has some own management) could lead to flexibility on what constitutes a risk to hesitations over denying the client a impartiality. However, there may be satisfactory verification opinion. certain risks to impartiality that are in all cases unacceptable and should be prohibited in law. Note 75 » As defined in chapter 5 of the Explanatory Guidance on EU ETS verification. https://ec.europa.eu/ 76 clima/policies/ets/monitoring_en#tab-0-1 Define key 8.3 Where standards such ISO 14065 or the Considerations 8.4 CDM accreditation rules are applicable, organisational such key organisational and procedural for designing requirements are prescribed in the and procedural standards and rules. However, there rules on verifiers can be differences in the extent to requirements which these rules are interpreted in law and verifier because of country specific legislation It is normal practice that a or design of the system. Annex 12 personnel verifier implements some key presents some of the key organisational organisational and procedural elements and procedural requirements that are This section explains what policy to ensure verification activities can be necessary. Most of these requirements makers need to consider when carried out robustly and effectively. would be relevant regardless of the drafting the legislation in general. Verification is an assurance type of complexity of the scheme. However, For some specific topics, concrete business potentially involving major it is noted that if the risks are small, observations on defining requirements financial interests. Therefore, it is procedures and management systems were already made in previous sections. recommended that verifiers are required can be simpler. Many verifiers will be to set up formalised management familiar with these types of requirements processes and procedures to ensure in other areas of their business. proper control and delivery of verification VERIFICATION SYSTEM and to mitigate any risks involved. T YPE OF VERIFICATION TABLE 14.  Defining the rules on verifiers and verifier personnel DESIGN VERIFICATION Considerations Observations concerning the considerations REQUIREMENTS FOR VERIFIERS What to The primary legislation should outline the general rule that verifiers must be competent and impartial. How much detail include in is included will depend on the specific CPI and the legal system of the implementing country. However, it is important to IMPLEMENTING primary ensure that the primary legislation is mandatory and provides a sufficient legal basis for enforcement. VERIFICATION legislation MANAGING VERIFICATION What to It is good practice to include in secondary legislation programme specific: include in secondary • Competence requirements for lead auditors, auditor, technical experts and technical reviewers, and competence legislation requirements that should be met by the verification team as a whole. • Impartiality requirements: e.g., requiring the verifier to be independent from the entity subject to verification; putting restrictions on the provision of consultancy to the obligated entity; and/or requiring verifiers to take active measures to mitigate risks to impartiality. • Confidentiality requirements, including measures to ensure confidentiality of client information. The detail and type of requirements on these topics depends on the nature and complexity of the CPI, the ambitions and objective of the scheme, as well as its coverage and M&R processes. It is recommended to use mandatory legislation for such rules. How can Where the CPI and its coverage is simple and relates to simple sectors, specific competence criteria, and requirements complexity of may be less stringent. However, a complex sector (e.g., large chemical plants and refineries) requires detailed technical the CPI system knowledge in the verification team as a whole so as to ensure its understanding of technical aspects as well as the required influence M&R processes and methodologies. Knowledge of M&R processes includes sector technology (to understand fuel users/ the type of emissions sources, etc.); measurement/analytical instrumentation and its quality control; fuel and materials sampling, requirements laboratory analysis, and its quality control; control of information and information security; etc. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 77 9 STEP V4 Implementation of the verification system Once the CPI verification system is parties – to carry out their assigned • Taking measures to facilitate the designed, it needs to be implemented approval and supervision activities implementation and evolution of the and maintained. To ensure proper are available in both the short and V&A system. implementation the following activities longer terms; are needed: These steps are discussed in more detail • Ensuring sufficiently competent in the following sections. • Ensuring the resources needed for verifiers in the field and ensuring the regulator – and other relevant competent staff at the regulator; FIGURE 14.  Elements in implementing a verification system Resource needs Skilled personnel Facilitating implementation Source: authors Resource needs 9.1 Usually consideration of costs is done incurred in delivering the verification. through impact assessment studies for verification when developing the legislative and Costs to the obligated entity for M&R institutional framework. activities and associated direct verification When designing the verification costs are indicators for policy makers of system it is important to identify Costs can be incurred by regulators how to set up the CPI efficiently. Where the resources needed to set up, in delivering implementation and the internal M&R compliance costs for implement, and manage the system. The enforcement of the programme, by obligated entities and the associated resources required for the verification verifier oversight bodies in conducting direct verification costs are high, the policy system are interlinked with the resources approval and oversight processes, and maker may want to implement measures needed to develop the approval and by verifiers in conducting their work. to streamline or simplify requirements to supervision system. The costs of verification for verifiers and reduce those costs. At the same time, it therefore the direct costs to obligated is important that this does not impair the Policy makers will have to consider the entities are the most visible since environmental integrity of the CPI. Another costs for the relevant stakeholders. obligated entities generally pay for the option is to find alternative means to These costs can differ between CPI verifiers’ services. These costs can be support the system through the approach depending on how complex the system partially contained by the obligated that is taken to, for example, paying and is and how the V&A system is set-up. A entity’s ‘readiness for verification’. The selecting the verifiers.78 Examples of how carbon tax system or offset mechanism more internally organised and ‘in control’ to reduce verification costs are outlined in that is built on existing structures and of their M&R system the obligated previous sections. rules will require less resources than if it entity is, the more efficient and effective is a complex emission trading scheme the verifier can be in their work and Aside from the costs to external or a new system with new institutions. the lesser amount of time and cost is stakeholders, policy makers need to Note 76 » Direct costs can be reduced by obligated Note 77 » There are a few programmes where the Note 78 » Studies in several European countries on the entity spending the time and effort internally to make regulator pays for the verification activities – e.g., some EU ETS showed that the direct cost of verification is only sure that data are properly validated and that the system of the Chinese pilot ETS programmes – but generally this a small proportion of the cost incurred by the obligated for generating data is subject to an appropriate internal cost is borne by the obligated entities (see section 6.3). entity as compared to the indirect costs they incur quality control process. internally in time and effort to set up and comply with 78 M&R requirements. arrange for sufficient resources in- much and what type of resources are and obligated entities. Section 14.2 house, at a policy-making level and/or a needed depends on the choices that outlines the cost categories for oversight regulatory or implementing agency level are made in the design of the CPI and bodies responsible for the approval and to design, implement, and maintain the the V&A system, and how these choices supervision of verifiers. Annex 8 provides verification management system. This are implemented. The previous sections more detailed information on the type requires a direct link with the budget of have already indicated how a particular of resources needed, whether the the agency or government department option influences the resources needed resources to be arranged are for a one- responsible for implementation. to implement that option. off activity or a recurring activity, and what measures can be taken to reduce A distinction can be made between Table 15 summarises the cost categories costs for the regulators and influence the human and financial resources. How that can be identified for regulators type or amount of resources. TABLE 15.  Cost categories for verification during implementation and operation of the system Stakeholder One-off cost Recurring cost Regulator • Studies/data to facilitate the design of the V&A system • Cost of verification activities (if paid by the regulator) • Stakeholder engagement activities (staff, travel, venues, • Staff for communication with verifiers and obligated entities VERIFICATION etc.) SYSTEM • Training verifiers • Set-up of legislation • Update/enhance guidance T YPE OF • Set-up / restructuring of institutions VERIFICATION • Maintain IT systems • Development of guidance material • Staff for helpdesk (if applicable) DESIGN • Set-up of IT systems VERIFICATION • Costs for review of emission reports or emission reduction costs and follow-up (if applicable) REQUIREMENTS FOR VERIFIERS Obligated • Cost for stakeholder engagement during design (staff, travel) • Cost of verification activities (if paid by entity) entities • Set-up of MRV processes • Operating cost of the MRV system IMPLEMENTING VERIFICATION • Set-up of IT systems MANAGING VERIFICATION Ensuring 9.2 • The frequency of verification; Policy makers can make choices in the design of the approval system to ensure skilled personnel • How the CPI is set-up (for example, competent persons; they can also take whether there are situations in specific measures to ensure competent for verification which verification is not required or persons are available. Previous sections situations in which verification can explained the choices policy makers At the start of a CPI it can be a be simplified); can make in design of the V&A system challenge to ensure sufficient at the start of the scheme (for example, competent verifiers. The number of • The extent of direct control the selection of verifiers or type of verifiers). qualified verifiers required depends on: regulator wants to have on the overall In addition, policy makers can also: verification process for individual • The number of obligated entities (or obligated entities, and so on. In some • Accept verifiers from other individual installations/facilities) or CPIs such as the California ETS, the CPIs or countries : The approval projects that need to be verified; EU ETS (at the early stages), and system is designed in a way that the Australian Emission Reduction allows verifiers approved in other • The complexity of sectors covered Fund the regulators wanted to have countries or for other CPIs to carry by the scheme; more control on how training was out verification or to undergo organised to ensure that there would an additional simple registration be competent verifiers for the start of process to do so.79 Note 79 » For example, verifiers accredited against ISO 14065 and designated operational entities accredited under the schemes. CDM are allowed to carry out verification in the Japanese Joint Crediting Mechanism. They only have to submit documentation which is checked by the Joint Committee. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 79 • Set up training programmes to independent oversight bodies for the verifiers from other CPIs or countries, ensure that verifiers and their auditors start of the CPI. while Table 17 presents approaches are competent and clearly understand for setting up training. Elements of the rules and requirements of the The tables below indicate different these different approaches are found specific CPI. This training can be approaches that can be used to ensure individually or mixed in different CPI organised in a number of different availability of resources, their potential programmes around the world. ways. Coordinated training on M&R impact, and what to consider with rules and V&A requirements can help respect to different options. Table 16 Figure 15 illustrates the flexible nature prepare verifiers and assessors from discusses approaches to accepting of how verification resources can be TABLE 16.  Acceptance of verifiers from other schemes or countries Approaches Considerations When can this option be suitable: 1 • Usually applied when countries do not have many resources, the scheme is small or it is not Verifiers from other schemes possible to get sufficient competent national verifiers in time for the start of the scheme. The CPI rules allow for acceptance of • Usually applied when the domestic scheme has similarities to the CPI under which the verifier verifiers from another CPI provided they was approved. For example, some domestic crediting programmes accept CDM verifiers, demonstrate to the regulator/ nominated e.g., the Japanese Joint Crediting Mechanism (JCM). Designated operational entities oversight body their ability to comply with accredited under CDM and verifiers accredited under ISO 14065 can carry out verification in the requirements for verification (e.g., the JCM. This decision was taken because the JCM has similarities with CDM and there were competencies, mandatory steps in the not resources to get sufficient domestic verifiers. verification process and language) Observations: • Regulator effort is required to ensure that rules are established to identify what other CPI’s verifiers would be acceptable and to set up a mechanism for vetting their ability to comply with local requirements. • Regulator effort is required to monitor any changes in the foreign approvals processes that might affect recognition for the domestic CPI (e.g., changes in competence requirements, approval cycles, etc.). • Awareness is needed that sanctions by the foreign oversight body could impact availability of verifiers in the domestic market. When can this option be appropriate: 2 • See above. ISO accredited verifiers • An example of this is the Swiss ETS scheme. Verifiers that are accredited by an ISO The CPI rules allow for acceptance of accreditation body for EU ETS are allowed to carry out verification in Switzerland. They verifiers accredited under ISO Standards formally have to undergo a simple registration process. The decision to accept these verifiers (e.g., ISO 14065) provided they demonstrate was taken because the market was small, and the CPI was going to be linked with the EU ETS. to the regulator/ nominated oversight body their ability to comply with the requirements Observations: for verification (e.g., competencies, • Regulator effort is required to ensure that the rules identify that ISO 14065 accredited mandatory steps in the verification process, verifiers are acceptable or, for example, if they have to be accredited by specific International and language) Accreditation Forum accreditation bodies to ensure their mutual recognition.80 • The acceptance of an open market for verifiers allows flexibility in the domestic marketplace that could adapt to demand over time. But for a new CPI programme there might be impacts on local verifiers that would be less experienced than ones working under existing CPIs that accept the ISO Standard. So if policy makers want to develop their market for local verifiers and provide an opportunity for local verifiers to develop and gain experience, then consideration might be given to restricting acceptance of ISO 14065 verifiers from outside the relevant country for a period of time to allow local verifiers to establish, gain experience, and become competitive. Note 80 » Such as ones that are part of the multilateral agreement on ISO 14065 and are subject to peer review 80 of their accreditation competence. managed in terms of training processes. FIGURE 15.  Sliding scale of direct control of training governance & delivery The more control the regulator wants to have the more elements of the training Regulator delivers Approved third-party Training requirement is delivered by courses via appointed training center (TC) third parties in an open market place process are delivered by regulators. The trainer using delivers using their own different options illustrated in Figure 15 regulators training materials & format With Without materials; regulator based on regulator regulator regulator are explained in Table 17. determines frequency specified syllabus; TC specified specified determines frequency syllabus syllabus A B C1 C2 Regulator has Regulator has full control some influence Regulator does everything Third party does most things Source: own illustration based on training material by Planet & Prosperity Ltd When planning to allow the use of foreign verifiers, it is important for policy makers to consider the following: national verifiers. In some cases it will Whether the regulator wants to have How foreign verifiers are trained and not be legally possible to differentiate direct control or influence over the informed about domestic rules and between foreign and national verifiers. quality of verification by foreign requirements. verifiers and the extent to which this How to be able to confirm that a foreign is possible: for example, through VERIFICATION SYSTEM Whether specific rules should be set verifier meets the eligibility criteria: being information exchange, review of data for foreign verifiers as compared to accredited or otherwise approved. reported, and verification reports. T YPE OF VERIFICATION TABLE 17.  Training approaches to ensure availability of qualified verifiers DESIGN VERIFICATION Approaches Considerations REQUIREMENTS FOR VERIFIERS When is this option appropriate: A • In situations where the regulator wants to have a high level of direct control over the training IMPLEMENTING VERIFICATION Regulators control the entire process and approval process. of training (and approval). The training is part of the approval of verifiers. This • Where the regulator has the resources and competence to organise training (though it can also MANAGING means, for example, that: hire individual experts to support the development of curriculum, materials, exams, and other VERIFICATION aspects of training if required: in that case the regulator still has control of the entire process). • They control access by individuals to approved training; Examples: • Successful completion of training by their Examples of this type of training are the Californian ETS and Korean ETS. Verifiers have to personnel is required for verifier approval; undergo training organised by the regulator in order to obtain approval. The Californian ETS is and an example of a CPI where the regulator wants to have full control over the approval of verifiers. • Regulators maintain a select list of Observations: approved verifiers/individual auditors. • Regulators may have to set up the entire process of verifier approval and training from Training may be paid for by the regulators scratch. They also need to be competent themselves to design appropriate training or the verifier. activities. This includes training their own staff in the competencies required to determine the competence of individual auditors and the competence, management, and control processes of verifiers. Regulators will thus have to organise internal training to ensure their own competency (or ‘buy in’ specialist help). • There may be potential limitations on the number of individuals that can pass through verifier training if the training capacity is defined by the time and budget available to regulators to deliver training sessions. • Limitations on the amount of training being delivered may act as a barrier to sufficient numbers of qualified persons being available, and the number of verifiers in the marketplace at the start. • Free training may lead to free riders: individuals might participate in training but then do not go on to conduct verification work, leading to an inefficient use of time and budget. • Limitations on the timing of training offered may be a constraint for verifiers as their staff base evolves over time, meaning they may be left with too few qualified individuals to deliver their contractual commitments. (continued on next page) DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 81 (Table 17 continued) Approaches Considerations When is this option appropriate: B • In situations where the regulator wants to have a high control over the training and verifier Regulators control parts of the process approval process but does not have sufficient resources or the competency to set up and of training and approval of verifiers. implement the whole process. This means, for example, that: Observations: • They could control specification and endorsement of verifier training, but • Regulator effort is required to define the training curriculum and approve training providers delivery of training is available on the (and potentially their individual trainers). Alternatively the regulator can subcontract parts open market by approved providers. to a specialist training supplier working under the guidance of the regulator – for example, to develop a structured curriculum and a process for approving Training Centres. Once • Successful completion of the training agreed, the costs of going through the process of obtaining and maintaining approval of a is required for verifier approval but the training course would be borne by the training provider, until such time as the curriculum regulator itself does not have to be the specification might need updating. party responsible for approving the verifier. • Delivery of training can happen as often as the market demands, meaning flexibility to adapt • Training is controlled by a regulator or to the demand for verification resources. other nominated oversight body which maintains a select list of approved • Separation of training delivery from the verifier approval process means the regulator/ verifiers/individual auditors. Controlling oversight body can concentrate on mechanisms for initial and ongoing approval of verifiers. the training can mean, for example, that This can be done on a predefined (e.g., by periodic calls for applications from interested the regulator controls the syllabus or the parties) or ad hoc basis as new verifiers emerge. approval of the trainer or training centre Depending on the nature of the verifier oversight body, it or the regulator may have to set that delivers the training. The training up the entire process of verifier approval from scratch. This includes training their own staff centre or the trainer usually delivers the in the competencies required to determine the competence of individual auditors and the training materials and decides when the competence, management, and control processes of verifiers. Those oversight bodies that training will run. are part of the International Accreditation Forum (IAF) are already established with the precise competencies and processes needed for an overall approval process; and a nominated body, for example, a Professional Institute or a Personnel Competence registration body will have the processes and competencies to evaluate individual auditor’s competencies for registration as approved individuals. More detail on the approval process is provided in section 12.1. When is this option appropriate: C • In situations where the regulator has confidence in the ability of the (national or international) Regulators maintain influence on the market to deliver training with the required level of quality; process of training and approval of verifiers through the development of • Where there are Professional Institutions that include aspects of training and competence rules for the development and delivery assessment in their professional qualifications or registers, and which could give regulators of training, e.g., based on a specified further confidence that individuals would be appropriately qualified. curriculum, but: • Where it is national policy for independent accreditation bodies to be used for the approval of • Development and delivery of verifier verifiers. training materials and services is Observations: procured on the open market. In addition to points made above: • Training is separate from the verifier approval process. • Regulator effort is required to ensure that the rules for training are established in a manner that provides a clear specification for a training curriculum and minimum expectations (e.g., • The verifier approval process is for the qualifications of tutors) that can be used by open market training suppliers. conducted by a nominated independent oversight body – such as a national accreditation body – which maintains a select list of approved verifiers. • Appropriate training is a required element of verifier approval by the nominated independent oversight body. 82 At the start of the CPI the regulator may • Templates for monitoring plans complex problems, and collecting not have sufficient resources to organise (if applicable), data reports, and FAQs for further guidance. the training of verifiers according to the verification reports to ensure a approaches listed in the table above. consistent interpretation among Section 5.2 provides guidance on a However, it is good practice to organise obligated entities and verifiers as well possible roadmap and timelines that can training in a structured and timely as a consistent data reporting. This be followed for the development of the manner. In emerging CPIs the regulator reduces the administrative burden for elements mentioned above. Annex 14 usually wants to have more control over regulators reviewing reported data provides information on guidance and training to ensure verifiers are aware and verification reports, facilitates tools developed by different countries; of the new requirements. However, it the work of the verifier oversight it also provides examples of countries should be noted that it is important for body, whilst at the same time that have set up an IT system and central the regulator themselves to have detailed increasing the quality of reporting. It helpdesk. knowledge in-house to provide or control will also lead to harmonised reporting training and to arrange for experts by verifiers, which is particularly or trainers when such knowledge is important if verifiers work across lacking. Training is best organised before borders. the start of the CPI to allow for timely instruction of verifier personnel. • Checklists and tools that can have two functions: When developing implementation support measures, it is important to note that: VERIFICATION SYSTEM – Facilitating verifiers in delivering their verification activities (for Guidance for verifiers is essential Facilitate the 9.3 example, templates for risk analysis not only on V&A specific issues T YPE OF VERIFICATION or tools to support sampling of but also on M&R specific issues implementation data); because verifiers must be clear on DESIGN how M&R specific issues need to be of the verification VERIFICATION – Supporting regulators in their understood. activities, such as the review of system REQUIREMENTS FOR VERIFIERS reported emissions data and M&R and V&A guidance, exemplars, verification reports. and templates should be well aligned Experience has shown that so that there are no discrepancies. IMPLEMENTING VERIFICATION the legislative framework • Examples or FAQs on how to deal Some M&R issues are highly and specific legislation outlining with (sector) specific MRV issues for connected to V&A issues such as MANAGING the verification system need to be standard entities/projects and for addressing misstatements and VERIFICATION supplemented with more detailed small entities and so on. noncompliance identified during the guidance and other measures unless the verification. legislation is very prescriptive and clear • IT system or web-based as to its intent. Guidance will support platforms to facilitate submission a common understanding of the legal of monitoring plans, project plans, requirements and help verifiers and reported data, and verification obligated entities comply with legislation; reports. IT systems make workflows it will also help regulators and oversight more efficient; mitigate the risk bodies to treat verifiers in an equal way, of errors in data by enabling the enforcing legislation in a uniform and use of defaults and embedded consistent manner. calculations; enable automatic cross checks; and retain all necessary Examples of further implementing data in one central place. There are measures include: a variety of different IT systems used in CPIs across the world ranging • Guidance to clarify the from sophisticated IT systems requirements of legislation (that through to basic work flow systems is, instruction on how to practically and databases where relevant apply the requirements and information is stored. understand the specifics of M&R in a harmonised way, especially where • Putting in place training for the there are different ways of achieving stakeholders involved, installing a the same outcome). central helpdesk for discussion of DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 83 10 STEP V5 Ongoing management of the verification system Ongoing management of the verification However there are other measures that a • Ongoing capacity building and system is in principle done by oversight regulator can implement to manage the stakeholder engagement; bodies that supervise the continued system, including: competence and performance of • Information exchange between verifiers and their auditors, and that can • Checking the quality and consistency different parties. impose sanctions if verifiers have not of reported data and verification complied with the legislation. These outcomes; Each of these measures are discussed in elements are covered in section 11. the following sections. FIGURE 16.  Elements in managing a verification system Quality & consistency Ongoing capacity building Information exchange Source: authors Ensuring 10.1 entities/projects, and cross-time or 3 but combined with checks comparisons; by the regulator on verifiers’ the quality and internal working papers and 2. Detailed checks on a sample documentation ; consistency of data and verification reports. Detailed checks could entail 5. Reverification by a separate verifier of verification compliance checks, cross checks or expert selected by the regulator, with other data sources available either on a sample basis or for all outcomes to the regulator, checks between reports; the reported data and verification The regulator responsible for reports, checks with earlier reports, 6. On-site inspection of the obligated receiving reported data and checks of comments raised by entity by the regulator itself. associated verification reports can verifiers, and so on. Sampling of undertake several measures to guard the such reports could be done on the Whichever option is chosen strongly quality of verification. Options range from basis of a risk assessment or other depends on the level of direct control the carrying out checks on the submitted predefined criteria such as the size regulator wants to have over the quality reports to more in-depth assessments. of emissions or emission reductions of verification; available resources and of the obligated entity, its history of how the verification system is set-up. Options include: compliance, and the complexity of If the regulator receiving the submitted the facility; reports is also the verifier oversight 1. Basic checks on submitted data body, this process will be part of the and verification reports. Basic 3. Detailed checks on all submitted supervision of the verifiers described in checks could include completeness data and verification reports; section 12.3. If this is not the case, the checks and data checks such as options above can be applied. trends, comparisons between similar 4. All checks outlined in option 2 84 TABLE 18.  Approaches for ensuring the quality of the verification outcome Option Considerations for policy makers When is the option appropriate? 1 • This option is usually taken by countries with not many regulatory resources (i.e., personnel), in particular if these Basic checks countries are at the start of a CPI and regulators are not involved in the approval of verifiers. on reported data and • Countries that select this option usually rely on a robust verification system or have implemented other measures to check verification the quality of verification outcomes. reports Examples of application: In most CPIs basic checks on verified emissions reports are carried out by regulators (e.g., completeness checks). Advantages Disadvantages • Insight into whether all reports have been submitted and • Limited checks may not give a sufficient overview of contain all required information, low level of resources the quality of the reported data and/or the quality of the needed, low implementation costs process that resulted in the verification report Observations: VERIFICATION • Regulator needs to implement procedures on how to do checks and which checks to make. The procedure can be simple SYSTEM where the basic checks are limited or the CPI is not complex. • Reporting templates and checklists will facilitate basic checks. T YPE OF VERIFICATION • IT systems can support the process: automated completeness and sense checks could be possible. DESIGN VERIFICATION When is the option appropriate? 2 • Usually applied by countries that want to have a reasonable level of confidence on the quality of verification but do not REQUIREMENTS Detailed have sufficient resources to check all reports. FOR VERIFIERS checks on a sample of • Usually carried out by countries that rely on a robust verification system but feel the need for additional review procedures reports and because of the complexity of the scheme and/or the large number of obligated parties and/or the scheme is new. IMPLEMENTING VERIFICATION verification Examples of application: reports Some countries participating in the EU ETS regulators do detailed checks on a sample of emissions and verification reports MANAGING VERIFICATION to check the quality of reports (e.g., the Netherlands and the UK). Similar checks are often carried out in ETSs and offset mechanisms that have been running for a longer period of time. Advantages Disadvantages • Lower level of resources needed than in option 3, low • The disadvantages of this option depend on what method implementation costs. is chosen to select the reports to be checked in detail. • Facilitates follow-up of outstanding issues after • Random checks may not result in checks on obligated verification, and the identification of trends in issues parties that need the most attention whereas a risk-based that might indicate further training/capacity building is approach could be more appropriate, in particular if there required. are many facilities and sectors covered in the scheme. Observations: • See option 1. • The method chosen to select the entities whose reports will be checked in detail can vary, e.g., random checks, risk- based approaches, based on predefined criteria. Risk-based approaches are good practice and focus the regulator’s attention on those reports that are likely to have high risks: e.g., because they contain issues reported by the verifier, relate to obligated parties that are large, or have a history of noncompliance and/or nonparticipation/engagement. • It is important to develop clear criteria for risk assessment procedures to select the reports to be assessed in detail. • It is important to have clear criteria on how to follow up on issues if any are identified in the review of reports – in terms of who will perform the follow-up, how it will be done, and what approaches will be taken to enforce corrective actions, etc. • Some CPIs have developed guidance and tools to support the selection and review of emissions data and verification reports (see annex 14). (continued on next page) DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 85 (Table 18 continued) Option Considerations for policy makers When is the option appropriate? 3 • Usually applied in countries where the regulator wants to have detailed control over the quality of verification and where Detailed the regulator has resources to do a large number of detailed checks in a short period of time. checks on all reported data • May also be applied in situations: and verification – Where the scheme is small and not many obligated entities are involved so work for the regulator is limited; and reports – If the review is divided over multiple local regulators, although this would increase the need to coordinate and harmonise approaches between these regulators so more detailed guidance might be required. Examples of application: • Countries like Ireland and Germany in the EU ETS do detailed checks on all the reports. Advantages Disadvantages • Higher levels of control on the quality of reporting and • Increased administrative burden for the regulator, difficult associated verification. to manage for regulators with less resources. • Detailed checks can reveal potential omissions or • May require additional resources to coordinate and collate mistakes and can provide more confidence in the reviewed information if the work is distributed across accuracy of the reported data. multiple local regulators. Observations: • See option 1. • For consistency, it is important to have guidance and instructions on what and how to do detailed checks on reports. • It is important to have clear criteria on how to follow up on issues if any are identified in the review of reports – in terms of who will perform the follow-up, how it will be done, and what approaches will be taken to enforce corrective actions, etc. When is the option appropriate? 4 • Usually applied in countries where the regulator wants to have a high level of control over the quality of verification and Detailed where the regulator has resources and competence to do these checks. checks plus checks of • May also be applied in situations where the scheme is small and not many obligated entities are involved so work levels internal for the regulator is more limited. verification Examples of application: working papers/ In Finland (part of the EU ETS) a selection of internal verification documentation is checked by the regulator. However, the documentation accreditation body that has accredited the verifier remains the responsible party for following up on issues related to the verifier and for imposing sanctions. Advantages Disadvantages • Higher level of control over the quality of verification for • Increased administrative burden for regulator. individual reports. • Regulator may not be sufficiently knowledgeable to interpret • Checks on internal verification documentation may work or findings documented in internal verification work explain the verifier’s interpretation of issues picked up papers, if they are not involved in actual supervision of during detailed checks on reported emissions data verifiers. and associated verification report. Why something was apparently missed may be due, for example, to the way • Risk of blurring the boundary between the responsibilities in which a verifier has assessed the verification risks of the regulator and those of the oversight body. associated with different parts of the monitoring process • Administrative burden could be reduced by applying a and how they have selected the sample of data for check on internal verification documentation for a sample of testing.81 verifiers based on a risk-based approach or only on request of the regulator when the regulator finds this necessary. (continued on next page) Note 81 » This would indicate that the omission was not 86 negligent, for example. (Table 18 continued) Option Considerations for policy makers Observations: • See option 3. • Clear definition of roles and responsibilities between the regulator and oversight body is required. • A policy maker should understand confidentiality obligations of verifiers.82 When is the option appropriate? 5 • Applied in countries that want to have a very high level of control over the quality of verification and/or where there are Reverification concerns about the competence of verifiers (in particular at the start of the CPI). by another verifier Examples of application: In some Chinese ETS pilots reverification by another verifier is applied. The verifier is selected and paid by the regulator. Advantages Disadvantages • Higher control on the quality of verification. • Will lead to higher resources requirements if the secondary VERIFICATION verifiers or experts are paid for by the regulator. SYSTEM • Reverification can lead to more confidence in the accuracy of data (unless it results in different conclusions • Is likely to be challenged by the obligated entity if by the two verifiers). regulators require them to pay for a second verification T YPE OF VERIFICATION without due cause being demonstrated in advance. • Increases the need for competent verifier capacity. DESIGN VERIFICATION • Likely to be time-consuming and difficult to organise in view of potential reporting deadlines. REQUIREMENTS • There is a risk that discrepancies between findings of FOR VERIFIERS the first verifier and second verifier can lead to confusion as to which verifier is correct in its findings and which IMPLEMENTING opinion statement is therefore valid. VERIFICATION • Could potentially be difficult to implement and lead to unnecessary duplication of effort. MANAGING VERIFICATION • Administrative burden could be reduced by requiring this approach for a selection of verifiers when necessary or based on a risk-based approach. Other concerns could be mitigated by defining criteria on how such a reverification would be selected. Observations: • Clear criteria are needed on when and how a reverification is carried out, as well as what to do if there are differences between the two verification opinions. • Clear criteria are needed on who can do reverification and how these verifiers are selected and paid for. When is the option appropriate? 6 • In countries that have a tradition of inspection by the regulator. Inspection by regulator • Where the CPI lends itself to incorporation into existing inspection regimes for other environmental legislation. • In countries that have a CPI that has been operational for a longer time. Mostly applicable to ETSs. Examples of application: Multiple countries in the EU ETS and in European carbon tax systems have implemented an additional inspection and enforcement of the obligated entity. (continued on next page) Note 82 » I.e., the regulator would not be allowed to remove a copy of the work papers and evidence from the verifier’s premises. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 87 (Table 18 continued) Option Considerations for policy makers Advantages Disadvantages • Allows for regulators to inspect obligated entity • Potentially higher administrative burden (although this procedures and evaluate the specific situation on site. can be mitigated by applying risk-based approaches in selecting obligated parties to be inspected). • Regulator gets a good overview of the obligated entity’s emission sources, application of monitoring methodology, • When using ‘standard regulatory inspectors’ (e.g., those metering equipment, etc. that inspect for environmental pollution permits) capacity building and training are required to develop competence • High control by regulator over the quality of compliance specific to the CPI rather than competence related to the (and reported data if detailed data checks are also done). normal inspection activities. • Can be built into existing programmes of inspection conducted for other environmental permitting reasons. Observations: • In some countries that use this option, inspection is carried out by other regulatory agencies, departments, or functions within the regulator (e.g., those that are responsible for inspection activities under other environmental legislation). • Different approaches can be applied for inspection (risk-based approaches to selecting obligated entities to visit, what to inspect, frequency of inspection, etc.). For some CPIs and countries a As a CPI generally involves large regulator may often struggle with how to combination of these options is applied. financial interests, it is good balance policy ambitions, the complexity In the EU ETS, for example, countries practice that the regulator does some of the CPI, and the available resources. such as the UK and the Netherlands additional checks on the emission report use both options 2 and 6. Germany and and verification report once the regulator Option 1 (basic checks on reported Ireland are countries where options 3 has received them. At the start of the data and verification reports) is and 6 are applied. CPI, when designing the system, the therefore mostly implemented in this phase if the regulator and the verifier oversight body are not the same party. This also depends on the type of control the regulator wants to have Minimum The following can be considered in over the process. In China’s complex, general by policy makers: multisectoral national ETS, provincial requirements authorities will likely be more inclined In most CPIs where the regulator to check emission reports verified by There are no minimum requirements for and the oversight body are separate verifiers as they assess the competence ensuring the quality and consistency parties, some type of approach of verifiers together with the China`s of verification outcomes. The regulator mentioned in the table above is National Authority on Climate Change, needs to consider whether to carry out applied. Usually approaches are which is since May 2018 the Ministry of this step. It can be an important part of outlined in guidance and internal Ecology and Environment. In complex ensuring quality of the MRV system where instructions. ETS systems and offset mechanisms, the regulator is not the oversight body. countries are likely to be more inclined Some CPIs have developed guidance to implement more than one option. and tools to support the review of data It often helps if the country can build reports and verification reports (see on or connect to existing structures in annex 14). place (for example, inspection for other environmental legislation). Where countries have used IT systems, these facilitated the processes of review. Examples can be found in several countries such as Germany, UK, Finland, Western Climate Initiative. 88 implemented, and is up and running, encountered during verifications. Ongoing 10.2 it is good practice to further train and involve stakeholders in the management An important factor for continued capacity building of the CPI. competence of verifier personnel is the requirement for verifiers to provide and stakeholder In several CPIs83 examples can be found internal training and updates. Training of ongoing training programmes that organised by the regulator or other engagement are provided to obligated entities and parties are often cascaded internally by verifiers on how to understand and the verifier to their auditors.86 However, Stakeholder engagement is interpret M&R and V&A requirements. there are also examples where all carried out at a number of stages The frequency and scale of organising auditors involved in a CPI are required to in the design, implementation, and such training varies between countries. participate in formal refresher training.87 management of the verification system. In some CPIs84 there are official annual Stakeholders can also be involved in Stakeholder engagement at the design training/refresher programmes organised other ways. Different approaches exist stage and in the set-up of the legislative by the regulator or other authorities, across CPIs depending on the scale and and institutional framework is elaborated whereas in other countries85 ad hoc complexity of the CPI and the resources further in section 5. However, even workshops are organised to discuss the of the regulator. The table below when the system has been designed, interpretation of issues or challenges provides some examples of this. VERIFICATION SYSTEM Example T YPE OF VERIFICATION The UK Emissions Trading Group (ETG) DESIGN VERIFICATION The UK ETG is a formal, independent, not-for-profit member organisation open to anyone involved in emissions trading and other domestic carbon schemes. It provides an open forum for discussion and information exchange between the UK REQUIREMENTS FOR VERIFIERS government (and by extension the European Commission) and all UK parties interested in, or participating in, the EU ETS and domestic emissions accounting, reporting, and taxation programmes. IMPLEMENTING VERIFICATION Founded in the late 1990s and originally funded with corporate donations and some grant aid from the government, currently membership fees fund a small secretariat that acts as a hub for information exchange and which organises and records MANAGING regular working groups covering different aspects of emissions trading and carbon/energy management – approximately six VERIFICATION formal working group meetings and four board meetings are held each year supported by informal subgroups as required – all working group chairs and the board of directors are volunteers voted into role by the membership. The working groups receive active participation from all relevant government departments which provide information, feedback, and listening to the discussions; further support is provided by the Business Department which provides free access to conference rooms where meetings are held. Note 83 » Countries in EU ETS, California Cap-and- Note 85 » Most countries participating in EU ETS, materials/information from that session to train other Trade System, Tokyo Cap-and-Trade System, Australian however some have official working groups (see Table auditors from within their organisation. Emission Reduction Fund 19); Western Climate Initiative Note 87 » This is, for example, the case in the Tokyo Note 84 » For example, the California Cap-and-Trade Note 86 » A representative of the verifier attends the Cap-and-Trade System. System regulator delivered training session and then uses the DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 89 TABLE 19.  Stakeholder engagement on an ongoing basis Options Who? What is involved? When and how to organise? Effort involved • Regulators • Discussing issues and trends identified in Usually organised by the Relatively easy to 1 the review of emission reports or emission regulator before the start organise and dates • Verifiers reduction reports by the regulator of the next reporting cycle can be planned Annual • Oversight bodies (see section 10.1) or general issues so that all participants can long in advance to meetings (if different from encountered during verification and take on board lessons learnt ensure all relevant regulators) approval activities. from the previous cycle’s stakeholder verifications. representatives can • Discussing developments in the attend. legislation or interpretations of requirements by regulators. • Status updates in relation to accreditation peer reviews,88 etc. • Obtaining feedback from verifiers on issues they have identified in relation to the regulator’s work (e.g., inconsistencies in interpretation or application of rules at different sites/entities). Examples of application: Multiple countries in the EU ETS hold annual meetings consisting of verifiers, oversight bodies, and regulators. In the California ETS regular meetings are organised between stakeholders including with counterparts in Canada (for linked programmes). • Obligated • Discussing implementation issues on These may be organised on The level of effort 2 entities M&R and V&A between stakeholders. a regular but ad hoc basis required depends as topics arise that require on whether such Ongoing • Regulators • Discussing developments in policy, discussion. In the case engagement is ad stakeholder legislation, and guidance; or • Verifiers of a formal organisation hoc or formalised. working group interpretations of requirements by such as the UK ETG, there For some regulators • Oversight bodies regulators; and clarifications for obligated may be regular and formal the organisation is (if these are entities of what they should expect, and working group meetings straight forward as different from when, etc. with participation by relevant they have access regulators) government departments. to rooms and resources that can In countries be used for such where there are working group multiple regional meetings; for others, or local authorities this may be more involved in the of a challenge and implementation partnering with of the CPI, these other organisations authorities can that can support be included in the meetings may be working group as required. well. Examples of application: UK in the EU ETS (see the example box on the UK ETG). This is a combination of stakeholders: verifier, obligated entities, regulators, policy makers, market traders, etc. Spain in the EU ETS (there are multiple regulators involved in the implementation of the EU ETS). Regional regulators and the oversight body (the national accreditation body) convene in a working group organised by the central coordinating regulator responsible for the overall system). (continued on next page) Note 88 » In peer reviews an accreditation body is evaluated on its competence and performance. This is 90 usually organised by an IAF regional network/group. (Table 19 continued) Options Who? What is involved? When and how to organise? Effort involved • All stakeholders • Discussing M&R and V&A implementation The organisation of these Depending on the 3 issues between stakeholders. mechanisms differs between type of mechanism countries. It can be a virtual used, this type Other • Discussing developments in the platform where stakeholders of stakeholder mechanisms legislation or interpretation of share information, one where engagement may where requirements by regulators. stakeholders meet face to require more effort regulators • Providing feedback and knowledge face or a combination of the than other options can exchange exchange. two types. discussed above; information. or could piggyback on existing mechanisms such as online discussion forums like private groups on LinkedIn. Examples of application: The EC Compliance Forum is a mechanism where regulators of countries participating in the EU ETS exchange information VERIFICATION and share experiences on the implementation of MRVA for the EU ETS. There are different task forces involved, e.g., on SYSTEM monitoring, accreditation and verification, e-reporting, aviation, and carbon capture and storage. The Forum and its task forces support harmonisation between the different countries in the EU ETS.89 T YPE OF VERIFICATION DESIGN At the start of the scheme, option verifiers are involved. The CPI is new 10.3 outlines the communication VERIFICATION 1 (annual meetings) is likely more to stakeholders, and it will facilitate needed between regulators and the appropriate as it is easy to implement. implementation if there is regular verifier oversight body when these are REQUIREMENTS FOR VERIFIERS It is, however, recommended to contact in official or unofficial meetings different parties. communicate more frequently at the or working groups. Over time, ongoing beginning of a CPI, in particular if that stakeholder engagement can evolve IMPLEMENTING VERIFICATION CPI is more complex and third-party into other forms of engagement. Section Organise 10.3 MANAGING VERIFICATION information Minimum It is good practice to engage stakeholders on a regular basis so exchange requirements that verifiers and obligated entities are informed about the latest between It is essential to organise stakeholder developments in legislation and engagement, as it promotes a common guidance and can be trained in the regulators and understanding of the requirements for specifics of MRV for different CPIs the MRVA system of a CPI. that apply within a country. oversight bodies The following issues are important be It is essential to confront verifier Information exchange can be considered by policy makers in setting personnel and lead auditors in a means for regulators and up the V&A system: training with practical case studies verifier oversight bodies to keep for discussion as this prepares a close eye on the V&A process Stakeholder engagement is an them for actual verification work. whilst not duplicating efforts. Where essential part of the management of The discussion of case studies can the regulator(s) responsible for the system, and it is good practice to aid the agreement of harmonised implementation and enforcement of the set up such engagement. Stakeholder interpretations and approaches CPI and the oversight body responsible engagement does not necessarily need by highlighting where there might for supervising verifiers are different to cost much effort, but does generally be differences of opinion between organisations, it is good practice to need planning well in advance. regulators and verifiers. organise formal information exchange lines between the two parties. Note 89 » More information can be found on: https://ec.europa.eu/clima/sites/clima/files/docs/0100/ brochure_en.pdf DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 91 It is vital, for example, that the regulator Minimum is informed if the oversight body imposes sanctions on a verifier so that requirements the regulator knows whether a verifier is still entitled to conduct verification. Policy makers should arrange for For the oversight body, it is equally information exchange between the important to receive information from verifier oversight body and the regulator the regulator on issues that have been where these are separate parties and the identified during the review of reported information concerns the imposition of data that may indicate that the verifier sanctions or the results of appeal. has not been complying with the rules or is incompetent. The oversight body can The following issues are important for then investigate and take further action, policy makers to consider: if necessary. If multiple regulators are involved Information exchange can be organised in implementation of the CPI (for in a number of different ways: example, regional or local authorities), it is good practice to arrange more • On an informal basis through formal information exchange lines telephone calls, regulator meetings, to ensure key information is shared. or e-mail contact between the It usually helps if there is a central regulator and oversight body; coordinator that can liaise between relevant regional/local authorities to • On a more formal basis embedded ensure communication processes in legislation, institutional structures function effectively. or in addition to the legal framework. In such cases, developing templates The most appropriate approach to for information exchange can support take will depend on the country’s implementation of any requirements legal system, the nature and type of and harmonise what and how different cooperation between regulators and regional/local authorities and other the verifier oversight body, and the parties communicate. complexity of the CPI. Where there is frequent and informal contact between the regulators and verifier oversight body or the scheme is small, formalised information exchange is less common. It is recommended in that case to keep track of communication between both parties as it can impact their work. In the case of sanctions being imposed on a verifier, it is good practice to share that information more widely than with just the regulator, in particular if a ‘licence to operate’ has been suspended or withdrawn. A more formal and public information exchange is appropriate in that case. 92 Part C Setting up the approval system DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 93 If a decision is taken to implement a section outlines the steps to be taken The objective of verifier approval is to verification system, it is also important to design, implement, and manage ensure the verifier, its auditors, and to define how and by whom verifiers a system for such approval and other persons undertaking verification will be approved and supervised. This supervision of verifiers. activities have the required competence, are impartial, and carry out the activities in accordance with the requirements of the CPI. Common principles underpin FIGURE 17.  Step by step through approval this objective. The principles apply to any approval system regardless of the STEP A1 STEP A2 STEP A3 STEP A4 STEP A5 type of CPI and the V&A system and Design approval Requirements provide the legal basis and framework Requirements Ongoing & supervision for approval for oversight Implementation management for the more detailed requirements system bodies discussed in the following sections. In DECISION ON: DEFINITION OF: ENSURING: ENSURING: ENABLING: general, these principles are included • Approval/ • Activities to be • Competence • Timelines are • Quality either in international ISO standards or oversight carried out in • Impartiality feasible assurance in national legislation. Annex 3 outlines approaches approval • High-quality • Availability of • Information the common principles that apply to both • Involved • Acceptance of resources exchange institutions verifiers across processes approval and verification processes. • Supporting & roles and borders infrastructure responsibilities • Supervision • Rules for • Enforcement approval Source: authors When designing the approval system it system to ensure the competence and is important for policy makers to have impartiality for entities and persons a clear view on how to structure the doing the approval and supervision system, including: of verifiers. It also discusses how to set up high-quality processes A1 Designing the approval and and organisational structures and supervision system : this step identifies which elements should be includes decisions on what approach included in legislation; to approval and supervision is most appropriate, which parties to involve, A4 How to implement the approval whether to use existing or new and supervision system : Once institutions, the role of different parties policy makers have a clear view on in the CPI, and which rules to develop how the system will be designed, to manage the verification system; they will have to develop specific rules, set up the institutional A2 How to design requirements for framework, and take steps to approval : in this step policy makers ensure proper implementation of the define the activities to be carried out approval and supervision system. in the approval and supervision of This includes timely approval of verifiers. Decisions will need to be verifiers and ensuring continued made on whether and how to accept competence of the relevant parties. verifiers from other countries, as well as the nature and type of sanctions to A5 How to manage the system on impose on verifiers and enforcement an ongoing basis : As a last step it mechanisms to ensure compliance. is important to manage the oversight It also includes information on what system on an ongoing basis to to include in legislation; ensure that parties involved in approval and supervision continue to A3 How to design requirements for be capable of assessing competence oversight bodies: this step is a key and impartiality of verifiers, and the element in the design of the oversight system remains of high quality. 94 11 STEP A1 Designing the approval and oversight system There are common features in the • A robust approval system ensures used: accreditation, certification, structure of an oversight system that competent and independent verifiers registration, authorisation, and so on; apply to any CPI. However there are and creates sufficient confidence in also some key choices that need to be the output of the CPI; • More specific rules are needed in made when designing the structure of secondary legislation tailored to the an oversight system, each with its own • It can facilitate the design and specific CPI; implications. Which options are selected implementation process if use strongly depends on factors such as is made of existing mechanisms • It is good practice for oversight the legal system of a country, available and institutions. Regulators may, bodies to assess the actual resources, and the level of ambition however, want to have more competence and performance of as outlined in section 4.2. This section direct control over approval and verifiers in practice, although this outlines the common features as well as supervision of verifiers and/or may may be difficult in some cases where the different types of oversight systems not be familiar with the workings there are low levels of regulator/ and their advantages and disadvantages. of such existing mechanisms or oversight body resource. institutions; When designing an approval and This section describes the different oversight system, the following common • A clear legal framework is needed approaches that a country can use to considerations should be taken into to approve and supervise verifiers design and implement the oversight account for any CPI: regardless of the mechanism system. FIGURE 18.  Elements in designing an approval system APPROVAL SYSTEM T YPE OF Approval structure Approval entity Dual registration Oversight/supervision APPROVAL DESIGN APPROVAL REQUIREMENTS FOR OVERSIGHT Rules for approval IMPLEMENTING APPROVAL Source: authors MANAGING APPROVAL DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 95 Options 11.1 on an evaluation of documentation 3. Certification body approval : submitted by the verifier (such Certification of individual auditors for designing as education records and work by a personnel certification body. experience) and/or examination This could include professional the approval of verifier personnel. However, institutes that evaluate and certify examination does not entail the competence of individuals structure an assessment of the verifier’s within a profession (for example, procedures in practice nor the for engineers, accountants, and One of the first choices for actual performance of that verifier environmental auditors); policy makers to make in or its individual auditors. In addition, designing the approval and oversight as part of approval, the regulator 4. Recognition : By a recognised system is what method should be would compile and maintain a list of institute or supranational authority, selected for approving verifiers. Different approved verifiers; not under the ISO standards options are available depending on the framework (for example, by the extent to which the regulator responsible 2. Regulator approval based on Executive Board for CDM/JI); 90 for the implementation of the CPI wants actual performance: Authorisation to have direct control over the V&A of a verifier by a regulator based 5. Accreditation (ISO) : By a system, and the resources they have on an evaluation of documentation recognised accreditation body available. Options include: and a review of actual performance according to the ISO standards and competence of the verifier’s framework (usually based on ISO 1. Regulator approval based on personnel. In this case, the regulator 14065 and ISO 14064-3). documentation/exams : Approval would also issue the approval and of a verifier by a regulator based compile a list of approved verifiers; TABLE 20.  Options for approving verifiers Option Considerations for policy makers When would the option be appropriate? 1 Chosen by countries that do not have many resources and no existing infrastructure, do not have existing accreditation Regulator infrastructure, or are in early stages of a CPI and want to have direct control over the eligibility and competence of verifiers. approval based on Examples of application: documentation / Chinese pilot schemes had limited resources and no existing infrastructure to approve verifiers. Provincial authorities examination approved verifiers based on document review and/or examinations. The Tokyo Cap-and-Trade System approved verifiers using the Tokyo Metropolitan Government (TMG) through a registration process: lead auditors participate in a mandatory training programme followed by an examination. This option was selected because the CPI was not large and the TMG had limited resources to evaluate all lead auditors on site. Advantages Disadvantages • High direct control by • Evaluation of documentation and examination does not entail assessment of verifier’s regulators of the approval procedures in practice nor actual performance of that verifier or its individual auditors. process. The full scale of competence of the verifier cannot be assessed. • Evaluation of • Difficult to test verifiers’ competence in examinations: examination relates to individual documentation and auditors not to organisations. If examinations are based on basic training or basic examining auditors questions, they test knowledge, not the application of skills and knowledge in practice. requires relatively limited resources from the • This option may not ensure that there are sufficient competent verifiers in the regulator. marketplace if restrictions on the regulator’s availability of time and resource mean that capacity is constrained. Observations: • It is good practice to organise training of auditors to prepare them for formalised examination. • See options 1 and 2 in section 9.2 for examples of how training can be organised. • It is good practice that training and exams not only focus on theory but also test practical application of theory using case studies and examples: e.g., what type of checks are carried out to see whether the emission factors have been determined correctly; how to check procedures, quality assurance, quality control, etc. (continued on next page) Note 90 » This is also called accreditation under 96 UNFCCC CDM framework (non-ISO framework). (Table 20 continued) Option Considerations for policy makers When would the option be appropriate? 2 • Chosen by countries that want to have direct control on the eligibility and competence of verifiers. This may form a Regulator second stage of evolution of a system after option 1 has been applied for a while and it is judged that performance approval evaluation through witnessing will tighten control over competence. In some cases parts of the process may be based on outsourced to other parties, e.g., technical experts. actual performance Examples of application: For California’s ETS, the California Air Resources Board approves verifiers and individual auditors. Approval is carried out against ISO 14064-3 and ISO 14065 as well as CPI specific legislation (the GHG reporting regulation). Approval assessment includes a document review, assessment of procedures/systems, and witness audits. California selected this option because it wanted to have direct control over the quality of auditors carrying out verification. For the Korean ETS, the National Institute of Environmental Research approves verifiers by reviewing documents and on-site visits with auditors that have passed the mandatory exam to check that the appropriate competencies and management processes are actually in place. Advantages Disadvantages • High direct control by regulator of verifier approval • Approval of verifiers by regulators could result in process. increased administrative burden. • Assessing actual performance of individual auditors gives • Without further training the regulator may itself not regulators a good insight into the quality and competence have relevant competencies to assess performance of a verifier and its auditors. competencies of auditors or certain aspects of the verifier’s procedures, processes, and documentation. • May not ensure that there are sufficient competent verifiers in the marketplace if restrictions on the regulator’s availability of time and resource mean that capacity is constrained. Observations: • Regulator may need to set up internal procedures to approve and evaluate auditors doing verification activities. This may include ensuring separation of responsibilities for these activities and activities related to supervising obligated entities. Otherwise it could lead to a conflict of interest. However, in countries with limited resources it may not be possible to separate these responsibilities, so other mechanisms to ensure impartiality are required. • Training needs to be organised for regulator staff involved in the approval of verifiers and evaluation of their auditors. APPROVAL Experts could be hired to support the regulator in this process. SYSTEM • Tools and checklists could help the regulator with processes. T YPE OF APPROVAL When would the option be appropriate? 3 DESIGN • Can be applied if a country allows natural person auditors to do verification. Accreditation bodies working within the APPROVAL Certification IAF ISO framework are not allowed to accredit individual auditors, but they can accredit organisations that perform body personnel certification thus ensuring standards are maintained for individual staff. Individual auditors approved under such a certification process would be certified by certification bodies against international standards, or by recognised REQUIREMENTS FOR OVERSIGHT (professional) institutes in accordance with their professional standards. Examples of application: IMPLEMENTING APPROVAL • Germany, in 2013 and 2014, approved individual registered EMAS auditors as EU ETS verifiers; • Alberta (Canada) nominated two eligible professions as approved to be verifiers: Engineers recognised under the MANAGING Engineering & Geoscience Professions Act and Chartered Accountants recognised under the Chartered Professional APPROVAL Accountant Act. These professions are allowed under the condition that such individuals demonstrated they have technical knowledge of GHG quantification methods, audit and other relevant matters. (continued on next page) DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 97 (Table 20 continued) Option Considerations for policy makers Advantages Disadvantages • Certification body takes care of approval of individual Without a structured programme specific scheme auditors against specifications laid down in the rules and being agreed on with the regulator, it may be difficult for guidance, so it requires less resources from the regulator. certification bodies to become familiar with CPI specific rules, focus assessment on these elements, and ensure • Certification body has the expertise to evaluate harmonisation between different certification bodies (proper knowledge, skills, and application of auditing competence detailed competence specifications, training, and guidance of individuals. is needed). • Open market access to a personnel certification body However, once a structured scheme is developed it is would mean that auditors could apply and be evaluated at possible to have certification bodies accredited for such any time they need to become approved. schemes by an IAF accreditation body. Observations: • Detailed competence specifications, training, and guidance are needed for certification bodies to be able to do certification according to programme specific rules. • If a country allows both certification of individuals and approval of verifier organisations, it is good practice to require in legislation that individual auditors must meet the same requirements as organisations. When would the option be appropriate? 4 • Where this is required by international law or CPI specific rules. For example, CDM requires verifiers91 to be accredited Recognition under the UNFCCC framework. • Can be applicable to offset mechanisms. Some domestic offset mechanisms are inspired by the CDM and allow use of designated operational entities that are recognised under the UNFCCC framework or they may (also) approve verifiers using their own national institutions. Examples of application: • CDM and JI use this system, but CDM verifiers (designated operational entities) are also allowed to verify in the China Certified Emission Reductions Scheme (CCER) (the Chinese offset mechanism); Japanese Joint Crediting Mechanism (JCM), South Africa carbon offset scheme linked with its carbon tax scheme. Advantages Disadvantages • Reliance on international framework could give the • Less direct control over approval of verifiers, depending regulator and other stakeholders confidence that the on how the system is structured. process functions well. • It is not possible to implement domestic specific elements without an additional process to overlay the UNFCCC process. • Subject to change at the international level without any information necessarily being provided pro-actively to the CPI country regulator. Observations: • Supranational bodies such as the CDM Executive Board are usually relatively well resourced and employ external experts to conduct assessments, etc.; this may not be replicable at a domestic level. • Piggybacking on their established procedures, institutions, and methodologies presents an efficient way of accessing that expertise and resource. (continued on next page) Note 91 » Called Designated Operational Entities under CDM rules. 98 (Table 20 continued) Option Considerations for policy makers When would the option be appropriate? 5 • In more complex CPIs, such as ETS and offset mechanisms that cover many different sectors and/or have more complex Accreditation M&R requirements. (ISO) • If regulators have made the decision to implement international standards such as ISO 14064-3 and 14065 or have plans to do so in the future. • If the CPI is set-up for eventual linking with one or more compatible CPIs. • When the regulator considers it essential, for example, to increase the confidence of the public and/or the market in the data being reported. Examples of application: EU ETS, British Colombia, Ontario and Quebec (Canada) in Western Climate Initiative; Kazakhstan ETS; Korea ETS. Advantages Disadvantages • Minimal cost implication for regulators as costs of • Less direct control by regulators on the verifier approval accreditation are borne by the accreditation body and process, (although they can assert influence through verifiers seeking approval. specific supplementary domestic requirements). • Robust accreditation scheme, using internationally • Accreditation can take six to nine months to complete, defined and accepted standards developed under a depending on readiness of the verifier and its preexisting multistakeholder process. experience with accredited quality control systems, etc. • Open market process means that any verifier can apply • Timing of release of the list of accredited verifiers is at any time that suits them so they can respond to market critical to avoid one verifier cornering the market or driving demand for verification capability. prices down to the disadvantage of other verifiers (thus driving them out of the market). • Makes it easy to connect with other CPIs using the same process as V&A approaches are harmonised. • Time and cost may be needed to bring accreditation assessors up to speed on CPI specific elements (e.g., • Actual performance of verifier and its relevant personnel the M&R rules) and establish work papers to record such are checked before issuing an accreditation certificate. assessment elements. • Accreditation bodies have existing competence, • Lack of direct control by regulator could be mitigated by processes and experience to assess verifiers’ implementing good information exchange lines between procedures, processes, and documentation; as well as the accreditation body and the regulator. individual auditors’ performance.92 APPROVAL SYSTEM • Most countries already have accreditation bodies93 in place for other policies, which allows for the use of existing institutions. T YPE OF APPROVAL • Recognised accreditation bodies are generally members of the International Accreditation Forum (IAF) which DESIGN harmonises application of ISO standards and peer review APPROVAL of the competence of accreditation bodies and their assessors. It also controls the multilateral agreements (MLA) that allow accreditation certificates to be REQUIREMENTS FOR OVERSIGHT recognised in any country that is a signatory of the MLA. Observations: IMPLEMENTING APPROVAL • The process for accreditation needs to start early enough to ensure that there are sufficient competent verifiers • CPI specific requirements need to be defined because ISO standards are programme neutral. MANAGING APPROVAL • Specific training and rules are needed to instruct accreditation bodies on CPI specific elements and to set up any programme specific procedures. Note 92 » Although they may well need to develop a Note 93 » Some national legislation recognises a single specific programme related to the CPI selected; and national accreditation body; other countries have several which may incorporate specific domestic requirements recognised bodies. on verifiers and auditors (e.g., specified mandatory training and/or exam). DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 99 The extent to which the regulator of responsibilities and lessens the develop the system over time. Simpler wants to have direct control over the perception of conflict of interest. procedures such as under option 1 may approval process is an important factor be applied at the early stages of a CPI, in determining design of the approval The different options outlined developing into more extensive and robust system. If there are a small number of in Table 18 can also be used to approaches as described in options 2, 3, or 5. obligated entities or there are limited resources it may not necessarily be efficient for the regulator to do the FIGURE 19. Sliding scale of direct control of governance approval of the verifier. In order to be & delivery of verifier approvals able to do so, the regulator needs to Regulator specifies set up the system and all processes to and delivers all control requirements assess verifiers and auditors. It needs to find regulatory staff with appropriate Regulator specifies and sets delivery competencies and train them to Resource implications framework(s) understand the requirements of the Third parties deliver for the regulator CPI. Where the country has an existing elements (& provide feedback to regulator) accreditation body, it may be more useful to consider appointing that accreditation body as the oversight body for efficiency Regulator has Regulator has and effectiveness. In that case, relevant full control some influence assessment procedures and systems will Regulator does everything Third parties do most things already be in place, although these may Delivery activities for a verifier approval framework include: need to be made CPI specific. recruitment, training, registration, accreditation, surveillance, information exchange, etc. (Elements of each could be assigned to different locations on the sliding scale; but Figure 19 shows that a regulator where elements are located might impact other activities and associated elements, so an overall vision is needed before Source: Authors having full control (the left hand side any element can be completely finalised) illustration of the diagram) implies it will carry out based on training material all activities by itself (e.g., approval, Where on this scale would deliver optimal outcomes by Planet & for current & future carbon pricing objectives? supervision, training, developing Prosperity Ltd Where on the scale would optimise the balance frameworks). A regulator relying on between costs and rigour? other bodies to carry out approval and supervision has less direct control but does not have to conduct all activities Example itself, reducing the associated resource requirements. Regulators can still have Development over time of the EU ETS influence over the process through the way in which the V&A system is In the first trading period (2005-2007) and second trading period (2008-2012) designed and specific rules that are some countries approved verifiers according to option 1 as European Legislation required to be implemented.94 did not explicitly require verifiers to be accredited. The approval systems in EU countries varied from approval systems according to option 1 and 2 through to Where the regulator conducts accreditation systems under the ISO framework according to international ISO verifier approvals, its personnel may standards. For the third trading period the European Commission developed a also be responsible for regulating regulation on accreditation and verification. Verifiers are required to be accredited implementation of the CPI (e.g., by a national accreditation body against EN ISO 14065 and the accreditation and approving obligated entity monitoring verification regulation in order to carry out verification. The countries that were plans, issuing permits, receiving reports, previously using option 1 either had to: or other requirements); or they may be part of a separate agency or department • Use their existing accreditation body and extend the procedures to EU ETS which gives some independence from accreditation; the CPI M&R processes. It depends on the country’s legal system and other • Use the accreditation body of another country if they did not have a national factors, such as available resources accreditation body or did not want to extend the procedures to EU ETS and level of ambition. Having separate accreditation; agencies or departments is better practice as it shows a clear separation • Only accept verifiers accredited by an accreditation body in another country (usually the case when the country is very small, has no accreditation body Note 94 » For example, in addition to the oversight body and few resources). assessing the verifier’s processes for assessment of conflict of interest (CoI), the regulator could require that a CoI assessment for each verification be submitted to 100 the regulator for review before work starts. The approach selected for involved it is important to consider the Type of entity 11.2 approving verifiers determines elements outlined in table 21. the type of body to be responsible for doing the approval approving verifiers. When selecting the method for approving verifiers and of the verifiers therefore choosing the type of entity TABLE 21.  Considerations for choosing types of entities for approval Issue Considerations for policy makers Use existing • When opting for accreditation of verifiers according to ISO 14065 and where accreditation bodies exist, these existing institutions institutions are likely to be used. or create new ones? • Where resources are limited and policy makers do not want to make the effort to set up new institutions, existing institutions are more likely to be used. Lessons learnt from CPIs show that the use of existing institutions is recommended to keep implementation of the scheme simple and to build on existing expertise and skills. • In some CPIs such as the CDM, or offset mechanisms that are based on CDM rules, the approval system is preset. Existing institutions under CDM are used in that case. • In some CPIs where multiple regulators are responsible for implementing the CPI, policy makers need to decide which institution to appoint as the responsible party approving verifiers, how other regulators will be involved in the V&A system, and whether information exchange lines need to be established or adapted. Important to note: • Even where an existing institution is used, it may need to develop or adapt existing procedures and internal rules to accommodate CPI specific issues. Under the EU ETS some countries used their existing accreditation bodies from the start of the CPI (e.g., the UK, Sweden, and Denmark). Rules and procedures needed to be developed. Assessors of the accreditation body had to be trained in EU ETS specific requirements, checklists and documentation that are used during assessments needed to be adjusted to incorporate the CPI specific issues, firm criteria needed to be developed for the assessment, etc. Should the Regulators have public authority. However, it may be that accreditation bodies and certification bodies are private institutions institutions and may need to be authorised to act with public authority.95 This can have an effect on the verifier approval process and the have public rules that may be applicable to the approval and oversight of verifiers. Depending on the legal system of the country concerned, authority? national rules for institutions with public authority can differ from national rules for institutions of a private nature. For example: • Law on public access to information could be applicable to public authorities. APPROVAL • Special rules on appeals to sanctions imposed by accreditation bodies that have public authority can be different from SYSTEM appeal procedures for organisations of a private nature. T YPE OF APPROVAL DESIGN Example Whether APPROVAL 11.3 to be approved directly. This is often called ‘dual registration’. In this process the Dual registration systems to design a REQUIREMENTS FOR OVERSIGHT oversight body evaluates the processes, documentation and competencies of the In the California ETS both the verifier dual approval verifier as a whole and assesses individual as a whole and each individual IMPLEMENTING APPROVAL auditors. Assessing individual auditors will auditor of that verifier that will carry (registration) be done either by evaluating education out verification under the ETS MANAGING and work experience records, conducting must be approved. This means, for system APPROVAL formal examinations, and/or assessing the verifier, that their procedures, their actual performance by witnessing management systems, and In some CPIs both the verifiers verification activities on site as part of documentation are assessed. For the and each individual auditor need the assessment. individual auditors, their performance is assessed in a witness audit on site. They also have to undergo mandatory Note 95 » For example, the UK Accreditation Service providing a public authority service. Whereas the training and pass an exam. (UKAS) is a not-for-profit private limited company Irish National Accreditation Board (INAB) is part of a that acts on behalf of the UK government under government agency. legislation (The Accreditation Regulations 2009) and a Memorandum of Agreement that recognises it is DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 101 The approaches vary between countries. them on an ongoing basis to ensure that 3. Assessment of updated In a dual registration system both the they retain the required capability. Policy documentation : The verifier verifier and the list of individual auditors makers can make different choices is required to submit updated are registered as eligible. Sanctions on how to organise this supervision of documentation on its personnel’s such as suspension and withdrawal verifiers. A main factor in the design education, work experience, of registration can be imposed on the of the supervision is which party is impartiality, and so on. The verifiers and/or individual auditors. responsible for supervising the verifier: responsible oversight body checks Section 6.2 describes a system where whether it is the same body as the one this documentation. individual auditors are approved approving verifiers (the situation in most independent of a verifier. cases) or a different one. Options for 4. Assessment of internal operationalising supervision include: verification documentation: Option 3 in the table below together 1. Review of emission and with the review of verifiers’ internal It is important to consider the verification reports : The regulator documentation, workpapers, and following as a policy maker: responsible for receiving reported procedures of the verifier (either a data and associated verification selection of audit files or all audit files). It is good practice to define clear reports subjects them to some criteria on the approval of verifiers and checks. Technically this is not 5. Document review, office visit, individual auditors. Most CPIs that considered supervision of the and witness audit : Evaluation have a dual registration system also verifier as the competence and of actual performance of a verifier have separate sanctions for verifiers performance of verifiers is not through visiting the offices of the and auditors. assessed directly. However, in verifier to interview staff and check some CPIs the regulator fully bases records, accompanying individual their judgment of the quality of the auditors to the site of an obligated verification as demonstrated through entity, and witnessing how they the verification report. This is similar conduct verification. This includes, Oversight of 11.4 to the review of emission and for example, reviewing plans for the verification reports documented work and witnessing how interviews the verifier in section 10.1. and inspections are conducted, and reviewing the auditor’s documentation Once the approval system is in 2. Training and reexamination : of the work after the visit. place and verifiers are approved, Regular (re)training and examination it is important to monitor and supervise of individual auditors. TABLE 22.  Options related to supervision and oversight systems Option Considerations for policy makers When would the option be appropriate? 1 • Usually chosen by countries that do not have many resources or are in the early stages of a CPI. Review of verification • Can be selected by countries that do not have existing accreditation infrastructure and rely on foreign verifiers. The reports regulator relies on the supervision of the verifier by the oversight body that has approved that specific foreign verifier. Examples of application: In the Swiss ETS scheme the regulator relies on the supervision system of the accreditation body that has accredited a foreign verifier. The Swiss regulator does check the emission report of the obligated entity and the corresponding verification report. Advantages Disadvantages • Additional checks by regulators • No actual monitoring of the performance and competence of the verifier or of its on the accuracy of data and individual auditors. compliance, low level of resources needed compared • It may be difficult for the regulator to evaluate the verifier based on review of reported to the options below, low data and verification report (reporting is usually a short summary and is only one implementation costs. element of the whole verification process). • No proper assessment of verifiers’ procedures, documentation, and operation is made in practice. (continued on next page) 102 (Table 22 continued) Option Considerations for policy makers Observations: • It is important for the regulator to implement procedures and training on how to check and evaluate data reports. • It is important for the regulator to realise that identifying issues from the review of reports and verification reports is only feasible to a limited extent. When would the option be appropriate? 2 • Usually chosen by countries that do not have many resources, do not have existing accreditation infrastructure, or that Training and are in the early stages of a CPI. reexamination • Usually applied if the regulator has also done the approval of verifiers. Examples of application: In the Tokyo Cap-and-Trade System the individual auditors undergo regular training and reexamination to ensure their continued competence. Advantages Disadvantages • May be less costly in terms • Only likely to cover updated information (e.g., rules changes, etc.), not skills and of implementation and competence. resources than option 5. • The competence of the verifier as an organisation cannot be tested. Only the competence of the individual auditors will be checked. It is important that the application of skills and knowledge of an auditor is also tested. • It is difficult to test competence in examinations, in particular if those examinations are based on basic training or basic questions not covering verification in practice by development of, for example, practical case studies. • No proper assessment of verifiers’ procedures, documentation, and operation in practice. Observations: • See section 9.2 on approaches for training. • It is good practice that training and exams do not only focus on theory but also test the practical application of theory using case studies and examples. APPROVAL SYSTEM • Clear instructions or requirements on the frequency of training, reexamination, and consequences if an auditor does not pass the exam are important. T YPE OF APPROVAL When would the option be appropriate? 3 DESIGN • Usually in combination with option 2, although there are CPIs where only option 3 is implemented. APPROVAL Assessment of updated • Usually done if the regulator is also doing the approval of verifiers. REQUIREMENTS documentation Examples of application: FOR OVERSIGHT • The Australian Emission Reduction Fund uses individual auditors from the financial accountancy world. Auditors have to submit documentation to the regulator which checks the documentation for completeness and whether they meet the IMPLEMENTING APPROVAL eligibility criteria laid down in legislation. Advantages Disadvantages MANAGING APPROVAL • Low resources needed, low • It may be difficult to assess the competence of individual auditors and verifier based implementation costs only on documentation of individuals. • No proper assessment of verifiers’ procedures, documentation, and operation in practice. (continued on next page) DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 103 (Table 22 continued) Option Considerations for policy makers Observations: • Clear eligibility criteria for verifiers and auditors based on which the regulator checks updated documentation are important: e.g., the auditor must have appropriate kind and appropriate period of experience of auditing and preparing audit reports. Clear requirements in legislation on the frequency with which updated documentation must be submitted to the regulator and what type of documentation must be submitted. • Clear requirements need to be formulated on consequences if the evaluation shows that the verifier or auditor no longer meets the eligibility criteria. This includes rules on sanctions. • A checklist and other tools may help the regulator to check the documentation. When would the option be appropriate? 4 • Applied in countries where the regulator approves the verifier and that regulator has the resources and competencies Assessment to check internal verification work papers/documentation. This can be done for a sample of the documentation. of internal Accreditation bodies will also take this approach. verification documentation • Countries where the regulator approves the verifier but does not monitor the verifier’s performance on the obligated entity’s site. The regulator wants to have a higher confidence and control over the quality of the verification. Examples of application: In the Chinese pilot schemes experts were hired by provincial authorities to check the verifier’s internal verification documentation. These experts were often other verifiers or professional institutes. Advantages Disadvantages • Better overview of the • It may be difficult to assess the verifier only based on documentation associated with quality of verification through an individual auditor’s verification work. review of internal verification • No proper assessment of verifiers’ procedures, documentation, and operation in documentation as this will practice; unless combined with a review of records associated with the application of cover all elements of the verifier processes (e.g., competence assessment, costing of verifications, technical work and the rationale for review). selecting what to test and the outcome of tests. It also • Oversight body will have to go to the verifier’s offices to review work papers as they includes documenting the are likely to be bound by a client confidentiality arrangement and cannot be copied. type of evidence obtained as This is usually included in the contract with the obligated entity. the basis for conclusions. Observations: • See option 3, though the detail of the requirements can differ because the review of internal working papers is different from assessing updated documentation under option 3. • A checklist, other tools, and IT systems may help the regulator to check documentation. When would the option be appropriate? 5 • Required in CDM accreditation under the UNFCCC framework. Document review, office • Required in accreditation according to ISO 14065. visit, and • Required in certification using ISO processes. witness audit • Can be applied in approval systems where the regulator approves the verifier by assessing actual performance of individual auditors in witness audits such as in California ETS. This is usually the case where countries have larger resources and prefer a high level of direct control over quality of verifiers. Examples of application: Any programme that established an ISO accreditation scheme, such as EU ETS and Canada (Ontario, Quebec, British Columbia). In Japan’s joint crediting mechanism, a verifier accredited according to ISO 14065 is accepted as a verifier for the JCM. However, the Joint Committee does not rely solely on the supervision of the verifier’s accreditation body. The Joint Committee can still carry out document review and on-site assessment of those verifiers that are carrying out validation and verification under the JCM. In the Californian ETS the regulator supervises the verifier and checks whether the verifiers and its auditors continue to meet requirements. Some CPIs are in the process of implementing such a system: South Africa (planned); Korea (in transition); Kazakhstan (in transition). 104 (continued on next page) (Table 22 continued) Option Considerations for policy makers Advantages Disadvantages • Robust accreditation scheme, • For accreditation and certification there may be less direct control by the regulator use of international standards over the process of monitoring and supervising verifiers than if the regulator is doing which makes it easy to link with it personally. However, the regulator can influence the process through specific other CPIs subject to the same domestic requirements and information exchange with the accreditation body. requirements. • Time and cost funding may be needed to bring accreditation assessors up to speed • Actual performance of the on CPI specific elements (e.g., the M&R and V&A rules). verifier and its personnel is monitored based on set criteria, through inspections, record checks, and witnessing. • Required in some cases by international or regional law (e.g., the EU). • Less cost and resources needed for regulators if accreditation or certification is applied. Observations: • It is important to have clear CPI specific requirements on areas where the international standards leave room for interpretation or where more specification is needed. • Oversight bodies should ensure that they have the competence and experience to assess the design and implementation of verifiers’ procedures and processes, as well as the competence to evaluate auditors’ work in practice. The extent to which the regulator wants the monitoring of verifier performance. Type of rules to 11.5 to have direct control over the ongoing If this is the case, it is good practice for supervision of verifiers is an important policy makers to consider clear rules regulate approval factor in determining the design of the in legislation on the responsibilities of and supervisions APPROVAL SYSTEM system. As with the approval process the different parties involved and formal outlined in the previous section, ongoing information exchange (for example, which supervision normally needs to be done party is allowed to impose sanctions and of verifiers T YPE OF APPROVAL by the same party that approves the what information to exchange). verifiers. The reason for this is that Domestic legislation DESIGN the oversight body needs to gather Where the accreditation scheme is to APPROVAL evidence of whether the approval can be based on ISO standards, certain The oversight structure needs be maintained and retained. Technically aspects for the supervision of verifiers to be embedded in a strong REQUIREMENTS FOR OVERSIGHT the supervision task could be are already defined in international legislative framework to ensure approval outsourced, in particular if there is no standards (for example, the requirement and supervision are carried out in ISO framework, but this is not always to check the implementation of verifier accordance with the rules and that there IMPLEMENTING APPROVAL efficient unless there are good protocols procedures, processes, and records at is sufficient legal basis for imposing for information exchange. the verifier’s premises and the witnessing sanctions by the oversight body on MANAGING of individual auditors). a verifier. Usually the rules for the APPROVAL Approval and supervision are not verification system are developed in the always conducted by the same party It is noted that the system can same type of legislation as the rules for (for example, in countries that have evolve over time from a basic the approval and supervision of verifiers. multiple regulators covering different oversight system using document review This means decisions on what to include regions). In such a case it could be that to a scheme that adopts international in the primary and secondary (delegated) the party approving verifiers may rely standards where the actual performance legislation can be taken at the same time on regional/local authorities to support and competence of verifiers are assessed. as when the verification rules are drafted. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 105 The type of rules selected will have an and relevant guidance from the and specific procedures for approval influence on how the system is designed International Accreditation Forum (IAF). and supervision where the international and vice versa. When understanding the As with ISO 14065, ISO 17011 contains standard leaves choices or where CPI design and making choices, it is therefore general requirements that are not specific requirements are more relevant. important to assess which types of rules tailored to any specific CPI. CPI specific requirements could, for are appropriate. Figure 9 in section 6.4 example, include requirements on the shows that the application of international This means that it is necessary length of validity of the accreditation standards predefines certain choices to include programme specific certificate, specific competence, and to be made in the core requirements for requirements in relation to concepts impartiality requirements. approval and supervision of verifiers for a domestic CPI. A key factor determining the type of rules is the legal system of the implementing Example country. Lessons learnt indicate that it is important to include requirements Provisions in ISO 17011 for approval and supervision of verifiers in mandatory rules so that these ISO 17011 provides a choice between reassessment alone, in which case requirements can be enforced if verifiers reassessment should take place every two years, or a combination of or oversight bodies do not comply with reassessment and surveillance. In the latter case the reassessment should take the legislation. place at least every five years, and the period between surveillance on-site assessments should not exceed two years. Application of internationally recognised standards CPI specific requirements in EU ETS The same considerations on the For the EU ETS, harmonised standard EN ISO 17011 is prescribed in the EC’s application of international standards regulation on accreditation and verification. Article 49 of the Accreditation and for verification and their use in domestic Verification Regulation (AVR) requires the national accreditation body to carry out context can be made for international annual surveillance for EU ETS verifiers. Furthermore, the accreditation certificate standards that are applicable to of a verifier is valid for a period not exceeding five years after the date on which oversight bodies. Section 6.4 is thus the certificate is issued (Article 48(2) AVR). Before the accreditation certificate also applicable to the approval and expires the national accreditation body must carry out a full reassessment of the supervision system. Annex 5 outlines verifier according to Article 49 AVR. examples of these international standards: one of which is ISO 17011 106 12 STEP A2 Designing requirements for approval Policy makers need to be familiar with – Sector scopes: Scope of approval • Sanctions : Specific sanctions, and the concepts and processes of the – this is very much influenced by the infringements for which sanctions approval and oversight of verifiers sectors covered by the selected CPI; can be imposed. and/or auditors. Although there are commonalities in basic principles – Eligibility: Specific eligibility • Appeals : How appeal procedures and requirements for approving and criteria for verifiers before they can are set-up. supervising verifiers for CPIs around the submit an application for approval; world, there are differences in the detail The differences and options are explained of approaches and choices that can – Activities : How the steps in the in the steps and sections below. be made from the options available. In approval process are carried out; particular, choices can be made related to the following concepts: • Acceptance across countries : Whether to accept verifiers from • Approval process : Within the other CPI or other countries; approval process, there are different elements that require decisions: • Ongoing oversight : How the steps in the oversight process are carried out. FIGURE 20.  Defining requirements for an approval system APPROVAL SYSTEM Approval process Acceptance across countries Ongoing oversight Sanctions Appeals T YPE OF APPROVAL DESIGN APPROVAL REQUIREMENTS FOR OVERSIGHT Requirements for approval Source: authors IMPLEMENTING APPROVAL MANAGING APPROVAL DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 107 Activities in 12.1 FIGURE 21.  Activities in the documentation and evidence which approval process usually includes: the approval • General data and information on the and oversight Define scope verifier: for example, contact details, activities, and relationships in a process larger corporate entity; Request for approval The approval process consists • A statement on which scope of of several steps that are activities/sectors the verifier is interconnected and interdependent. seeking approval; Assess Although the basic steps are largely the eligibility same in most CPIs, the type of approval • Evidence of the competence and Renewal of approval process affects the specifics of the impartiality of individual auditors as various steps and the precise activities well as other personnel that are key Prepare to be carried out in the process. assessment to the overall verification process (such as technical experts or Define scope of approval independent reviewers); Conduct Where CPIs cover several different assessment sectors, these sectors represent Example different technical scopes for which verifiers may need to be approved. In Issue Decision on EU ETS requirements for certificate approval most CPIs verifiers have to be approved requests for approval for each sector scope in which that Source: authors verifier wants to carry out verification. Accreditation and Verification In CDM the designated operational Regulation Article 45 states that the entity must be accredited in the sectoral Separate approval for specific scopes request for approval shall include at scope of the methodologies applied by is important because the verification of, least: the project activity or the PoA. Similar for example, a combustion installation approaches apply in other domestic requires different competence and • Information requested by offset mechanisms and in the voluntary expertise than verifying data from a the accreditation body and mechanisms.96 landfill site or activities in the forestry information required by ISO 17011 sector. If CPIs use scopes in approval, specific competence requirements are • Procedures and information on defined for each scope. processes and management systems Submitting a request for approval to the body approving • Competence criteria, results When designing the V&A system of verifiers of competence process, and a CPI it is good practice to include information on the process for different scopes of approval. This Each approval process starts with a ensuring continued competence prevents a verifier that is only request for approval by the verifier. In knowledgeable and experienced in some CPIs eligibility criteria are defined • Records on competence and the verification of one specific sector in legislation (e.g, verifiers need to be impartiality, and the process for from doing work in another sector, established in a specific country or ensuring continued impartiality requiring different background and region to be able to submit a request for expertise. Approval for a specific approval,97 individual auditors may need to • Information on technical experts scope of activities means that the have a certain number of years of relevant and key personnel involved in the verifier only has a ‘licence’ to carry experience or a specific education). The verification out verification in that sector. If the specific requirements depend on the CPI verifier wants to carry out verification and how the approval system is designed. • System and process for in more than one sector, it must get ensuring appropriate internal separate approval for each of these When submitting a request for approval verification documentation. sector scopes individually. the verifier will need to provide certain Note 96 » Under the Voluntary Carbon Standard verifiers Note 97 » Tokyo Cap-and-Trade System. must be approved for the scope of the methodologies that apply for a project. When the methodology falls under more than one technical area/sectoral scope, then 108 the approval must cover all relevant scopes. • Information on quality controls, and competence records meet the Assessment including management systems and requirements. It should be possible for procedures/processes; an oversight body to request further How the assessment is done, again, documentation from the applicant verifier depends on the type of approval • Other relevant records (for example, if there are gaps in the information or process. In a process that is focused on information on contracted personnel issues need to be clarified. examination of individual auditors98 or a and information on changes to review of work experience, education, procedures); and competence records (see option 1 in Table 20 of section 11.1), the assessment • Other information that is relevant is straightforward: to assessing the competence and experience of the verifier and its • Where examination is used for personnel involved in verification It is good practice to use checklists assessment, this involves testing activities. for evaluation of applications; these whether individual auditors are should include minimum eligibility knowledgeable about the CPI criteria. It is good practice to include in specific elements as well as auditing legislation the option to request further techniques. It is good practice to documentation from the applicant. arrange for (mandatory) training before examinations are held. It is good practice to outline in • Where the assessment involves legislation the required documentation Preparation for assessment checking whether documentation that the verifier must submit with submitted by the verifier meets the its application for approval. The In a formal accreditation process under eligibility criteria and requirements, precise CPI specific requirements the ISO framework this step is specifically the assessment is done based on will depend on the legal system, outlined in ISO 17011. The accreditation the documents submitted. the approval process, and how the body develops an assessment plan verifier is assessed by the body which outlines the activities planned for An assessment that includes responsible for approving verifiers. assessing the verifier, the selection of evaluation of the verifier’s and auditor’s Where the actual performance is a competent and impartial assessment performance and competence in actual evaluated by the oversight body, team, as well as the sample of practice (such as the case in option 2, additional documentation may be procedures/elements to check. 3, 4, and 5 in Table 20 of section 11.1) needed compared to situations where requires a more detailed approach. In competence is assessed based only Where the regulator approves verifiers general, it will consist of a number of on education records and work history. based on examinations or review of different parts: documentation (see option 1 in Table APPROVAL SYSTEM Where the CDM accreditation standard 20 of section 11.1), this preparation step • Review of documentation or ISO 17011 is applicable, requirements consists of different and more basic submitted by the verifier are included in those standards. activities (for example, preparing exams (desk review) : this concerns T YPE OF APPROVAL However, further programme specific and preparing to review documentation documentation that is submitted requirements will be necessary. for verifiers as a whole as well as for together with the application for DESIGN individual auditors). In this case, the actual approval. The oversight body will APPROVAL performance of individual auditors is not check the documentation against assessed and no formal assessment team the CPI specific requirements; REQUIREMENTS Assessing the eligibility of is necessarily established. FOR OVERSIGHT the verifier • Visit to the verifier’s premises : Where the oversight body assesses the to assess the verifier’s procedures, IMPLEMENTING APPROVAL The body responsible for approving the actual performance and competence management system, internal verifier will review the application and of the verifier, it usually prepares an records, and documentation (for MANAGING associated documentation. A checklist assessment plan. When preparing both design and implementation). APPROVAL for evaluation of the application can such a plan, the oversight body will support the assessment process. In consider the complexity of the scope of • Witness audit : accompanying general, the oversight body will check activities for which approval is sought, an auditor during the site visit to the completeness of information and the complexity of procedures, and an obligated entity whose report is documentation and see whether geographical areas. The more complex being verified. The oversight body will eligibility criteria have been met, for the procedures are, the more extensive check the auditor’s performance and example, by checking whether education the assessment plan will be. competence against the requirements Note 98 » Employed or subcontracted by the verifier. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 109 and specific sector scope for which decision must be taken by an individual usually published on the website of the approval has been requested. A person not involved in the assessment. regulator. This is also the case where witness audit will allow the regulator the general approval process is done or accreditation body doing the In accreditation or approval in by an oversight body but the regulator approval to see how the verifier specific programmes such as maintains the approved list. and its (lead) auditors are carrying the CDM101 and the voluntary carbon out specific verification activities standard specific procedures on In accreditation or personnel (for example, how they do data decisions for approval apply as specific certification, the time period for the sampling and how they assess the institutions are responsible for approving validity of the certificate varies, but monitoring equipment of an obligated verifiers. What decision-making generally it ranges from three104 to five entity). Assessments will usually procedures apply depends on the years, although there are CPIs with be done by an assessment team specific CPI that is applicable. longer validity periods.105 Lessons learnt checking whether the verifier and its in various CPI show that V&A systems auditors, lead auditors, and experts If the decision is to grant the verifier with an unlimited validity period for are meeting requirements and are approval, the oversight body issues the certificate can cause problems as competent. It depends on the set-up the verifier with a certificate or an the competence of the verifier is not of the system as to what level of detail authorisation. In an accreditation or regularly checked. If standards such as these steps will be conducted, what personnel certification system the ISO 17011 or ISO 17024 are applicable checks will be carried out, and how content of the certificate is outlined in to the approval process, the certificate these checks will be done. standards102 or legislation. In general, must have a limited validity. it contains the name and logo of the In some cases, it will not be possible to accreditation or certification body that Renewal of verifier approval review all procedures and documents, issued the certificate, confirmation which means some type of sampling will on whether that verifier meets the It is good practice to renew the verifier’s be applied. Where accreditation is done requirements, the scope for which approval licence/certificate on a regular according to the ISO 17011 framework, accreditation or certification is issued, basis following a full reassessment of certification or CDM accreditation is standards that have been applied in the documentation, internal procedures and prescribed for the V&A system in a accreditation or certification, and the processes, quality management systems, CPI, specific guidance99 is available to date of issue and expiry of the certificate. and the actual performance of a verifier help accreditation bodies, certification and its auditors. In such a reapproval bodies, or other bodies determine how a This information is also available process similar steps are taken as in representative sample of documentation in public databases of the relevant the initial approval process. Where the to be checked can be taken and what accreditation or personnel certification these bodies should consider in the body.103 Where the verifier is approved assessment. by a regulator or where the regulator accepts verifiers from other countries Decision on approval or CPIs, the verifier is put on a list of verifiers approved for the CPI and eligible A positive decision on the approval of a to carry out verification. This list is It is good practice to carry out verifier is taken when the oversight body reapproval before the verifier’s approval has obtained sufficient evidence that ‘licence’/certificate expires, although the verifier is competent and meeting this is not required in all CPIs. For requirements. Usually the persons some, reapproval takes place after or institutions taking the decision on expiration. The disadvantage of such whether or not to grant approval are a process is that the verifier cannot not the ones that were involved in It is good practice that the validity of the demonstrate approval in the period the actual assessment of the verifier. approval certificate is time limited and between expiration of the ‘licence’/ Those persons and institutions take the that the verifier must undergo regular certificate and reapproval which can decision based on recommendations reapproval. This is one of the measures cause complications for contracts and of the assessment team.100 Where ISO to ensure continued competence and verification activities. 17011 for accreditation or ISO 17024 for compliance of the verifier with the personnel certification is prescribed, the standards and legislation. Note 99 » This is usually available from the International Note 102 » ISO 17011 and ISO 17024. Note 104 » For CDM the validity of the certificate Accreditation Forum, regional accreditation is three years after the date of designation by the Note 103 » For EU ETS the websites and databases organisations, or the CDM’s website. relevant decision-making bodies of the UNFCCC. For of the accreditation bodies can be found by accessing accreditation and certification scheme under the ISO Note 100 » For CDM this is the accreditation panel. the following link: https://european-accreditation.org/ framework the possible validity periods are mentioned in national-accreditation-bodies-having-successfully- Note 101 » The CDM Board will take the decision on the ISO standards. undergone-peer-evaluation-by-ea/ whether or not to grant the approval based on the report Note 105 » In the Australian Reduction Fund the validity of the team compiled by the accreditation panel that of the certificate is indefinite unless it is withdrawn. 110 actually assessed the verifier. approval was based on examination verification in a sector for which it Acceptance 12.2 and assessment of documentation, this does not yet have an approval, the means resubmission of documentation verifier must submit an application to of verifiers and reexamination. For the other extend the scope of approval. Usually options for approving verifiers requiring some efficiency can be gained since across borders assessment of the actual performance internal procedures will already have of verifiers, this means a combination of been evaluated in the original approval In some CPIs verifiers from other document review, visits to the verifier’s process and during ongoing surveillance regions, countries, or other CPIs office to check out procedures, and of the verifier (where applicable). are accepted as eligible verifiers. Section witness audits. Section 11.1 provides 9.2 identifies some of the key issues that more information on the different choices. The extension assessment will thus a policy maker should consider when focus on those issues that are specific accepting verifiers across borders. Table A reapproval is thus more comprehensive to the additional sector scope being 23 presents good practice identified than surveillance as described in section requested, including: competence in different CPIs that accept foreign 12.3. The verifier has to submit the same records, actual competence of individual verifiers and through these practices type of documentation to the oversight auditors operating in that sector, technical show how key issues can be addressed. body as is done in the initial approval knowledge and experience of the sector, process, including any changes that have and so on. However, if it appears that occurred since the approval of the verifier. the verifier is struggling to meet the requirements of the scope(s) for which it Extension of scope is already approved, this should be taken into account in the assessment on whether Where the verifier wants to carry out scope can be extended to another sector. TABLE 23.  Good practice concerning acceptance of verifiers across borders Key issues Good practice Informing For the regulator: verifiers about domestic The regulator should inform the verifier about domestic and CPI specific rules and requirements. This can be done on its website, rules and through documentation from the regulator, or through training activities. For some CPIs a separate registration and notification requirements process is implemented so that the regulator knows a foreign verifier is proactively in the country and can actively inform the verifier of domestic rules and requirements. APPROVAL SYSTEM This, for example, is the case in Switzerland for the domestic offset mechanism and the ETS, as well as for the Japanese Joint Crediting Mechanism. It depends on the legal system of a country what procedures are most appropriate for informing verifiers. T YPE OF In any case, it is important for the verifier to be aware that it must use the domestic rules and requirements as one of its APPROVAL verification criteria. The verifier takes these criteria into account in checking compliance of the obligated entity and the accuracy of the data. In general, domestic rules and requirements will need to be listed as the verification criteria in the verification report. DESIGN It is good practice for the regulator to include requirements on the content of the verification report in the legislation and to APPROVAL prescribe a template. This will facilitate harmonised reporting between verifiers. REQUIREMENTS Measures In most CPIs verification activities and resulting verification reports have to be delivered in the national (or regional) FOR OVERSIGHT to support language. Foreign verifiers can meet this requirement by involving a technical translator/interpreter as a technical expert on compliance the team and ensuring communication and reporting are in the relevant language. In most CPIs that accept foreign verifiers IMPLEMENTING with national this is allowed. It is important for the regulator to be aware that a foreign verifier can take such measures. APPROVAL requirements MANAGING APPROVAL Differentiating It is good practice for a foreign verifier to meet the same competence requirements as national verifiers. This also applies between to other requirements such as impartiality, procedures, and requirements on the verification itself. In the EU ETS this is foreign and regulated in legislation. Verifiers from an EU country that want to carry out verification in another EU country must meet the national same requirements. verifier This is an important point to consider for a regulator, in particular if both national and foreign verifiers are active in a country. (continued on next page) DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 111 (Table 23 continued) Key issues Good practice Supervision Regulators may want to keep a close eye on the quality of verification carried out by foreign verifiers. This can be done in of foreign the review of reported data but also through additional supervision. With foreign verifiers or verifiers from different CPIs verifiers the problem is that another oversight body has approved that verifier. The regulator of the country in which those foreign verifiers are carrying out work may have not only the verifier to deal with but also the foreign oversight body that has approved that verifier. Several approaches are applicable with respect to the supervision of such verifiers: Accepting foreign verifiers without a separate registration or acceptance process: • Where it concerns a verifier accredited by an ISO accreditation body, that accreditation body remains the responsible party for supervising the verifier. Two options are available: – The country in which the verifier is carrying out verification has an accreditation body: the foreign accreditation body that has accredited the verifier can ask the domestic accreditation body of the country where the verifier is carrying out work to perform some of the supervision activities: e.g., performing a witness audit (see section 11.4). The latter domestic accreditation body would report back to the foreign accreditation body which will then be the responsible party for further assessment, taking decisions, and, if applicable, imposing sanctions.106 – The country in which the verifier is carrying out work has no accreditation body or that body is not used as a verifier oversight body for the CPI: the regulator can take measures itself to monitor the performance of the verifier when it is conducting verification activities locally.107 • Where it concerns a verifier approved in another CPI, such as CDM verifiers, that oversight system is applicable. However the regulator can take measures itself to monitor the performance of the verifier.108 Accepting foreign verifiers with a separate national registration or acceptance process • The regulator can select different options: – The regulator can decide to take additional measures to monitor the performance of the verifier when it is conducting activities locally. These supervision activities may be similar as for domestic verifiers (e.g., requiring foreign verifiers to participate in training or do examinations, evaluating documentation of all verifiers). However, this is not necessarily the case if the regulator, for example, decides to rely partly on the oversight body from the other country or CPI that has approved the verifier. – The oversight body appointed to normally supervise verifiers in the CPI can rely on the original oversight body that approved the foreign verifier for the other CPI and make arrangements with that body for updated information (e.g., on any sanctions). – The domestic oversight body can arrange to supervise the activities of those verifiers on the ground and report back to the original approval body, which has the right to impose sanctions when complaints are made about a verifier’s performance. Confirming In some CPIs foreign verifiers have to register with the regulator which does a check on whether the verifier meets all that the eligibility criteria.109 In other CPIs, verifiers have to notify the regulator or the original approval body of their planned foreign verifications. In those cases they will usually have to show the formal approval certificate. This certificate shows for verifier is what sector scope the verifier is approved and for how long the certificate of approval is valid. accredited or meets other eligibility criteria Note 106 » Where these accreditation parties are part Note 107 » In European countries that do not have Note 108 » In the Japanese Joint Crediting Mechanism of the IAF framework and regional authorities, specific an accreditation body or do not use it for EU ETS the Joint Committee can monitor the performance of guidance and rules are applicable. In EU ETS there is accreditation, regulators review emission reports of verifiers by carrying out on-site visits. mutual acceptance of verifiers. obligated entities (option 2 or 3 in section 10.1). In Note 109 » Tokyo Cap-and-Trade System and Japanese some of these countries the regulators also join the Joint Crediting Mechanism. 112 accreditation body in a witness audit. Periodic ongoing 12.3 As outlined in section 11.4 there are different forms of surveillance supervision of verifiers. Table 24 shows some examples of what to and oversight consider when designing supervision and oversight of verifiers for the of verifiers different options. TABLE 24.  Surveillance and oversight of verifiers Options What to consider Review of • As described in section 11.4 this option is limited in terms of supervision as it does not allow proper assessment of reported data the performance of a verifier and its auditors in practice. and verification reports • Decisions need to be made on what checks to carry out on reports, how to carry out checks, whether to check all reports or only a selection, where a selection is made, and what approach is used to select reports for review. Regular training • Decisions need to be made on the frequency with which individual auditors are reexamined, what to cover in the and reexamination exams and how exams are prepared, and how to test competence of auditors effectively. • Section 9.2 provides information on what type of training can be organised. It is good practice to arrange for practical training (e.g., through case studies or field visits) in order to test the competence of the verifier’s auditors in the field. Document • Decisions need to be made on the frequency with which documentation is checked and what documentation is to be review based provided to the oversight body or regulator on a regular basis (e.g., education records, work experience, evidence on evidence of that eligibility criteria have been met). It depends on the CPI specific requirements what checks need to be carried out work experience, on documentation to confirm eligibility and competence.110 education records, and other relevant • Clear specifications and criteria are needed on eligibility, competence, and impartiality. These need to be laid down in information from legislation to ensure enforceability. the request for • Development of checklist(s) could be useful to support harmonised document review by different oversight body staff. approval Document review • Decisions need to be made on the frequency with which documentation and the verifier’s internal verification work based on evidence papers are checked.111 submitted and internal • Checking every verifier’s total set of internal verification work papers is unlikely to be feasible. This means a selection APPROVAL verification work may need to be made; so decisions will be needed on the sample to be selected, the approach to selection, and how SYSTEM papers to take a representative sample of documentation. A risk-based approach is generally considered good practice. Key factors in a risk-based approach could include findings from previous document review, changes in key personnel T YPE OF and procedures, whether noncompliance has been detected, risks and complexity of verification activities, and APPROVAL adequacy of the verifier’s internal competence and impartiality processes. • Every element in internal verification work papers should be checked over time: competence evaluations, time DESIGN APPROVAL allocations, completeness of verifications (including whether misstatements and noncompliance issues have been closed out), whether verification opinion statements are based on sufficient (and robust) evidence, etc. It is noted that it is likely to be difficult to check such documentation without a visit to the verifier’s office to actually see processes REQUIREMENTS FOR OVERSIGHT and procedures implemented and to interview personnel. • Where such a visit is not possible, it is essential to ensure that all documentation an oversight body needs to assess can IMPLEMENTING be submitted to the oversight body without breaking confidentiality arrangements. However, the disadvantage of this APPROVAL option is that it is unlikely that verifier will submit copies of work papers to the oversight body because these may contain confidential or proprietary information and once in the hands of a public authority may become subject to freedom of information requests. This means that verifiers will put less information into documents and will not retain evidence that MANAGING APPROVAL could be considered confidential leading to incomplete work papers. It is therefore good practice to include specific requirements in legislation related to internal verification documentation (see section 7.4 step 11 for further information). • Development of checklist(s) to support harmonised document review and review of internal verification work papers by different oversight body staff. (continued on next page) Note 110 » In New Zealand individual auditors are includes evidence on the specific verification engagements Note 111 » Note, these are often confidential internal monitored through periodic review of documentation by but also on whether the verification is carried out in documents, which means that checks need to be made the Environmental Protection Agency. For that reason the accordance with requirements. The documentation must be at the verifier’s offices as they cannot release copies verifier must ensure that reliable, accurate, and complete made available to the EPA for performance assessments, without breaking confidentiality requirements. documentation is kept. This documentation not only and the EPA does detailed checks on the documentation. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 113 (Table 24 continued) Options What to consider Evaluation • Clear criteria are needed on what elements to check during the document review, verifier’s office visit, and witness audit. of verifiers’ and auditors’ • Evaluation of the actual performance is an assessment by the assessment team based on individual circumstances. performance However, there are general principles and requirements applicable, in particular if international standards are applied. through • It depends on the individual risks and circumstances what locations are visited during the verifier’s office visit and document witness audit. review, verifier’s office visit, and Taking a representative sample of procedures/processes and documentation to be checked is dependent on certain risk- witness audit based factors, including findings from previous document review, changes in key personnel and procedures, whether noncompliance has been detected before, risks and complexity of the verification activities, adequacy of competence and impartiality processes. Similar factors are taken into account when assessing which (lead) auditors and other verifier personnel – and which activities of those persons – are evaluated. In a dual registration system or a system that approves individual auditors, all auditors will be evaluated. If there is no dual system, auditors are assessed not only as part of checks on the verifier’s own competence management process but also in the supervision of the verifiers by the oversight body. However, the oversight body may decide to focus its attention on particular auditors and assess a representative number of them during each visit, so that all of them are assessed over the cycle of approval during supervision activities. Standards such as ISO 17011 as well as CDM rules112 prescribe some of these steps in detail. A key element in all of the options is the of outstanding issue(s) is required. 12.4 Sanctions frequency of oversight. If ISO 17011 This could mean further investigation is applicable then the policy maker can or ultimately imposing sanctions. It is There are some sanctions that choose between the two options that essential for ongoing surveillance to are universal for any V&A system, are listed in the standard. Usually this document all actions taken, evidence such as suspension and withdrawal of option is further defined in legislation. collected, as well as findings. the ‘licence’/certificate. The table below With other options for supervision the explains possible sanctions that can be frequency varies between CPIs. It is In addition, an assessment can be imposed on verifiers. The infringements not always predefined in legislation initiated based on the need to investigate against which sanctions can be imposed and in some cases is dependent on a complaint made about the verifier, an vary between countries and CPIs, but circumstances. appeal against a verifier’s conclusions, again there are some commonalities to significant changes in the verifier’s be found. During the surveillance assessment organisation, follow-up of corrective the oversight body assessor analyses action, or negative information received evidence obtained and information from the public. collected during the assessment. If it finds noncompliance with requirements during the assessment, these need to be corrected by the verifier and can then be closed. How this process is carried out will depend on the applicable option. It is recommended for the regulator to Where noncompliance issues are not specify the frequency of surveillance corrected, further investigation is done in legislation or to clearly define this in by the oversight body and follow-up guidance. Note 112 » Procedure for accrediting operational entities 114 by the CDM Executive Board. TABLE 25.  Type of sanctions Sanction Further information Suspension What is suspension? The verifier’s approval is maintained but the verifier is temporarily not allowed to carry out verification activities in full or for part of the scope of approval. After termination of the suspension the verifier is again allowed to carry out verification. In a dual registration system suspension can also be imposed on individual auditors. For which infringements can suspension be imposed? This varies depending on the CPI although there are some commonalities. In general, suspension is imposed where the verifier has committed a serious breach of the requirements, where the verifier has persistently failed to meet requirements, where the verifier has leaked confidential information, etc. Procedure for imposing suspension The oversight body takes the decision to suspend the verifier and informs the verifier. The oversight body will be clear on what corrective action the verifier must take to address the issue and get the suspension lifted. Usually a time period is defined within which the issue must be addressed. It is normal for a suspension to be made public so that obligated entities are aware of verifiers they may not use. Consequence of suspension The verifier cannot carry out verification. If the suspension is imposed during a specific verification, the obligated entity whose report is being verified must find another verifier or wait until the suspension is lifted for the work to be completed. The latter possibility will likely not be possible where the deadlines for submitting verified reported data are tight. Withdrawal of What is a withdrawal of certificate or registration? the certificate or registration The approval is canceled in full which means that the verifier loses its ‘licence to operate’ and cannot carry out any verification activities. In a dual registration system this sanction can also be imposed on individual auditors. For which infringements can withdrawal of the certificate be imposed? This varies depending on the CPI although there are some commonalities. In general, withdrawal is imposed where the verifier has failed to remedy the grounds for suspension, committed fraud, intentionally provided false information, or released confidential information without authorisation. Procedure for withdrawing the certificate or registration The oversight body takes the decision to withdraw the ‘licence’/certificate or registration and informs the verifier of the decision. It is normal for a withdrawn approval to be notified in public so that obligated entities are aware of verifiers they cannot use. APPROVAL SYSTEM Consequence of withdrawal of the certificate or registration The verifier loses its ‘licence’/certificate to carry out verification and has to submit a new application for approval if it wants T YPE OF APPROVAL to carry out verification in the future. Where such a sanction is imposed on the verifier during verification of an obligated entity’s report, the obligated entity must find another verifier to obtain an acceptable verified report. Depending on the rules, the regulator responsible for receiving a report can in that case determine the reportable data itself by inspection or DESIGN conservative113 estimation from relevant data; or it can order the obligated entity to have its data verified by another verifier APPROVAL or institution. This usually means that the verification will need to start again from the beginning as the new verifier will not have the information and evidence from the original verification, nor would it place reliance on another verifier’s work, REQUIREMENTS especially if that verifier has had its approval withdrawn. FOR OVERSIGHT Regulators should be aware that reports from obligated entities that have been verified by verifiers whose approval has been withdrawn after the verified reported data have been officially submitted to the regulator could warrant some IMPLEMENTING APPROVAL additional review. MANAGING Reduction of What is a reduction of scope? APPROVAL scope The approval is canceled for part of the scope which means that the verifier loses its ‘licence’/certificate to operate in a particular sector scope but maintains the approval in other scopes for which it has approval. In a dual registration system such a sanction can be imposed on individual auditors. This sanction does not appear in all CPIs but it could be effective where CPIs have different sector scopes of approval. (continued on next page) Note 113 » For baselines this means an underestimate (especially where baselines are used as the basis of allowances for trading or crediting); and for annual data this means overstating. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 115 (Table 25 continued) Sanction Further information For which infringements can reduction of scope be imposed? This varies depending on the CPI, though there are some commonalities. In general, a reduction of scope is imposed when the infringements are specific to the sector scope. It should be noted that where the verifier’s noncompliance leads to a reduction of scope in a particular sector, it should also be assessed whether the issue affects other sector scope approvals. If the noncompliance relates to general procedures and processes that can affect all sector scopes it may be more appropriate to suspend or withdraw the approval for all sector scopes. Procedure for imposing a reduction of scope The oversight body takes the decision to reduce the scope and informs the verifier of the decision. It should be clear for which scope the verifier has lost its approval, and this should be communicated publically. Consequence of reduction of scope The verifier loses its ‘licence’/certificate to carry out verification for that particular scope, and it has to submit an application for approval again if it wants to carry out verification for that scope in the future. The approval for the other scopes stays the same although the verifier will likely be more closely looked at during surveillance activities over some future period of time. Where such a sanction is imposed on the verifier during verification of an obligated entity’s report that falls into the relevant sector scope, the obligated entity must find another verifier to verify its reported data. A report verified by a verifier that has lost its approval to operate cannot be accepted as a verified report. The regulator responsible for receiving a report can in that case determine the reported emissions themselves by inspection or conservatively estimating emissions, or order the obligated entity to have it verified by another verifier or institution. Verified reports from obligated entities whose verifier has had its approval withdrawn after the verified reported data have been officially submitted to the regulator could warrant some additional checking by the regulator. Fines What are fines? Fines do not affect the approval status of a verifier, but are monetary sanctions that can be imposed as a result of noncompliance with requirements. In a dual registration system fines can also be imposed on individual auditors.114 The level of fines varies per CPI, and fines are not levied by all CPIs.115 Usually this type of sanction is implemented to allow an oversight body to impose swifter and potentially less onerous sanctions for infringements that are not sufficiently serious to warrant withdrawal of approval by other means. It depends on the legal system and the design of the V&A system whether such financial sanctions can be imposed and how they are imposed. When defining the level of fines, a policy maker should find an appropriate balance, i.e., defining high enough fines to discourage noncompliance issues and to ensure enforceability of requirements whilst not so high as to make the verifier incapable of continuing in business. Decisions also need to be made as to how revenue from fines is used, especially if the oversight body is separate from the regulator; and in the latter case whether fines are paid to the general government fund or ring-fenced to fund specific activities. For which infringements can fines be imposed This varies depending on the CPI although there are some commonalities. In general, fines are imposed when there is noncompliance with requirements but these are less serious than ones for which suspension or withdrawal of approval is imposed. However, there are some CPIs where fines are more common and different levels of fines are formulated for different types of infringements. It is good practice to have clear definitions in legislation of what infringements can result in fines of a particular level. Procedure for imposing fines The oversight body takes the decision to impose fines on the verifier and informs the verifier. Often this decision is combined with the requirement by the oversight body for the verifier to correct the relevant noncompliance issues and to improve procedures/processes, etc. Usually a time period is defined within which the issue must be addressed. Consequence of imposing fines The verifier can carry out verification as the fine does not impact the approval to carry out verification activities. However, it can be an indicator for regulators to look more closely at verified reports from obligated entities that use verifiers subject to such penalties. (continued on next page) Note 114 » This is, for example, the case in the Tokyo Note 115 » CPIs that have implemented a system for Cap-and-Trade System. imposing fines on verifiers include Tokyo Cap-and-Trade System, Chinese pilot ETS schemes, Chinese national 116 system. (Table 25 continued) Sanction Further information CPI specific Some CPIs have specific sanctions that have been implemented because of cultural and CPI specific backgrounds. sanctions Examples include: • Imprisonment of auditors in the case of serious fraud (usually implemented through general legislation on fraud). • Putting auditors on a blacklist if they show no respect for authorities and complying with the rules or if their social conduct is not appropriate.116 In most cases a sanction would have from the oversight body that is imposing 12.5 Appeals immediate effect once the decision a sanction. It is equally important to is made to impose it. Normally this is share information with the public, In most cases an oversight body regulated in national legislation. The obligated entities, other regulators, and (regardless of type) has a advantage of this is that it is easier other stakeholders concerned with the procedure for appeals, meaning that to enforce, and there is more legal CPI. This is especially true if the verifier decisions from the oversight body that certainty. However, it depends on the is suspended or approval is withdrawn adversely impact the verifier can be country’s legal system whether this is because in that case the verifier is appealed. This can concern decisions on the preferred approach. In most CPIs a not allowed to carry out verification (re)approval of the verifier or decisions verifier has the right to launch an appeal activities. to impose sanctions. Appeal procedures if it does not agree with the sanction. may differ depending on the design of Where the verifier no longer wants to the approval system. Once a penalty is imposed it is essential operate as a verifier, it can ask for its to exchange related information with the approval to be withdrawn. From the regulator responsible for implementing moment of withdrawal the verifier can the CPI, where that regulator is different no longer carry out verification. TABLE 26.  Appeals processes for different approval systems Type of approval system Considerations APPROVAL SYSTEM Regulator approves • In most of these approval systems there is alignment with the appeal procedures a regulator normally follows the verifier based on under general administrative law. documentation, exams, T YPE OF • Timelines for appeal are dependent on general law. APPROVAL and/or actual performance (option 1 or 2 in section 11.1) • Often there are legislative and internal rules on communication with verifiers about appeal procedures and DESIGN processes. APPROVAL Personnel certification • International standards such as ISO 17024 apply. REQUIREMENTS body certifies verifier FOR OVERSIGHT • Standard specifies that certification bodies must implement appeal procedures. (option 3 in section 11.1) • Programme specific requirements may be needed. IMPLEMENTING APPROVAL Recognition (non-ISO) • For CDM/JI there are specific appeal procedures. MANAGING APPROVAL (option 4 in section 11.1) • These procedures must cover specific elements outlined in the standard and be publically available. (continued on next page) Note 116 » Japanese Crediting Mechanism, some of the Chinese ETS pilot systems, Tokyo Cap-and-Trade System. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 117 (Table 26 continued) Sanction Further information Accreditation body • International standards such as ISO 17011 apply. accredits verifier (ISO) • Standard specifies that accreditation bodies must implement appeal procedures, not only for sanctions but (option 5 in section 11.1) also appeals related to other decisions of the accreditation body. • ISO 17011 requires the accreditation body to decide on the validity of appeal, communicate final decisions to verifiers, take follow-up actions if needed, and keep records of appeals and actions taken. • Programme specific requirements may be needed, e.g., whether decisions have immediate effect or only after the time for appeals has passed, communication with parties, timelines. It is good practice to have clear What needs 12.6 The previous sections outline communication and legal rules on key design elements of an appeals, procedures, and legal to be considered approval and oversight system. This effects of appeal decisions. section explains what policy makers when defining need to consider when drafting the It is good practice to specify in law in legislation itself. which cases appeals can be raised, the the rules for timelines for procedures, as well as the requirement for oversight bodies to set approval and up procedures for appeal. oversight It is good practice to exchange information on the outcome of appeals with other parties: in particular when decisions on sanctions or approval have been overturned in appeal. TABLE 27.  Defining the rules for approval and oversight Considerations Observations What to The primary legislation should outline the roles and responsibilities of the oversight body, any sanctions that can be include in imposed, and associated infringements. It is also good practice to require a formal process of information exchange primary between an oversight body and regulators responsible for CPI activities (if different). In particular, this is true for information legislation exchange on sanctions. Generally, there needs to be in primary legislation a legal basis for further detailed requirements and in in secondary implementing legislation or guidance. It depends on the specific CPI and the implementing country’s legal secondary system as to what detail will be included in primary legislation. It is however important to ensure that primary legislation is legislation mandatory and provides a sufficient legal basis. It is good practice to regulate specific requirements in secondary legislation, including: • What type of assessment is applied. • Whether approval has a certain validity period. • What to include in the ‘licence’/certificate or other document that demonstrates approval. • Whether foreign verifiers or verifiers from other regions can be used. • Eligibility criteria and documentation to be provided in the application of approval. • The frequency and type of surveillance and supervision of verifiers. • Appeal procedures. (continued on next page) 118 (Table 27 continued) Considerations Observations Specific requirements may be set in primary or secondary legislation depending on the nature and complexity of the CPI, its ambitions and objective, and its coverage and M&R processes. Although secondary legislation is of a lower status, it is important to use mandatory legislation for such rules. Whether or See section 6.4 on application of international standards. Usually a reference to ISO 17011 or other standards is included in not to apply legislation. However, additional programme specific requirements need to be incorporated in legislation as these standards international are programme neutral and provide a general framework. standards What Different measures can be taken to minimise costs for regulators and other stakeholders. However, it should be noted measures that the robustness of the approval and oversight system is not affected by a reduction in cost – the required amount of can be taken time should be applied regardless of the fee rate that is charged to verifiers. Measures that can be taken to minimise costs to minimise include: costs? • Using existing institutions that already have in place systems, processes, and competence to evaluate organisations and individuals. • Providing clear guidance on how the process of approval will be conducted and what needs to be in place, enabling verifiers to be well prepared (e.g., The Climate Registry’s Guide to Accreditation). • Mutual recognition of verifiers. How much The amount of direct control the regulator wants to have over the system not only affects the type of approval and control the supervision system designed, it also determines the type of legislation to be developed, what rules to develop, and what to regulator include in those rules. wants to have on the system Whether Measures need to be taken to ensure that verifiers are approved before the first verification report needs to be issued to an transition obligated entity. That means that policy makers need to take reporting timelines into account when designing the timeline periods are and specific steps for the approval process, and also when developing rules on approval and building the associated necessary to institutional framework. In some cases a transition period may be necessary where the system evolves over time. implement the system APPROVAL SYSTEM T YPE OF APPROVAL DESIGN APPROVAL REQUIREMENTS FOR OVERSIGHT IMPLEMENTING APPROVAL MANAGING APPROVAL DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 119 13 STEP A3 Designing requirements for oversight bodies To ensure that the activities to be to design requirements for procedures the personnel involved in approval and carried out in approval and oversight and processes that oversight bodies supervision activities. are performed effectively by competent must implement and to establish specific and impartial personnel, it is important requirements that should be imposed on FIGURE 22.  Steps in designing requirements for oversight bodies and their personnel Competence of oversight bodies Impartiality of oversight bodies Organisational requirements Rules for approval Source: authors Ensuring 13.1 of verifiers must be competent to carry out simple document review or examination of the tasks assigned to them. This is true individuals, the competence requirements competence regardless of the type of oversight body are different from those required for – whether a regulator, an accreditation assessing the actual performance of the of approval body, a personnel certification body, or verifier and its individual auditors (e.g., another institution. by interview and witnessing). and oversight Competence requirements not only apply The table below outlines the type of bodies and their to personnel involved in the approval and competence requirements that may be supervision process but also to technical relevant for different types of approval personnel experts that are hired by the oversight and supervision systems. It shows that a body. The requirements are dependent simple approval system may require less One of the key requirements is on the manner in which the associated detailed knowledge and skills from the that the personnel of an oversight V&A system is set-up. Where the approval persons doing a full evaluation. body involved in approval and supervision and supervision process consists of a 120 TABLE 28.  Competence requirements for oversight body and personnel Type of system Type of competence requirements Document The oversight body and its personnel need to possess: review and examination • Knowledge of CPI specific legislation, including technical, sector, and M&R aspects. • Knowledge of verification activities to be carried out. • Basic knowledge of data and information auditing techniques. • Basic knowledge of the type of quality assurance/controls that might be applied to verification activities, e.g., a quality management system. Regulator personnel must have sufficient knowledge to assess compliance with eligibility criteria and to develop questions for an examination. They can also outsource the development of training and exam material (see section 9.2). Document The oversight body and its personnel need to possess: review/ review of internal • Knowledge of CPI specific legislation, including technical, sector, and M&R aspects. verification • Knowledge of verification activities to be carried out. documentation • Knowledge of data and information auditing techniques (more than basic knowledge). • Knowledge of the type of quality assurance/controls that might be applied to verification activities, e.g., a quality management system (more than basic knowledge). This knowledge is necessary to enable the assessor to evaluate properly the internal verifier documentation / work papers. Assessing The oversight body and its personnel need to possess: actual performance • Familiarity with approval procedures, criteria, and other requirements. of the verifier • Training for relevant assessment personnel in assessment and, potentially, verification activities. and its personnel • Thorough knowledge of assessment methods. • Ability to communicate effectively in the required language. • Demonstrate appropriate personal attributes, e.g., being observant, ethical, decisive, self-reliant. • Knowledge of CPI specific legislation, including technical, sector specific, and M&R aspects. • Detailed knowledge of verification activities to be carried out and, specifically, knowledge and experience of data and APPROVAL information auditing techniques. This will enable the assessor to evaluate the actual performance of auditors. SYSTEM • Knowledge and experience of the type of quality assurance/controls that might be applied to verification activities, e.g., a quality management system. T YPE OF APPROVAL Depending on the scale of the assessment, an actual assessment exercise can be carried out by a team consisting of assessors, a lead assessor, and technical expert(s). The lead assessor should have the competence to lead the team. DESIGN Technical experts should have sufficient competence to understand verification activities, knowledge of CPI specific rules, APPROVAL and competence to support the (lead) assessor on the specific subject matter for which they are selected. Where the assessment is carried out by a team, at least one person of the team needs to have knowledge of GHG emission REQUIREMENTS FOR OVERSIGHT M&R that is relevant for the scope of approval. If the team does not understand the technical scope, it will not know what to look for during the assessment and will not be able to assess the actual performance of individual auditors in practice. A technical expert can be used to assist with this. IMPLEMENTING APPROVAL MANAGING APPROVAL It is good practice for the oversight process. These internal procedures follow-up action if competence can (or body to establish, implement, and could include internal training, internal needs to) be improved. Where standards maintain procedures for monitoring the evaluation of personnel, and other such as ISO 17011 apply, there are performance and competence of its methods to ensure and improve specific requirements. own personnel involved in the relevant personnel performance, including taking DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 121 Based on experience across the CPIs, a number of good practices can be identified for specifying competence requirements: Personnel involved in approval and Technical experts can support (lead) cannot be covered by the general supervision of verifiers should have assessors on specific subject matters specification in the standard. knowledge and understanding not (for example, language and technical only of the V&A system but also of issues such as GHG accounting, Lessons learnt show it is better to the requirements of the M&R system understanding of metering equipment, intensively train a select group of as they are being asked to evaluate or laboratory requirements). Technical persons to carry out assessment at the whether the verifier is capable of experts are operating under the direct start of the CPI rather than giving basic checking this for obligated entities. control of the lead assessor and should training to a large group. Assessors be competent on their subject matter need to have detailed knowledge to be The more complex the CPI is (for but do not need to understand the able to do actual assessment of the example, depending on the type of assessment process on anything other verifier properly. sectors involved), the more complex than a general level. the M&R rules are. This has an effect It is good practice for oversight on the verification. More stringent Where standards such as ISO 17011 bodies to organise periodic update/ technical knowledge will be required of are applied, it should be noted that refresher training of personnel involved assessors evaluating the competence this is a programme neutral standard in the approval and supervision of and actual performance of verifiers in which may require the inclusion of CPI verifiers. One of the main challenges such CPIs. specific requirements on competence encountered in the majority of CPIs is in legislation if there are aspects of in arranging for qualified personnel to programme design and rules that evaluate verifiers. Ensure 13.2 to be impartial and independent involved in the process of approval and from that verifier. This applies to any supervision, as well as technical experts impartiality oversight body whether it is a regulator, and personnel involved in decision an accreditation body or personnel making. The specific requirements are of approval certification body, and so on. Impartiality dependent on the CPI. However, there and independence is not only a are some commonalities to be found in and oversight prerequisite for the oversight body itself; any CPI. The table below explains what individual personnel involved in approval type of impartiality requirements may be bodies and their and supervision activities should also be relevant for the oversight body and its impartial and free of bias. personnel. personnel Specific impartiality requirements The oversight body approving should apply to the oversight body and supervising a verifier needs itself, its assessors and lead assessors TABLE 29.  Impartiality of oversight body and personnel Subject Type of impartiality requirements Oversight • The oversight body should be independent from the verifier, e.g., the oversight body must have no relations with the body verifier (not owning shares in the verifier’s company, not being in top management, etc.). • Oversight bodies’ policies and procedures should be nondiscriminatory for all parties. This does not mean that there cannot be eligibility criteria for the approval of the verifier, however these criteria must be applied fairly and equally to all parties. Application of international standards: • Where the oversight body is an ISO accreditation body or personnel certification body, additional requirements apply according to applicable standards (ISO 17011 on accreditation, ISO 17024 on certification). This includes, for example, limitations on offering certain types of consultancy and training activities. • Special requirements and procedures apply to the Accreditation Panel and Executive Board involved in CDM accreditation. (continued on next page) 122 (Table 29 continued) Subject Type of impartiality requirements CPI specific elements • For some CPIs, the oversight body must be separate from the CPI regulator (e.g., the regulator that approves monitoring plans and receives reported data and associated verification reports). The advantage of this approach is that the oversight body can have a totally separate and independent view on the quality and competence of verifiers without being distracted or influenced by other sources. The disadvantage of this approach is that it may not be possible to implement this for countries that: – Have less resources available and want to use one institution for all activities related to the CPI because they see efficiency merits in one body (e.g., a regulator) having complete overview of the quality of MRV. There could however be a risk to impartiality of the persons making independent decisions on the competence of verifiers. It is important for the regulator to be aware of such risks. – Have made a deliberate decision for the regulator to have direct control over the quality and competence of verifiers. In some cases the risks to impartiality are mitigated by having clearly separated departments within the same regulator dealing with either the M&R implementation or the approval and supervision of verifiers. – Have a simple V&A system consisting of document review or examination only (recognising that this does not constitute a verifier competency assessment). In most CPIs there are limitations on outsourcing activities of approval or supervision. Personnel • All personnel that could influence the approval and supervision process must act objectively, be impartial, and be free involved in from commercial, financial, or other pressures that could cause risks to the impartiality of the oversight body. approval and supervision • In most CPIs, in particular the ones applying ISO accreditation, the person taking the final decision on the approval should process not be part of the assessment team. • These requirements would apply not only to staff working at institutions that are involved in approval and supervision of verifiers but also to contracted personnel, such as technical experts. It is good practice for the oversight body itself but also for its own personnel and Define key 13.3 to establish, implement, and maintain contracted staff. How such procedures procedures for ensuring continued are set up depends on the type of organisational APPROVAL SYSTEM impartiality. As part of this process the oversight body. A simple approval oversight body should identify, analyse, system does not require a complex and procedural and document potential conflicts of procedure. requirements T YPE OF APPROVAL interest, not only for the oversight body DESIGN To ensure that an oversight APPROVAL body can perform approval and supervision activities effectively, it should REQUIREMENTS FOR OVERSIGHT Based on experience across the CPIs, good practices for specifying implement some key organisational and impartiality requirements include: procedural elements. Organisational elements do not relate to the structural IMPLEMENTING APPROVAL Where standards such as ISO 17011 It is good practice that persons organisation of the oversight body are applied, it should be noted that involved in the evaluation of verifiers but to the quality management and MANAGING these are programme neutral; they set are not the same persons that take the procedural aspects of a verifier oversight APPROVAL out a framework for control but do not final decisions on approval of verifiers body. Depending on the design of the specify every detail. This means that approval and supervision system and if policy makers want to cover specific any rules specified by the CPI, different impartiality requirements this needs organisational and procedural elements to be included in the CPI legislation, may be important. design, and/or rules. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 123 TABLE 30.  Key organisational and procedural requirements Requirements Explanation Any It is good practice for the oversight body to: approval and supervision • Make general information on the approval process available publically, e.g., eligibility criteria for submitting an application, system documentation required for application, information on sanctions imposed. • Take measures and implement procedures to ensure confidential information is safeguarded. • Implement procedures for addressing complaints and appeals. • Have procedures on how to manage subcontracted personnel ensuring that they are working under the responsibility of the oversight body. • Require assessors to correct identified noncompliance issues or address issues that can be improved. • Keep formal records of its findings and decisions. Document Procedural and organisational requirements can be rather simple and may focus in particular on the requirements outlined review and in row 1 above. Other procedures can include: examination • How to do document review (e.g., checklist, what information to check, how to check, who to check) • Preparation of exam questions (e.g., a question bank to ensure that the exam changes over time); how to monitor, mark, and moderate exams to ensure that they are fair. Document The procedural and organisational requirements can be simple and may focus in particular on the requirements outlined in review/ review row 1 above. Other additional procedures can include: of internal verification • How to do checks on internal verification documentation (e.g., checklist, what information to check – critical and documentation noncritical – how to check, who to check); guidance on minimum expectations. Assessing The approval and supervision system in this case is likely to be more extensive and need more specific procedural and actual organisational elements. Additional procedures for this type of assessment can include: performance of the verifier • A formal quality management system and procedures for controlling all documents and records. and its • Procedures for identification and management of noncompliance and corrective actions. personnel • Contract terms requiring obligated entities to allow assessors to accompany the verification team.117 The type of CPI system and its associated V&A process will determine the details of requirements. What needs 13.4 The previous sections outline key design elements for an to be considered approval and supervision system. This section explains what policy makers when defining need to consider when drafting the legislation itself. rules concerning approval and oversight bodies Note 117 » It is often required for the verifier to include a 124 relevant clause in its contract signed by the obligated entity. TABLE 31.  Defining the rules for approval and oversight bodies Considerations Observations concerning the considerations What to The primary legislation should outline the general rule that assessors and other personnel involved in verifier approval or include in supervision must be competent and impartial. Depending on the specific CPI and the country’s legal system, different detail primary may be included in primary legislation, and different types of primary legislation will be used. legislation and in Where the CPI regulator is itself the verifier oversight body, only the key principles of competence and impartiality are likely secondary to be included in primary legislation, and internal rules will outline specific competence and impartiality criteria and how legislation they are assessed. It is important to ensure that the primary legislation is mandatory and provides a sufficient legal basis for enforcement. It is good practice to regulate in secondary legislation: • Competence requirements for lead assessors, assessors, persons taking decisions on approval and imposing sanctions, and technical experts. • Competence requirements that should be covered by the assessment team as a whole. • Impartiality requirements depending on CPI specific elements. • Requirements on public access to information and confidentiality. • If not covered by standards, certain procedural requirements. The detailed requirements depend on the specific CPI, the ambition level of the country, and the design of its V&A system. It is important that secondary legislation is also mandatory. How can Where the CPI and its coverage is simple and relates to straightforward or simple sectors, the required expertise of an complexity assessor may be less stringent. A facility that uses only combustion of natural gas with standard emission factors and fuel of the CPI consumption based on invoices requires less detailed technical knowledge to assess the monitoring methodology and how system the verifier evaluates it. influence the type of However, for complex sectors (e.g., large chemical plants and refineries), more detailed technical knowledge may be requirements needed within the assessment team as a whole to understand required M&R processes and methodologies that form part of what they are evaluating in the verifier’s performance. This may include, for example, sector technology (to understand energy flows/emissions sources, etc.), instrumentation, and its quality control; fuel and materials sampling, laboratory analysis, and its quality control; control of information and information security. The assessor team must have sufficient competence in order to be able to assess the verifier’s competence and performance on such sector specific issues. The detail and type of competence requirements highly depends on how the approval and supervision system is designed. APPROVAL SYSTEM T YPE OF APPROVAL DESIGN APPROVAL REQUIREMENTS FOR OVERSIGHT IMPLEMENTING APPROVAL MANAGING APPROVAL DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 125 14 STEP A4 Implementation of the approval and oversight system Once the approval system is designed, it of approvals within the overall time • Taking measures to facilitate the needs to be implemented and maintained. frame for obligated entity reporting; implementation and evolution of the To ensure proper implementation the V&A system. following elements need to be addressed: • The oversight body and its personnel need to be sufficiently prepared, • It needs to be ensured that timelines including training staff and providing are feasible and allow timely delivery required resources; FIGURE 23.  Elements in implementing approval and oversight systems Timelines for approval Preparation Facilitate implementation Source: authors Timelines 14.1 or an examination is held is likely to be of the oversight body and its shorter than the timeline for an approval experience.118 It should be noted for approving system where a document review, visit to that a newly established institution the verifier’s offices, and a witness audit may need additional time compared verifiers is planned (full scope approval). to an institution that is accustomed to carrying out these type of When designing the approval For a full scope approval system it is assessments. system policy makers should important to consider the following: be aware that a verifier needs to be • CPI specific training for the oversight approved sufficiently far in advance of • It is best if the verifiers submit their staff should be organised well the verification report needing to be request for application sufficiently in advance so that the staff are submitted to the regulator to give the early for the oversight body to prepared to carry out assessments. obligated entity confidence that they complete the whole process in time. can comply with rules on verification. • In order to use witness audits To ensure sufficient competent and • An approval process in which full to assess an individual auditor’s approved verifiers by the required evaluation of actual performance performance for the first cycle of deadline it is important for policy makers through witness audits is planned approval, it may be necessary for a to consider an adequate timeline and could take 6 to 12 months, verifier to enter into a contract with roadmap for approving verifiers. depending on the complexity of the obligated entity and to start the verifier’s scope, the number verification before the approval The design of the approval system of scopes for which approval is is finalised (in principal approval determines what timelines could be requested, the extent to which subject to witnessing). However appropriate. The timeline for an approval a verifier already has proper in such cases the request for system where only documentation documentation and procedures application must be submitted and submitted by the verifier is reviewed in place, as well as the workload the approval completed successfully Note 118 » It can also depend on when witness audits can be scheduled which is influenced by when the verifier 126 has scheduled a verification visit to an obligated party site. before the verification report needs FIGURE 24.  Example timeline for ensuring timely approval to be issued to the obligated entity.119 3 End • In approval systems where witness Office visit to Reporting Year audits and review of internal check 5 implementation verification documentation is not of procedures & Witnessing required the process should be processes auditor 7 performance finished before verification starts. 1 Office visit on site to check Submission of (assumes site completed application for visits are before verification The figure below outlines a timeline for approval reporting Year work End) the situation when the approval consists Start papers* Reporting of a document review, visit to the reporting Q1 Q2 Q3 Q4 & opinion year deadline verifier’s offices, and a witness audit. Submission of Acceptance application for of corrective approval action 2 evidence Decision to Preparation 14.2 Acceptance of corrective action 6 award approval & issue of of the oversight evidence ‘certificate’ 4 8 body and * For a first time verifier with no prior history of GHG verification activities. Otherwise this can be done during the first office visit. personnel Source: authors based on training material by Planet & Prosperity Ltd First, policy makers should audits of its personnel and visits to the bodies involved in approval and define the resources needed to verifier’s premises. Policy makers need supervision of verifiers. Annex 13 gives design, implement, and manage the to balance the availability of human and more detailed information on the type system. The type of resources needed financial resources with the benefits of of resources needed, whether they are depends strongly on the choices that are adopting a more robust scheme and resources that have to be arranged for a made in the design of the approval and increasing the trust and confidence of one-off activity or for ongoing activity, and supervision system. Less resources are the public in the robustness of the MRVA what measures can be taken to reduce required for an approval and supervision system (see section 11 on the options of costs for oversight bodies and influence system that is based on document approval and supervision systems). the type and amount of resources. review and/or examination than for a system in which the actual performance Table 32 below summarises what type APPROVAL SYSTEM of the verifier will be tested in witness of costs can be identified for oversight T YPE OF APPROVAL TABLE 32.  Cost categories for approval and supervision of system DESIGN APPROVAL Stakeholder One-off cost Ongoing cost REQUIREMENTS FOR OVERSIGHT Oversight • Studies/data to facilitate design; • Cost for approval activities (staff); body • Stakeholder engagement activities (staff, travel, venues, etc.); • Costs for supervision activities (staff); IMPLEMENTING APPROVAL • Set-up of internal rules; • Costs for information exchange and cooperation with regulator (staff); • Set-up / restructuring of institutions; MANAGING APPROVAL • Hiring technical experts; • Set-up procedures; • Training personnel; • Set-up QA/QC systems (e.g., ISO 9001) • Maintain IT systems and databases. • Development of guidance material; • Maintain QA/QC systems • Set-up of IT systems/databases. Note 119 » This can cause problems as obligated ‘free’ verification with a friendly client to get around this entities may not be willing to contract a verifier that is problem. In other CPIs the regulator has allowed leeway not ‘fully’ approved. Some verifiers have arranged a in the first year of a CPI. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 127 It is important for policy makers to This can have serious consequences. Facilitate 14.3 consider the following. Formalised training can help this process. It is better to train staff well implementation Institutional framework for than to not have competent assessors oversight bodies and resources available to assess the competence of the approval and performance of verifiers. The type • Use of existing competent of training depends on the type of and oversight institutions as oversight bodies approval process. and existing structures can help system resources optimisation. In that • It may be difficult at the start of a CPI case the existing institution may to arrange for qualified trainers and Experience has shown that the only need to adapt procedures to get sufficient competent experts legislative framework and and processes to accommodate to support the oversight body, in any secondary legislation need to CPI specific requirements: for particular assessors that are involved be supplemented with more detailed example, competence criteria, new in witnessing the actual performance guidance and other measures to assessment criteria, new checklists, of auditors. In most cases facilitate the smooth operation of the and new criteria for imposing experts from existing mandatory system. This will support a common sanctions. In such cases there may environmental reporting programmes understanding of the requirements in be existing procedures on appeal, can help bring the necessary legislation, assist oversight bodies in and recording assessments may expertise. In some CPIs experts from complying with the legislation, and help already be in place and sufficiently technical institutes or environmental both regulators and oversight bodies robust, and the oversight body can engineering agencies have provided to treat verifiers equally and to enforce build on these procedures; support, along with peer-to-peer legislation in a uniform manner. knowledge sharing between CPIs of • Where new institutions are created differing levels of experience. Measures facilitating implementation are for the approval and supervision of similar to those for verification. Because verifiers, such institutions have yet Other support for of the links with verification, such to design and implement quality oversight bodies supporting tools are usually developed management procedures, appeal together. Measures could include: procedures, procedures for imposing Countries can get support from sanctions, and so on. This may international projects that help national • Guidance to clarify the require additional resources and time governments in setting up CPIs. requirements of secondary to set up. Examples include projects initiated by legislation : in some cases, the World Bank, EuropeAid, USAID, or by guidance from the International Training of staff national governments that already have Accreditation Forum, guidance existing approval structures. Experts from for accreditation from CDM, and • Oversight body staff involved in the national accreditation bodies in EU ETS guidance from regional accreditation supervision of verifiers need to be have, for example, provided support to networks may be relevant for trained on how to assess the verifier new accreditation bodies in countries that the accreditation of verifiers by and its personnel. It is important to have been developing a CPI and setting recognised accreditation bodies or train staff well. Where new institutions up accreditation or restructuring the within the CDM framework. are set-up, the staff will likely be new, procedures for CPI specific accreditation. and more training may be necessary. • Templates for assessment But also for existing oversight bodies Where a country has decided to accredit reports and information it is necessary to train existing staff verifiers under the ISO framework, it is exchange between parties to on CPI specific elements, in particular recommended that the accreditation body ensure a consistent harmonised the specific MRV requirements. of that country becomes a member of the reporting and information exchange. International Accreditation Forum and the This reduces the administrative • Timely planning of implementation relevant regional accreditation networks. burden for all stakeholders, of the various design elements is Existing accreditation bodies that work facilitating the work of the oversight important. However, one of the in other fields may already be a member. body, while at the same time observations from other CPIs is that Additional support could be obtained increasing the quality of reporting countries try to start up processes too through that network. It is noted that (although existing oversight quickly and do not spend sufficient accreditation bodies that are a member of mechanisms may already have time bringing regulators and the the International Accreditation Forum and standardised templates for their oversight body, and their personnel, up regional accreditation networks need to assessment activities). to speed on the CPI specific elements. follow specific procedures. 128 • Checklists and tools : facilitating • Databases and IT systems to complex problems and for collecting oversight body assessors in carrying facilitate information exchange and FAQs for further guidance. out their approval and supervision record information on approval activities (for example, checklists for certificates/’licences’ and sanctions • Close contact and cooperation assessing through document review imposed. It could help to give between the regulator and the and checks on internal verification oversight bodies access to relevant IT oversight body where the oversight documentation). systems, if these are used for a CPI. body is separate from the regulator. • Examples on how to deal with • Putting in place training for all Section 5.2 outlines the best timeline for impartiality issues for verifiers. stakeholders involved and installing implementing such measures. a central helpdesk for discussion of 15 STEP A5 Ongoing management of the approval and oversight system Ongoing management of the approval FIGURE 25.  Elements in managing approval and oversight systems and oversight system requires decisions on how to set up: • Measures to ensure ongoing quality of approval and oversight; Quality & consistency Information exchange • Initial and ongoing information exchange between different parties. Source: authors APPROVAL SYSTEM T YPE OF APPROVAL Ensuring 15.1 1. Information exchange between 4. Peer review on a regional or DESIGN the oversight body and the regulator international level. This may include the quality of APPROVAL responsible for CPI implementation, an assessment organised by a if these are different parties. regional or international organisation approval and REQUIREMENTS FOR OVERSIGHT whereby different competent bodies 2. Regular training and capacity peer review a particular oversight oversight building for the oversight body and body and evaluate its procedures, IMPLEMENTING APPROVAL their personnel together with other processes, and competencies. Several measures can be taken to keep stakeholders such as verifiers. MANAGING an eye on the ongoing quality of approval APPROVAL and supervision of verifiers. Options 3. Monitoring of the oversight range from exchanging information to body by the policy maker that has more in-depth assessments and include: established (or recognised) the oversight body. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 129 TABLE 33.  Approaches for ensuring the quality of approval and oversight Option Considerations for policy makers When would the option be appropriate? 1 • Applied when the regulator and the oversight body responsible for the approval and supervision of verifiers are not the Information same party. Carried out in some type of form in most CPIs where such situation occurs. exchange • In particular, relevant when multiple regulators (local or regional authorities) are involved. Examples In EU ETS, the Accreditation and Verification Regulation requires the accreditation body and the regulator to exchange information. The accreditation body shares information on sanctions imposed but also information on the planning and results of surveillance activities. The regulator shares information on applicable CPI specific legislation and issues that they have found in their review of emission reports and verification reports once these reports have been submitted to the regulator. Advantages Disadvantages • Relatively easy to implement, essential for being informed on important decisions • This will not look at the actual such as sanctions imposed and how complaints have been addressed. performance of oversight bodies and their personnel. It can only • Information encountered by a regulator in relation to a verifier (concerns on monitor how certain issues have competence, etc.) can help oversight bodies in their assessment. In general, been picked up and dealt with by oversight bodies have power to investigate the verifier and impose sanctions. oversight bodies. Observations: Information exchange will only work if both parties share information in a timely way. As a minimum requirement oversight bodies should provide feedback on sanctions imposed. Once the CPI evolves it may be useful to share more information. It is important for regulators to exchange information where they have encountered issues in their review of emission reports or verification reports which indicate something may have been missed by verifiers (e.g., significant nonconformities or misstatements in an obligated entity’s report, complaints about verifiers). When would the option be appropriate? 2 • In most CPIs, periodic training is provided, in particular at the start of the scheme. Regular training • For accreditation and personnel certification, the requirement to provide some type of training for personnel to ensure continued competence is included in standards. Examples Any accreditation or personnel certification system such as used in EU ETS, California ETS (internally by the regulator). Advantages Disadvantages • Relatively easy to implement, essential for getting oversight body personnel up • This option does not evaluate the to date on CPI specific elements, in particular sector specific M&R issues and actual performance of oversight any complexities with verifying them. bodies on the ground. It is only intended to train personnel and • Could be arranged for verifiers at the same time, harmonising understanding keep them up to date on the CPI and interpretations. specific elements. Observations: • It is good practice to plan training sufficiently early to ensure the oversight body is prepared in time for the approval process to start. • Lessons learnt in other CPIs show that it can be difficult to find sufficiently competent technical experts that will also be impartial. Training personnel is recommended along with peer-to-peer capacity building and looking more widely for technical experts that can be subcontracted to support assessors. (continued on next page) 130 (Table 33 continued) Option Considerations for policy makers When would the option be appropriate? 3 • Is usually done by the institution that has set up the oversight body. Monitoring of the oversight • Where the regulator is the oversight body, this will likely be done through internal governmental procedures or by the body governmental agency that appointed the regulator with the authority to approve and supervise verifiers. Examples In any country where the government entity has appointed an accreditation body, regulator, or personnel certification institution to carry out approval and supervision of verifiers. It depends on the legal system and governmental rules how these entities are monitored. Advantages Disadvantages • Easy to implement since this is likely already part of institutional rules for • Difficult for policy makers to assess establishing (or recognising) the oversight body (as far as it concerns basic performance of oversight bodies monitoring, if the monitoring is more extensive it could mean more resources because they may lack the practical required). experience in assessment of organisations and individuals. Observations: • Policy makers would have to set up procedures to enable this monitoring option. • Communication lines need to be set up: e.g., what to report if noncompliance of the oversight body has been found. • Clear criteria on the consequences of noncompliance are important. When would the option be appropriate? 4 • Mandatory for accreditation bodies that are a member of the IAF and regional accreditation networks, and who wish to Peer review participate in multilateral agreements giving mutual recognition. • Voluntary for other oversight bodies. Examples In EU ETS, accreditation bodies are required to undergo a peer review organised by the European Co-operation for Accreditation (the regional accreditation network in Europe: see annex 2). A team of experts from accreditation bodies will assess the competence and performance of assessors and lead assessors of accreditation bodies as well as the procedures APPROVAL SYSTEM and systems of the accreditation body itself. CPI specific evaluation criteria for the peer review have been developed. Within the European Co-operation there are procedures and rules for doing this peer review. Sanctions can be imposed if the accreditation body is not complying with ISO 17011 and the EU ETS Accreditation and Verification Regulation. T YPE OF APPROVAL Advantages Disadvantages DESIGN • Higher control on the quality of approval and oversight processes. • Difficult to implement in the early APPROVAL stages of a CPI unless there are • Assessment of actual performance in practice and competence of oversight established institutions and multiple body and its personnel involved in approving verifiers. parties to participate in peer review. REQUIREMENTS FOR OVERSIGHT • Enforcement of requirements through internal procedures of the regional • Need to have sufficient trained organisation (if membership is a requirement of the approvals process). experts to do peer review. IMPLEMENTING APPROVAL • Robust mechanism to have an overview of the quality of the overall system. • Required part of the ISO framework for accreditation where regional MANAGING accreditation networks organise peer reviews (especially in relation to APPROVAL multilateral agreements on accreditation, e.g., on ISO 14065). Observations: • Need to have a framework and a supranational body to organise the peer reviews. • Need for clear peer review criteria, based on which the oversight body’s competence and performance are assessed. • Need to have clear rules and procedures for carrying out the peer review, including the type of sanctions that can be imposed. • Need for training of peer reviewers. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 131 Information 15.2 complaints about verifiers. Regulators, The most appropriate approach to in turn, would be interested in being kept take will depend on the country’s legal exchange and up to date on how issues communicated system, the relationship and/or type of to the oversight body were addressed. cooperation between regulators and cooperation the verifier oversight body, and the Information exchange can be organised complexity of the CPI. Section 10.3 between parties in different ways: explains how such information exchange lines could be established if multiple Information exchange between • On an informal basis through regulators are involved. oversight bodies and regulators telephone calls, regulator meetings, responsible for the implementation or e-mail contact between the As a minimum requirement for all of CPI is equally essential. Where regulator and oversight body. In CPIs where the oversight body and regulators find issues in their review most countries where the oversight the regulator are different parties, it is of reported data and associated body and the regulator are different essential for the oversight body to share verification reports – for example, errors parties, this type of communication information on sanctions imposed and or nonconformances that have been and cooperation is applied. It is easy the status of approval not only with missed by verifiers – it is important to implement, and regular contact will regulators but also other stakeholders to share that information with the support both parties in their activities; such as obligated entities. This will allow oversight body so it can investigate stakeholders to identify whether a verifier the matter further and, where relevant, • On a more formal basis embodied in is allowed to operate as a verifier for that impose corrective actions or sanctions. legislation or in addition to the legal CPI or in that country/region. The same is true if regulators receive framework. Further reading European Commission. “Monitoring, Partnership for Market Readiness. United Nations Framework Convention reporting and verification of EU ETS “Emissions Trading in Practice: on Climate Change. “CDM Rules and emissions.” Accessed September 2018. A Handbook on Design and References.” Accessed September 2018. https://ec.europa.eu/clima/policies/ets/monitoring_ Implementation.” World Bank, 2016. https://cdm.unfccc.int/Reference/Standards/index.html. en#tab-0-1. https://openknowledge.worldbank.org/ handle/10986/23874. Verra. “Verified Carbon Standard. Gold Standard. “Gold Standard for Rules & Requirements.” Accessed the Global Goals.” Accessed September 2018. Partnership for Market Readiness. September 2018. “Greenhouse Gas Data Management: http://verra.org/project/vcs-program/rules-and- https://www.goldstandard.org/project-developers/ requirements/. standard-documents. Building Systems for Corporate/Facility- Level Reporting. World Bank, April 2016. WRI Greenhouse Gas Protocol. Initiative for Climate Action https://openknowledge.worldbank.org/ bitstream/handle/10986/23741/K8658. “Standards.” Accessed September 2018. Transparency. “Stakeholder pdf?sequence=5&isAllowed=y. https://ghgprotocol.org/standards. Participation Guidance.” May 2018. http://www.climateactiontransparency.org/icat- guidance/stakeholder-participation/. Partnership for Market Readiness; International Carbon Action Partnership. Partnership for Market Readiness. “Guide for Designing Mandatory “Carbon Tax Guide: A Handbook for Greenhouse Gas Reporting Programs.” Policy Makers.” World Bank, 2017. World Bank, 2016. https://openknowledge.worldbank.org/ https://openknowledge.worldbank.org/ handle/10986/26300. handle/10986/21981. 132 Annexes DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 133 CPIs in the world The table below indicates which CPIs there currently are around the world and and their V&A what type of V&A system they have. The CPIs listed are those that are in system operation or are actively being designed and implemented, and where verification may be required.120 Type of CPI Country (region, where applicable) Verification system Approval and oversight system Australia Emission Verification of project abatement reports is Individual auditors have to submit an application to reduction fund: carried out by third-party individual auditors. the Clean Energy Regulator (CER) which assesses an offset crediting Mandatory verification audits are required across the application and documentation submitted and mechanism121 the life of the project. The required frequency registers the individual auditor. Detailed requirements depends on the size of the project’s abatement are included in guidelines on what to submit in the (typically every 3-5 years). There are three types application and what type of evidence is needed. of verification audits: an initial audit to assess There are eligibility criteria for individual auditors, project eligibility122, subsequent audits examining though there are no restrictions on nationality of the the accuracy of project abatement claims and individual auditor. Auditors need to be a lead auditor unscheduled compliance audits123. demonstrating knowledge and experience in audit team leadership and the provision of assurance. Domestic legislation as well as international standards - ISO 14064-3, ISAE 3000 and ISAE The registration is on a continuous basis, i.e. it is 3410 - and relevant Australian national standards valid until de-registration. The CER can carry out are applicable to verification. inspections on auditors (either directly, via other auditors selected by CER or persons/ institutes Only individual auditors that are registered by the selected by CER). Inspection can consist of visits Clean Energy Regulator (CER) can be selected. to the office where the auditors are working to Selection and payment of the auditor is done review documentation, quality control procedures by the project participant. There are detailed and working papers. It can also include on-site impartiality requirements in legislation which are witnessing. The CER can impose conditions on further explained in guidance. The audit process the registration of auditors (e.g., a requirement to is outlined in legislation and guidance. Auditors participate in specified training). There is continuous have to take active measures to continue to be communication between the CER and auditors on competent and qualified. audit findings, updates of legislation and inspection findings. The CER can impose sanctions: suspension of the registration and de-registration in the case of infringement. Legislation specifies in which cases sanctions can be imposed. Canada Alberta – Offset Verification of baseline emission intensity, credits There is no formal pre-approval process by the Crediting Instrument from approved offset projects, and annual regulator in place for verifiers and no formal compliance reports is carried out by independent oversight mechanism other than via control third-party auditors that are selected and paid by of professional qualifications recognised in operators of obligated installations. legislation, through relevant Professional Bodies. Eligible professions are: Only individuals can be approved third-party verifiers (even when employed by a verification • Engineer (Engineering & Geoscience Professions body). Act) Requirements are set in the legal rules and in • Chartered Accountant (Chartered Professional standards and guidance specified under the Accountant Act) regulations124 for reporting and verification, which includes application of ISO 14064-3 and standards • Similar professionals in other provinces/territories for assurance engagements published by the or (approved by the programme Director) from Canadian Institute of Chartered Accountants. outside Canada - provided they have technical knowledge of GHG quantification methods, audit and other relevant matters (continued on next page) NOTE 120 » Countries that are considering implementing NOTE 122 » This audit is carried out for the first carbon NOTE 123 » Unscheduled audits may examine aspects a CPI are: Canada (Labrador, Newfoundland, Nova offset report which examines the project eligibility and of compliance and material changes in the operation of Scotia), Brazil, Brazil Rio de Janeiro, Brazil Sao Paolo, accuracy of project abatement claims. The first carbon a project. Colombia, Ukraine, Russia, Taiwan, Vietnam offset report must be submitted between six months and NOTE 124 » Climate Change and Emissions Management two years into the crediting period, or five years into the NOTE 121 » This offset mechanism is associated with Act (& subsidiary regulations on Specified Gas Emitters crediting period for sequestration projects. a ‘safeguard mechanism’ for nominated large emitters and Specified Gas Reporting) 134 involving allowance trading (Table continued) Type of CPI Country (region, where applicable) Verification system Approval and oversight system Potential conflicts of Interest are specified in the regulations and a declaration must be submitted by the verifier for the regulator to approve in advance of the work. Technical (peer) review (by someone that is independent of the verification team that conducted the verification) is mandatory and mandatory rotation of auditors (individual and organisation) is required after 5 cycles of assurance. British Columbia Verification is carried out by independent third- Verifiers have to be accredited according to ETS and Offset party verifiers that are selected and paid by ISO 14065 by a national accreditation body that Crediting Instrument obligated installations. Verifiers are organisations/ is a member of the IAF. The process includes legal entities. Core verification activities and all activities mandated under ISO 17011 and processes are prescribed in ISO 14064-3 and includes performance witnessing of individual provincial regulations125. auditors in the field as well as review of the verifier’s operational and quality control systems. Mandatory rotation of verifiers and individual National accreditation bodies carry out periodic auditors within the organisation is required if surveillance and reassessment of the accreditation the verifier has audited in 6 of the 9 most recent before the accreditation certificate expires. calendar years (or project reports for offsets). A verifier cannot validate a project plan and verify a project report for the same project. Ontario ETS and Verification is carried out by independent third- Verifiers have to be accredited according to ISO Offset Crediting party verifiers that are selected and paid by 14065 by a national accreditation body that is Instrument operators of obligated installations. Verifiers are a member of the IAF (the government website organisations/ legal entities. Core verification signposts to the Standards Council of Canada and activities and processes are prescribed in ISO the American National Standards Institution). 14064-3 and provincial regulations126. The process includes all activities mandated under A Conflict of Interest assessment (along with a ISO 17011 and includes performance witnessing mitigation plan if necessary) must be submitted of individual auditors in the field as well as review by the verifier for the regulator to approve in of the verifier’s operational and quality control advance of work starting. systems. National accreditation bodies carry out periodic surveillance and reassessment of the Mandatory rotation of verifiers is required after accreditation before the accreditation certificate 6 consecutive cycles of assurance and with a 3 expires. year gap if returning to a prior client. From 2018 the Ontario ETS is linked to California and Quebec through the Western Climate Initiative; issued allowances are accepted in all three programmes. Quebec ETS and Verification is carried out by independent third Verifiers have to be accredited according to Offset Crediting party verifiers that are selected and paid by ISO 14065 by a national accreditation body that Instrument operators of obligated installations. Verifiers are is a member of the IAF. The process includes organisations/ legal entities. Core verification all activities mandated under ISO 17011 and activities and processes are prescribed in ISO includes performance witnessing of individual 14064-3 and relevant provincial regulations127. auditors in the field as well as review of the verifier’s operational and quality control systems. Mandatory rotation of verifiers is required after National accreditation bodies carry out periodic 6 consecutive cycles of assurance and with a 3 surveillance and reassessment of the accreditation year gap if returning to a prior client. before the accreditation certificate expires. The Quebec ETS is linked to those of California and Ontario through the Western Climate Initiative; issued allowances are accepted in all three programmes. (continued on next page) NOTE 125 » GHG Industrial Reporting & Control Act, NOTE 127 » Regulation respecting mandatory reporting of GHG Emissions Reporting Regulations and GHG certain emissions of contaminants into the atmosphere, Emissions Control Regulations Regulation respecting a cap-and-trade system for GHG emissions allowances NOTE 126 » Climate Change Mitigation & Low Carbon Economy Act, Quantification, reporting and verification of GHG Regulations (& associated guidelines) DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 135 (Table continued) Type of CPI Country (region, where applicable) Verification system Approval and oversight system China Beijing – ETS pilot The emission report must be verified by a third- The Provincial Climate Change Authority party verifier who is approved by the Provincial approves verifiers by assessing applications and Climate Change Authority (Beijing Development documentation. There is a dual registration system Reform Commission). After the restructuring of which means that both the verifier organisation the government in China, the responsibility of and individual auditors have to be approved and the climate change authority will be transferred registered. Individual auditors must be employed by to the Local Ecology and Environment Agency. the verifier. The Provincial Climate Change Authority Verifiers are selected by the reporting entity involves independent experts or institutes to carry obligated under the ETS system. Beijing DRC out checks on all emission and verification reports paid the verification fee for the historical year data as a fourth-party check. For 30% of completed verification (2009-2012). verifications, the Provincial Climate Change Authority also selects a second verifier to check the Only verifiers included on the DRC’s registry can original verification working papers and the details of be selected. Impartiality requirements are included the original verification. In the case of infringements in the legislation. Other requirements include the Provincial Climate Change Authority can impose mandatory site visits by verifiers and requirements sanctions consisting primarily of fines. on the content of the verification report. Chongqing – ETS The emission report must be verified by a verifier The Provincial Climate Change Authority pilot that is selected and paid by the Provincial approves verifiers by assessing applications and Climate Change Authority. The verifier must documentation. There is a dual registration system assess for itself whether there is a conflict of which means that both the verifier organisation interest. Specific impartiality requirements are and individual auditors have to be approved and incorporated in legislation. Other requirements registered. Individual auditors must be employed include: by the verifier. The Provincial Climate Change Authority involves technical institutes to check • Mandatory site visits emission and verification reports as well as verifier • Specific requirements on competence, working papers. On-site visits can be carried out education, and experience to assess the performance of individual auditors. In the case of infringements the Provincial Climate Change Authority can impose sanctions consisting primarily of fines, ordering the verifiers to make corrections or revoking the licence of verifiers. Fujian – ETS Pilot Verification is carried out by verifiers selected and The Provincial Climate Change Authority approves paid by the Provincial Climate Change Authority. verifiers ex ante. As part of the oversight system *Not approved by Legislation includes Interim Measures for the verifiers are periodically assessed by the Provincial National Authority. Management of Emissions Trading as well as Climate Change Authority. guidelines on verification mechanisms. Guangdong – ETS Verification of emission reports is carried out Every three years, the Provincial Climate Change pilot by verifiers selected and paid by the Provincial Authority approves a list of verifier companies Climate Change Authority. Verifiers are required based on a review of documentation. The to meet a verification guidance published by Provincial Climate Change Authority is supported the Provincial Climate Change Authority which by technical institutes. As part of the oversight of is drafted based on international standards verifiers, the Provincial Climate Change Authority ISO 14064-3 and ISO 19011-2003. Verifiers are selects a second verifier to check verification required to implement internal measures to avoid reports, as well as to perform additional on- conflicts of interest. It is mandatory to rotate site verification. The Provincial Climate Change verifiers every three years. Requirements for Authority develops a review mechanism for each verification take into account ISO 14064-3 and verifier, and the results will be open to verifiers. include mandatory on-site visits by verifiers as Those who perform well receive a certificate. well as specified content of verification reports. Sanctions include the imposition of fines and putting verification companies on a blacklist. Hubei – ETS pilot The emission report must be verified by a The local DRC approves individual auditors who third-party verifier who is approved by the local have to be part of a verifier organisation. A pool Development Reform Commission (DRC). of experts provides support to the DRC. As part of the oversight system all emission report and Hubei DRC paid the verification fee for the verification reports are reviewed by independent historical year data verification. experts or institutes that are selected by the Impartiality requirements are included in the DRC. Sanctions can be imposed in the form of legislation. Other requirements include mandatory fines. The DRC can decide to inspect verifiers site visits by verifiers and requirements on the and review their internal work papers and other content of the verification report. documentation. (continued on next page) 136 (Table continued) Type of CPI Country (region, where applicable) Verification system Approval and oversight system Shanghai – ETS Verification is carried out by third-party verifiers Verifiers are approved by the Provincial pilot who are selected and paid by the Provincial Climate Change Authority based on review Climate Change Authority. There are some of documentation and assessment of the eligibility criteria for verifiers. They must: performance of auditors on site. As part of the oversight system the Provincial Climate Change • Be a legal entity based in Shanghai; Authority selects a fourth verifier to check • Have carried out CDM verification, ISO 14064 verification reports, carry out checks on the verification, or conducted a research project in original verifier’s working papers, and carry out the GHG Area; on-site inspection audits. • Have at least six auditors on staff; • Have an internal quality assurance system. Impartiality requirements are included in the legislation. Shenzhen – ETS Verification is carried out by third-party verifiers Approval of verifiers is carried out by the Local pilot that are selected and paid by the reporting MQS based on document review. There is a dual entity. Approval of verifiers is carried out by registration system in which both the verifier the local MQS (Market and Quality Supervision organisation and individual auditors are approved. Commission) based on document review. They As part of the oversight system the local MQS also check impartiality and independence of performs random checks on emission reports the verifiers and auditors. When carrying out and verification reports. It also checks impartiality verification, ISO 14064-3 is applicable as well as and independence of the verifiers and auditors. provincial legislation. The Local MQS can impose sanctions in the case of infringements (e.g., leaking confidential information, fraud). Sanctions include various sizes of fines. Tianjin – ETS pilot Verification is carried out by third-party verifiers The Provincial Climate Change Authority approves selected and paid by the Provincial Climate verifiers based on document review. As part Change Authority. Eligibility criteria are applicable of the oversight system the Provincial Climate to verifiers. This includes the following criteria: Change Authority selects a second verifier to the verifier must be a legal entity, be located in check the original verifier’s work including the Tianjin province, and have a minimum number of verification report and associated verification auditors in the legal entity. work papers. Possible sanctions include fines and compensation for loss in damages and legal liability. National – ETS Verification will be carried out by third-party It is not clear yet which party will do the verifiers that will be accredited according accreditation and oversight of verifiers. A legal the National guidance of the greenhouse gas basis has been provided for periodic evaluation accounting methodology and reporting for of the competence of verifiers and clearly defined enterprises and the National verification guidance requirements on such processes. Sanctions for emission report of enterprises. When the can be imposed by the Ministry of Ecology and verification guidance is developed the related Environment (MEE) and Provincial Climate Change international standards such as ISO 14064-3, ISO Authorities. 14065 and ISO 14066 are referred to. National – Validation of baselines and project plans and The National Authority on Climate Change Offset Crediting verification of monitoring reports are carried (formerly NDRC, now MEE) approves and Instrument128 out by third parties, which are registered in the registers designated operational entities before National Authority on Climate Change. Verifiers they can carry out validation of project plans and are selected and paid by the project developers. verification of monitoring reports under CCER. Approval is carried out based on document review and assessment of actual performance on site. The Ministry of Ecology and Environment can impose sanctions, including suspension, withdrawal of registration, and fines. (continued on next page) Note 128 » CCER, i.e., Chinese Certified Emissions Reductions DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 137 (Table continued) Type of CPI Country (region, where applicable) Verification system Approval and oversight system Europe (supranational Verification is carried out by independent Verifiers have to be accredited by national regional) ETS third-party verifiers that are selected and paid accreditation bodies according to ISO 14065 and (28 EU Member States plus by obligated entities.129 In general verifiers are the AVR. Different scopes of accreditation have Liechtenstein, organisations/legal entities. Verifiers have to been defined in legislation. A verifier is only allowed Norway and comply with the EU ETS Accreditation and to carry out verification for a particular scope if Iceland) Verification Regulation (AVR) and EN ISO 14065 it is accredited against that scope. Accreditation as well as ISO 14064-3. Associated guidance, includes performance witnessing of individual templates, exemplars, and frequently asked auditors in the field as well as review of the verifier’s questions have been developed to facilitate the operational and quality control systems. National implementation of the AVR. accreditation bodies carry out annual surveillance and reassessment of the accreditation before ETS specific requirements on competence and the accreditation certificate expires. Specific impartiality but also on other topics such as the requirements for accreditation bodies are included in verification process are included in the AVR. the AVR and ISO 17011. The European Cooperation In general, verifier’s site visits are mandatory for Accreditation (EA) monitors performance of but under strict conditions site visits can be accreditation bodies in a regular peer evaluation. waived. This is subject to regulator’s approval for installations that emit more than 25 ktCO2 per There is mutual recognition of verifiers, i.e., verifiers year. Detailed requirements are included on the accredited by a national accreditation body that has content of verification report and the follow-up of undergone a successful peer evaluation by the EA issues that are reported by verifiers. must be accepted by all Member States. Sanctions can be imposed by the national accreditation body for infringements of legislation; this includes suspension, withdrawal of the approval certificate, and reduction in the scope of accreditation. There are specific requirements in the AVR on information exchange between the national accreditation body and the relevant Member State regulator responsible for implementing EU ETS. Carbon tax130 There is no verification under the carbon tax Not required systems implemented by EU ETS countries. Tax authorities review tax reports and refunds, and in that respect they do simple checks on the data in the tax report and cross checks with other relevant data. Further information can be found in the PMR Carbon Tax Guide. Japan Tokyo – ETS Verification is required for compliance facilities: Verifiers are approved by the Tokyo Metropolitan facilities where the consumption of fuels, heat, Government (TMG) based on document review and electricity in the previous fiscal year is 1500 and examination which is preceded by mandatory kl or more in crude oil equivalent. There are trainings organised by the TMG. The individual eligibility criteria that a verifier must meet in order auditors that are examined must be part of a legal to carry out verification for the Tokyo Cap-and- entity, the verifier. The certificate is valid for three Trade System, including: years and for the second term five years subject to conditions being met. Verifiers have to apply for • The verifier’s offices responsible for contracting a renewal of the certification if the certificate has must be established in Tokyo. expired. Renewal of the approval and certification • There must be one or more lead auditors based is based on training organised by the TMG and at the offices of Tokyo. examination of the auditors. • There must be a division in the verification body Possible sanctions that can be imposed by the between the part that performs verification TMG include: de-registration, suspension as work and the part that assures and manages well as specific mandatory instructions for the the accuracy of verification work (independent verifier to correct noncompliance issues and to technical review). make improvements. The legislation specifies the infringements for which sanctions can be imposed. Requirements on verification, impartiality, and For example, sanctions can be imposed if there is competence are included in verification guidelines. no lead auditor in the verification body or if there ISO 14065 and ISO 14064-3 are applicable. are inappropriate verification opinion statements, Impartiality requirements apply to the verifier as an false notifications, no registration, etc. organisation and the auditors individually. (continued on next page) Note 129 » The regulation allows for single person lead Note 130 » A carbon tax is applied in a number of auditors to carry out verification provided they meet the individual EU countries, i.e., by Denmark, Estonia, same requirements as verifier organisations. However, Finland, France, Ireland, Latvia, Norway, Poland, this has not been applied since the start of Phase 3 of the Portugal, Slovenia, Sweden, and the UK. 138 system (in 2013). (Table continued) Type of CPI Country (region, where applicable) Verification system Approval and oversight system Saitama – ETS Similar to Tokyo Cap-and-Trade System. The Saitama Prefectural Government is Requirements on verification are included in the responsible for approving and supervising Saitama Prefectural Government Verification verifiers. Similar rules as for the Tokyo Cap-and- Guidelines. Since 2011 the Saitama ETS is linked Trade System apply. with the Tokyo Cap-and-Trade System. National – Verification is carried out by designated The Joint Committee132 registers the designated Offset Crediting operational entities accredited under the operational entities or verifiers that want to Instrument131 UNFCCC Framework or verifiers accredited by participate in the JCM. As part of the oversight accreditation bodies according to ISO 14065. system the Joint Committee may conduct a review Verifiers validate the projects and assess the on whether the verifier continues to comply with eligibility of the projects. They also verify the the rules and guidelines. This can include on-site monitoring reports. Requirements that are witnessing to assess the actual performance applicable to the verification are ISO 14065 of the verifier or designated operational entity. as well as JCM Guidelines on validation and The Joint Committee may ask external experts verification. Such requirements include what to or organisations to conduct such activities. The check during the validation and verification as Joint Committee can suspend or withdraw the well as what and how to report and correct or registration in the case of specific infringements. clarify issues that are found during the validation Where sanctions are imposed by the accreditation or verification. Impartiality requirements are body or under the UNFCCC framework, this should included in the guidelines and the ISO standard. be communicated by the verifier without undue delay to the Joint Committee. Kazakhstan ETS and Offset Since January 2013 verification is carried out by From its launch in 2013 until 2016, the approach Crediting Instrument independent third-party verifiers that are selected to approval was on the basis of rules drawn up by and paid by operators of obligated installations. the government and conducted by the Ministry Since January 2018 verifiers are organisations/ of Environment as a document review process. legal entities, and core verification activities and The requirements included that there should processes are prescribed in ISO 14064-3 and be a minimum of two auditors with a relevant relevant regulations.133 diploma and experience with an internationally recognised verifier and at least three years evidenced verification experience. There was no requirement for verifiers to have a formalised management system for quality control nor for any performance monitoring and witnessing (nor did the regulators conduct witnessing activity). From 2016 the ETS was suspended until January 2018 while the M&R requirements for the system were updated and the verifier approval process migrated to a process based on ISO 14065. Now, verifiers have to be accredited to ISO 14065 by a national accreditation body that is a member of the IAF. So the current process includes all activities mandated under ISO 17011, such as performance witnessing of individual auditors in the field as well as review of the verifier’s operational and quality control systems. National accreditation bodies carry out surveillance every 18 months and reassessment of the accreditation before the accreditation certificate expires (every five years). Mexico Carbon tax The tax covers fossil fuel sales and imports by Not required manufacturers, producers, and importers. There is a simple monitoring system based on the value, volume, and price of the products sold. There is no verification system as described in this guidance, although the tax authority checks the reports. (continued on next page) Note 131 » Joint Crediting Mechanism: this is a bilateral Note 132 » The Joint Committee consists of Note 133 » Ecological Code of the Republic of offset mechanism. representatives from Japan and the bilateral countries. Kazakhstan No. 212-III-ZRK §§ 9-1 (2007). More information can be found on: https://www.jcm.go.jp. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 139 (Table continued) Type of CPI Country (region, where applicable) Verification system Approval and oversight system New ETS The New Zealand ETS is primarily built on a The EPA recognises verifiers in accordance with Zealand framework of self- assessment. When submitting requirements set out in the national regulations annual emission returns (reports under the and can only recognise individual auditors (not ETS) participants are not required to have these companies). The verifier must be: verified by a third party prior to submission. The • A chartered accountant and a member of the New Environmental Protection Agency (EPA) can Zealand Institute of Chartered Accountants;137 or conduct audits of emission returns after they have been submitted, and where errors are found the • A professional engineer.138 EPA is able to go back four years to check and The recognised auditor must have at least 100 require correction of any incorrect returns, where working days of verification experience obtained needed. The EPA also contracts third parties to within the three years immediately prior to the date conduct audits of participants’ returns. of application, or at least five years of full-time Verification by a third-party auditor is required if a work experience as an accountant or engineer. unique and entity specific emission factor is applied. As part of the oversight of verifiers, the EPA In order to apply such an emission factor the monitors the individual auditor by periodically participants must meet certain eligibility criteria.134 reviewing their verification documentation. Verifiers Applicable legislation on verification includes must ensure that reliable, accurate, and complete national legislation135 and several ISO standards.136 documentation is kept: When verification is carried out, the ETS participant • In relation to any verification function that selects and pays the verifier. Recognised verifiers provides evidence to support conclusions can only perform verification in relation to the scope contained in the verifier’s statement; and of activities for which they have been recognised. Verifiers must comply with relevant requirements • To demonstrate that the verification was carried of the regulations while maintaining the appropriate out in accordance with the regulations. level of impartiality and independence in carrying out their verification work. The EPA has the power to suspend or revoke recognition for infringements that are specified in legislation. South Carbon tax, Offset The mechanism in South Africa will combine the There will be a dual registration system where Africa Crediting Instrument three carbon pricing instruments; legislation is under both the verification organisation and individual and carbon development. For the offset crediting instrument, the auditors will be registered by the DEA. Verifiers budgets.139 rules will be based on CDM and VCS rules. accredited according to ISO 14065 and designated operational entities accredited under the UNFCCC Verification will be carried out by: framework will be accepted. • Third-party verifiers for offset projects, recognised under the UNFCCC or the VCS; • Department of Environmental Affairs (DEA) staff for the carbon tax. Republic ETS and Offset Since its launch in 2015140 verification has been For the mandatory reporting scheme that was of Korea Crediting Instrument carried out by independent third-party verifiers launched in 2010 the approach to approval that are selected and paid by operators of was done on the basis of rules drawn up by the obligated entities. Mandatory training of auditors government and conducted by the National and guidance provided to the verifiers has been Institute of Environmental Research (NIER)142 based on ISO 14064-3. as a document review process. This included a dual registration requirement that all the verifier’s Since 2015 verifiers are required to meet ISO auditors must attend a mandatory training 14065 and so apply core verification activities course (organised by the National Institute for and processes prescribed in ISO 14064-3 as Environmental Human Resources Development), well as relevant regulations141 and guidance. In pass the exam,143 and then be approved by NIER. addition, the following are mandatory: (continued on next page) Note 134 » Eligibility criteria include the following: Note 135 » See Annex IX: Climate Change (Unique Note 140 » This applies also for the mandatory reporting • The proposed unique emission factor (UEF) differs from Emissions Factors) Regulations 2009 system that preceded it in 2010. the default emissions factor that would otherwise apply Note 136 » ISO 14164, ISO 12039, ISO 10780, ISO Note 141 » Greenhouse Gas and Energy Target Manage- by more than the total sampling and testing uncertainty, 18283, ISO 5068-1, ISO 1171-1, ISO 12902, ISO 17025, ment System (2010), Act on the Allocation and Trading of or a prescribed eligibility threshold; ISO 3675, ISO 3170, ISO 5167, ISO 18283, ISO 1928, ISO Greenhouse Gas Emission Permits (2015), Regulation for • The class of fuel for which a UEF is being sought has 5068, ISO 1038, ISO 14778, ISO 3170 designation and management of GHG verification organ- well-defined parameters so that fuel within this class isation, Verification Guidelines for Operating Greenhouse is easily identified and accounted for separately from Note 137 » Section 19 of the New Zealand Institute of Gas and Energy Target Management System. other classes of fuel; Chartered Accountants Act 1996 • The results of an activity-specific prescribed sampling and Note 142 » Except for bodies verifying offset credits Note 138 » Section 6 of the Chartered Professional testing regime have been verified by a recognised verifier; which are CDM DOEs. Engineers of New Zealand Act 2002 • A plan for ongoing testing is submitted. Note 143 » Refresher training is required every two years. 140 Note 139 » Due to commence in 2019. (Table continued) Type of CPI Country (region, where applicable) Verification system Approval and oversight system • An additional self-assessment of impartiality Since 2015 the rules have been amended to using the regulator’s approved form. require that verifiers meet the requirements of ISO 14065. NIER is in the process of becoming • A minimum of two auditors in each verification recognised as an accreditation body and a team. member of the IAF. Since the change in 2015, • A specified minimum number of days for each approval has also included a site visit to the verification, with a mandatory on-site element. verifier to check appropriate competence and management systems are in place. Once NIER • Regular submission of information to the is a member of the IAF all activities mandated regulator (six, monthly), detailing the work under ISO 17011 will apply, including performance being conducted and planned. witnessing of individual auditors in the field and a review of the verifier’s operational and quality For the offset crediting instrument, validation control systems. A national accreditation body of projects is conducted by regulators and carries out periodic (usually annual) surveillance verification by third parties approved under the and reassessment of the accreditation before the CDM process. Phase 1 only allowed Korean- accreditation certificate expires. based CDM credits to be used for offset; for phase 2 this was extended to include a limited quantity of international offsets. Switzerland ETS A distinction can be made between the ETS for The FOEN approves verifiers. Approved verifiers facilities and the ETS for aviation. In the case of are included on a list that is published on the FOEN facilities, verification is mandatory for the first website. In the early years of the Swiss ETS the time of reporting. After that, the Federal Office original verifiers on this list were approved through for the Environment (FOEN) decides whether a procurement procedure (call for tenders with verification is appropriate (e.g., where there specific criteria on qualification and competence). are changes to the monitoring plan or where Since then, two further verifiers have been added information in monitoring report is not clear). In to the list (these had to meet the same criteria such cases, the FOEN can require verification which are currently included in the eligibility criteria of the emission report and the obligated for the verification of the EHS monitoring reports). facility must select a verifier from the FOEN For aviation the requirements are different, since approved list of verifier organisations. Criteria the system has been based on EU ETS from the for eligible verifiers have been included in the start as part of the Linking Agreement with the ‘Eignungskriterierien for Verifizierung’ (eligibility EU. The verifier must be accredited by a national criteria for the verification of the EHS monitoring accreditation body in accordance with the EU’s reports). This contains some requirements on Accreditation and Verification Regulation or competence and impartiality of auditors (e.g., under the Swiss Accreditation and Designation auditors must have sector specific knowledge Ordinance of 17 June 1996. This means that and be independent from the obligated entity, verifiers that are currently operational in the EU auditors must have a specific education and ETS can verify in Switzerland provided that they experience). are registered with the FOEN. As part of the For verification of annual emission reports under approval/registration process the FOEN checks the ETS aviation scheme, the EU ETS aviation through document review whether the verifier specific requirements on verification apply. meets the specified criteria. Sanctions that can be imposed in the case of infringements include removal from the list of verifiers. This means that the verifier can no longer carry out verification. CO2 tax There is no mandatory verification process Not required because the carbon tax monitoring system is straightforward. The tax authority and the FOEN conduct detailed checks on data submitted by the obligated party as well as information on tax refunds that are applied for by companies in specific economic sectors. Applicable legislation is the Federal Act on the Reduction of CO2 Emissions (CO2 Act) and the Ordinance on the Reduction of CO2 Emissions (CO2 Ordinance). (continued on next page) DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 141 (Table continued) Type of CPI Country (region, where applicable) Verification system Approval and oversight system Offset Crediting Verification is carried out six months after Designated operational entities are approved Instrument implementation of the project and subsequently by the FOEN and included on the list of verifiers every three years. The domestic legislation is from which they can be selected by the project based on CDM rules, so verification is performed developer. Both the FOEN and the Swiss Federal by designated operational entities approved by Office of Energy (SFOE) are the authorities for the FOEN. implementing the offset mechanisms and the evaluation of projects. The designated operational entities are selected and paid for by the project developers. Some As part of the oversight system the FOEN checks requirements apply on independence and all monitoring reports that have been verified by impartiality. The designated operational entity the designated operational entities, in particular for validating project plans ex ante may not be the first year of project reporting. In subsequent the same designated operational entity that years a risk-based approach is applied to check subsequently verifies the monitoring reports, in monitoring reports (e.g., complexity of project, accordance with UNFCCC rules. history of compliance). FOEN can ask another designated operational entity to carry out spot checks on the first verifier’s procedures and work papers. There is no validity period on the registration; a verifier can carry out verification for as long as they are on the approved list. Sanctions that can be imposed on designated operational entities by the FOEN include suspension and withdrawal of the registration. Thailand Offset Crediting Verification is carried out by a verifier organisation Verifiers are approved by the Thailand Greenhouse Instrument that is selected and paid by the project developer. Gas Management Organisation (TGO), which also Verification is based on CDM rules and domestic monitors the performance of verifiers. Designated validation and verification guidelines for projects. operational entities accredited under the UNFCCC ISO 14064-3, ISO 14065, and ISO 14066 are framework can be accepted as verifiers to operate applicable. Impartiality and independence in the offset mechanism. However, other verifiers requirements are included in the ISO standards can also be approved by the TGO. Beginning in and domestic guidelines. Verifiers have to provide a 2019 these other verifiers will be accredited by the conflict of interest declaration. Site visits are carried national accreditation body which is in the process out by the verifier at the discretion of that verifier. of being set up. Turkey Mandatory Commencing in 2015, with first reporting in Verifiers will be accredited by Turkey’s National Monitoring & 2017, the monitoring and reporting requirements Accreditation Body from 2019 based on the Reporting Scheme are based on the EU ETS rules and require requirements of ISO 14065. During 2016 and 2018 verification of emissions reports by third- the Ministry of Environment and Urbanisation party verifiers. Legislation on verification and provided training, examination, and a licensing accreditation is being developed. system for auditors. USA California ETS and Since its launch in 2013144 verification has been From the launch of the mandatory reporting Offset Crediting carried out by independent third-party verifiers145 scheme in 2008 the approach to approval was Instrument that are selected and paid by operators of done on the basis of rules drawn up by the obligated installations. Mandatory training of regulator based on ISO 14065147 and ISO 14066 auditors and guidance provided to the verifiers and conducted by CARB. This included a dual has been based on ISO 14064-3 as well as registration requirement that all the verifier’s relevant state regulations146 and guidance. In auditors must attend mandatory training courses addition, the following are mandatory: organised by CARB148 and pass the exam(s). A minimum of two approved auditors must be • An additional self-assessment of impartiality using employed on staff by a verifier. the regulator’s approved form and submitted for its approval in advance of starting work. • Notification of site visit dates to the Californian Air Resources Board (CARB) in advance. (continued on next page) Note 144 » This also applies for the mandatory reporting Note 147 » The Californian Air Resources Board is not system that preceded the ETS in 2008. a member of the IAF and therefore doesn’t apply the requirements of ISO 17011. Note 145 » And some air district regulators. Note 148 » Separate courses and registrations for Note 146 » Regulation for the Mandatory Reporting of general (lead) auditing, offset project subjects, and Greenhouse Gas Emissions; Cap-and-Trade Regulation. sector specialisms. 142 (Table continued) Type of CPI Country (region, where applicable) Verification system Approval and oversight system • Mandatory site visit to each reporting facility Initially, approval was as a document review during ‘full’ verification years (lighter touch process, but this is evolving to include ‘interim’ verification is allowed for two out of three performance witnessing of auditors and on-site years, subject to specific criteria being met). visits to verifiers (every three to five years) to check operational and quality control systems. Approval • Notification to CARB of potential ‘no is valid for three years and refresher training for verification’ statements to allow the reporting auditors is mandatory. entity time to appeal. Mandatory rotation of verifiers is required after six consecutive cycles of assurance149 for an individual reporting entity, with a three-year gap if returning to a prior client. The California ETS is linked to Quebec and Ontario through the Western Climate Initiative; issued allowances are accepted in all three programmes. Regional GHG RGGI is composed of individual CO2 budget Approval and oversight is only required for offset Initiative (RGGI) trading programmes in each of the participating credit validators and verifiers; this is done by – ETS and Offset states150 that are applicable to fossil fuel-fired the nominated state regulator using a document Crediting Instrument power generation. States transpose the RGGI review process following accreditation by the Model Rule in state legislation. As far as possible American National Standards Institute (ANSI) to this rule and associated offset protocols stay ISO 14065 in relation to specific sector protocols. aligned with the California Air Resources This part of the process therefore includes all Board/Climate Action Reserve offset project activities mandated under ISO 17011, such as requirements. There is no independent verification performance witnessing of individual auditors requirement for annual emissions reporting, but in the field as well as review of the verifier’s offset credits used to meet allowance surrender operational and quality control systems. National obligations must be verified by independent third accreditation bodies like ANSI carry out periodic parties approved in the RGGI state where the (usually annual) surveillance and reassessment offset project is located. Precise requirements of the accreditation before the accreditation for validation and verification are stated in the certificate expires. relevant state legislation and are based on ISO The state regulator maintains the register of 14064-3; sector protocols are defined for each approved RGGI verifiers and validators. acceptable project type and individual projects require validation against these before regulator Some state regulations also allow for a regulator acceptance of the project. Each offset protocol approved training course or exam to be required. has a detailed monitoring and verification form/ template that must be used. In addition, the following are mandatory: • In advance of work starting, a ‘pre- engagement’, conflict of interest disclosure must be submitted to the state regulator where the project is located for approval. • A mandatory site visit at both validation and verification stages. Climate Action The Climate Action Reserve (TCAR) uses Only Verification Bodies currently accredited or Reserve – a standardised approach that promotes enrolled in the ANSI accreditation programme may project crediting relevance, completeness, consistency, accuracy, provide verification services to Reserve project mechanism transparency, and conservativeness of emissions developers. reduction data reported by project developers. Minimum requirements are in place for both the The key objectives of project verification are to: verifier organisation and individual auditors: • Ensure projects are real, additional, permanent, verifiable, and enforceable. (continued on next page) Note 149 » This includes verifications conducted for that Note 150 » Currently, Connecticut; Delaware; Maine; entity in relation to the California Climate Action Registry, Maryland; Massachusetts; New Hampshire; New York; the Climate Action Reserve, or other audits, etc. with Rhode Island; and Vermont. impartiality rules equivalent to the CA-ETS. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 143 (Table continued) Type of CPI Country (region, where applicable) Verification system Approval and oversight system • Minimise risks of invalid creation or Organisation: double counting of Climate Reserve Tonnes (CRTs). • Minimum of two staff members designated as lead auditor. • Support transparency and integrity of • Demonstrable understanding of TCAR project and data contained within the Reserve. verification protocols; relevant assurance skills;151 and knowledge of the specific TCAR protocol verifiers are • Maintain consistency and comparability applying to be accredited against (along with specified across projects. protocol related technology, legislation, etc.) • Monitor project developer’s ongoing • Send at least one member of staff to each protocol compliance with the Reserve’s update webinar when a new protocol version is released protocols. (e.g., v1.0 to v2.0). Verification activities differ based on • Agree to independent witnessing by TCAR as well as ANSI. the complexity of the project and the underlying data, but as a minimum the • Apply TCAR’s Verification Programme Manual and its following steps will be included: various protocols. • Notification of verification activities and • Notification to TCAR of changes in personnel roles (e.g., case-by-case evaluation of a conflict of upgrade to Lead) using the Designated Staff Roles & interest (COI). Responsibilities form. • Scoping and planning verification • Submission to TCAR of a self-evaluation of potential for activities. COI prior to every individual verification engagement; and a case specific Notification of Verification Activities • Desk review and project site visit, and Conflict of Interest (NOVA/COI) Assessment Form which entail: 10 days before commencing activities (along with the verification schedule and updates during the course of a) identifying emissions sources work if circumstances change). and assessing risk of material misstatements; • Minimum of $US 4,000,000 professional indemnity insurance with TCAR named as a beneficiary on that reviewing methodologies and b) insurance. management systems; • Demonstrate how it manages and controls c) verifying emission reduction subcontractors and how it retains responsibility for final calculations. decision making in relation to confirmation and issue of Submitting a Verification Report, list of verification opinions. Findings and Verification Statement to • Provide ANSI with an annual summary of verification TCAR. activities (including range of sectors and clients and number of their sites) and the Lead Auditor and Internal Reviewer assigned to each verification (along with a list of its core verification team). • Retain project developer records for at least seven years from the date of verified emission report along with verifier’s records. Individual: • Employed by or subcontracted152 to an accredited verifier. • Attend and pass mandatory TCAR training.153 • Where relevant, clearly identified by the verifier as ‘Lead’ when reporting to TCAR. Internal Reviewer is an active Lead Verifier able to demonstrate continued competence and appropriate continuing professional development. (continued on next page) Note 151 » Including - GHG Emission Reduction Project instrumentation and measurement systems, in relation to overseen by the verifier’s GHG Manager (a Lead Auditor); Accounting, calculation processes and methods; the GHG project accounting; including principles of uncertainty the verifier cannot subcontract responsibility for the final concept of project baselines, ‘additionality’, and emissions analysis; electronic information systems and associated decision to issue the verification opinion. reductions and removals that are above and beyond information and IT security; financial, contractual and Note 153 » Specifically, Project Verifier Training for sector- business-as-usual; techniques and key elements of operational implications of relevance to GHG accounting; specific Reserve project protocols. Other recommended nonfinancial data monitoring, auditing, and assurance, and complex project/programme management and training is: The Reserve Briefing/Orientation and General including GHG accounting & assurance principles, strategic leadership (for Lead Auditor status) Verification training – teaching basics of GHG accounting, analysis, risk assessment, verification planning, testing and Note 152 » Subcontractors must have formal contractual verification principles and concepts. evaluation, missing data and materiality analysis; evaluation agreements, meet the required competencies, and be 144 of issues, corrective actions, and statement formulation; (Table continued) Type of CPI Country (region, where applicable) Verification system Approval and oversight system The Climate Third-party verification is optional but once Since 2008 TCR has partnered with the American Registry (TCR) – a selected it must be delivered by a registered National Standards Institute (ANSI) to accredit voluntary reporting verification body. Registry members who had verifier organisations for TCR’s voluntary reporting programme154 their inventory verified successfully by a third programme; accreditation is against the standards party receive Climate Registered™ status and ISO 14065 and ISO 14064-3 and TCR’s verification additional benefits: protocol, and for specific sector scopes. • Use of the Climate Registered™ logo for A list of ANSI-accredited, TCR-recognised verifiers promotional materials and sustainability is held on the TCR website. reports. As part of accreditation the organisation must • Recognition of achievements via TCR’s apply the TCR General Verification Protocol and website, public newsletter, and social media ISO 14064-3. All individual auditors must have platforms. a demonstrable understanding of TCR General Reporting and General Verification Protocols, As a minimum the following steps will be included relevant assurance skills,155 and must attend and in verification: pass mandatory TCR training.156 • Before finalising the contract, submit to the Applicant verifiers can contract for and issue Registry a Case-Specific Conflict of Interest verification opinions whilst going through the (COI) Assessment Form. process of accreditation, but must achieve • Develop a risk-based verification plan and accreditation within nine months of the opinion submit to the Registry a Notification of Planned being issued, otherwise the verifier will have to pay Facility Visits (NOPFV) form at least 10 for verification to be repeated by another verifier as business days before scheduled visits. the opinion will not be accepted by TCR. • Apply core verification activities in accordance Minimum requirements are in place for both the with the General Verification Protocol. verifier organisation and individual auditors; these are almost identical to the requirements outlined • Prepare a detailed summary draft verification above for TCAR, which drew on TCRs Guide report containing all activities and findings to Accreditation as part of the evolution of its for review with the reporting entity which approvals process. implements corrective action, as required. • Finalise the verification report and opinion statement for review with the reporting entity and signatures by both parties. • Submit the verification statement to TCR’s CRIS reporting system for TCR review and acceptance. Note 154 » This programme is governed by U.S. states principles, strategic analysis, risk assessment, verification Note 156 » Specifically, Project Verifier Training for and Canadian provinces and territories; it designs and planning, testing and evaluation, missing data and sector-specific Reserve project protocols. Designated operates voluntary and compliance GHG reporting materiality analysis; evaluation of issues, corrective training includes: TCR Briefing/Orientation and programmes globally, and assists organisations in actions and statement formulation; management system (Lead) GHG Verifier training – embedding knowledge measuring, verifying, and reporting the carbon in their function and auditing, in relation to GHG accounting; and understanding of the principles and techniques operations so they can manage and reduce it. Although instrumentation and measurement systems, in relation associated with nonfinancial data assurance. this is not a carbon pricing instrument, this programme to GHG accounting; including principles of uncertainty was part of the voluntary process that preceded and then analysis; electronic information systems and associated provided input into the Californian ETS. information and IT security; financial, contractual and operational implications of relevance to GHG accounting; Note 155 » Including - GHG Emission accounting, and complex project/programme management and calculation processes and methods; techniques and key leadership (for Lead Auditor status). – see additional elements of nonfinancial data monitoring, auditing and requirements listed on: https://www.climateactionreserve. assurance, including GHG accounting and assurance org/how/verification/how-to-become-a-verifier/ DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 145 Engagement of and provision of information often discussions of MRV issues, and so on; result in a two-way process where National and each party benefits from the sharing • Differences in the engagement for the of experiences and discussion on M&R process and the V&A process; International training topics or information shared. Both types of stakeholder engagement • CDM (international) stakeholder Stakeholders are therefore mentioned. It is clear that engagement; and stakeholder engagement can take place There are different forms of stakeholder at different stages of V&A design and • Engagement with accreditation bodies engagement. The pure form of implementation, and for different cases. that are part of the ISO framework. stakeholder engagement is a situation where the regulator and stakeholders The table below illustrates these different The table provides examples of countries enter into a communication with each types of stakeholder engagement, that apply these types of stakeholder other and exchange information. This can including the following: consultation and engagement. It shows, be either discussion groups or working for those countries, which stakeholders groups to discuss legal drafts or in the • Consultation during the design of were involved, how they were involved implementation phase how legislation the legal and policy framework: this and what approaches were used to needs to be interpreted. It is often a two- can involve official consultation with facilitate stakeholder engagement. The way process where both parties provide stakeholders of legislation being approaches selected for the different and receive input/feedback. developed but also engagement types of stakeholder engagement can with various stakeholders during the be different for a particular CPI. For Other less straightforward types of drafting of legislation; example, in most carbon tax systems stakeholder engagements are training the MRV legislation is simple, and and information exchange. At first glance • Engagement in the implementation and stakeholder engagement is mostly these types of stakeholder engagement management phase: this can involve focused on consulting stakeholders on do not seem to consist of a two-way periodic training of stakeholders, their views of the legislation as well as process. However, in practice, training engaging stakeholders in frequent explaining the legislation to stakeholders. Stages of Case specifics engagement (if applicable) Characteristics Examples Design of the How stakeholder engagement at this EU ETS: The Netherlands, UK, and Ireland organised informal stakeholder legal and policy stage is organised depends very much engagement at a national level when the legislation on EU ETS for the first trading framework on the complexity of the scheme, period was being drafted. Selected representatives of verifiers, the accreditation legislation, and internal organisation of body, and facilities covered by the scheme were invited to meetings organised regulators. These types of stakeholder by the regulator responsible for implementing the scheme. There were nonpublic engagement are easy to organise stakeholder meetings when policy decisions were still being made and official and require limited effort, making public stakeholder consultations throughout the design process. them feasible also for low-resource countries. Australian Emission Reduction Fund (ERF): There was continuous consultation with stakeholders throughout the policy making and legislative process for developing the ERF and associated safeguard mechanism, as well as the development of the National Greenhouse and Energy Reporting framework. Meetings were organised to discuss and explain legislation. Consultation involved verification bodies, individual auditors, accreditation bodies, professional institutes, and the regulator. Californian Cap-and-Trade System: Public workshops and consultation are extensive for each rulemaking as normal legislative practice in California, but were particularly intensive for the original development of the ETS verification process. The Californian Air Resources Board (CARB) conducted an open, public rulemaking process in the design and finalisation of verification requirements for its Greenhouse Gas Reporting Regulation and its Cap-and-Trade Regulation. The results of this public consultation process are available on the CARB website. Drafts or updates of legislation are published on the website and stakeholders are invited to respond to drafts and updates of legislation. CARB has to formally respond to every comment submitted. The public consultation process on mandatory GHG emission reporting can be found on: https://ww2.arb.ca.gov/our-work/programs/ mandatory-greenhouse-gas-emissions-reporting. Information on the stakeholder engagement process for the Californian Cap-and-Trade System can be found on: https://www.arb.ca.gov/cc/capandtrade/capandtrade.htm (continued on next page) 146 (Table continued) Stages of Case specifics engagement (if applicable) Characteristics Examples Thailand: For the voluntary offset mechanism the regulator conducted consultation meetings with verifiers and stakeholders to get their input into the guideline. Public input was collected through the regulator’s website. New Zealand ETS: For the implementation on the regulation on the unique emission factor and the verification of those data, two rounds of formal consultation were carried out. Advice from independent experts and ongoing discussions between government and participants were held. Auditors were, however, not consulted as the auditing requirements resulted from operational policy decisions. Implementation In a country How stakeholder EU ETS – Spain: Stakeholder engagement working groups are organised where and where there engagement local regulators, the national Ministry of Environment, and the accreditation management are various is organised body participate to discuss specific MRVA issues. These working groups are phase local/regional depends on not only intended to explain legislation and MRV issues to local regulators but regulators the national also to discuss broader issues and exchange information between all parties involved in the legal system, involved. implementation the number (decentralised of regulators EU ETS – Poland: The central regulator organises training events, and national organisation) involved, and legislation includes requirements for local regulators to share information with whether a central the central regulator. The central regulator communicates with the National regulator has Accreditation Body about issues related to verifiers. The central regulator thus been appointed acts as a central focal point for relevant engagement. to be a focal point China national emission trading scheme: Training events have been organised for engagement. by the National Development and Reform Commission (NDRC) to prepare local regulators in the provinces and cities for emission trading. This training has been organised through international projects such as EuropeAid. For some of these events, facilities and verifiers were also involved. In a country There are EU ETS: In countries that apply the EU ETS Directive, the regulator and National where the usually a variety Accreditation Body communicate with each other regularly on both an informal and regulator of different formal basis. The Accreditation and Verification Regulation requires both parties responsible for approaches used to exchange certain information, e.g., on sanctions imposed. This information implementing in such countries. exchange was not only useful for each other’s work processes, but common topics the CPI is were also discussed in national and EU meetings. Capacity building in the form different from the of training or periodic meetings is often organised by the national regulator, and oversight body usually accreditation bodies, verifiers, and regulators are involved. responsible for approval and New Zealand: Updates on legislation are communicated to the auditors in supervision of frequent meetings. These meetings are used to explain the rules to auditors. All verifiers updates of legislation, guidance, and consultation input are published on the website. In a country In a country Californian Cap-and-Trade System: CARB updates guidance materials and where the where there is provides webinars on an annual basis. Verifiers are subject to oversight by regulator one regulator CARB and receive direct feedback on their performance. CARB is also available responsible for involved in to respond to questions via direct staff communication or centralised helpdesk the CPI is the all activities, e-mail accounts. oversight body the number of responsible for stakeholders Australian Emission Reduction Fund: The Clean Energy Regulator undertook a approval and involved is more wide range of stakeholder engagement activities to communicate and explain supervision of limited audit and reporting requirements under the ERF; this included roadshows, verifiers workshops, website information, guidance documents, and guidance document updates. Japanese Joint Crediting Mechanism: Information on project applicable rules and guidelines are put on a public website to ensure transparency of projects and JCM implementation. Stakeholder engagement is carried out by seeking official feedback on project design documents.157 There is close cooperation between the Joint Committee and relevant host countries participating in the bilateral offset mechanisms (through e-mails and meetings). Swiss offset mechanism: Regular workshops are organised where the Federal Office for the Environment and the verifiers discuss problems, M&R issues, and case studies. (continued on next page) Note 157 » This is official feedback from local stakeholders including the public – individuals, groups, or communities affected or likely to be affected. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 147 (Table continued) Stages of Case specifics engagement (if applicable) Characteristics Examples Stakeholder In most cases stakeholder South Africa: The first priority for the regulators was development of the M&R engagement engagement for the design of the rules and framework for the proposed carbon tax. Stakeholder engagement where M&R rules and V&A rules is carried involving verifiers will be carried out at a later stage. engagement out either simultaneously or in for the timing stages that overlap with each other. of the M&R In some countries with more limited process is resources – or where the approaches different to be followed for approval of verifiers than the V&A are not always clear when designing processes the system – the type of stakeholder engagement may be different. Stakeholder engagement for V&A is carried out at a later time and generally more directed toward verifiers. Stakeholder Stakeholder engagement related to verification and validation for the UN’s CDM process is largely done through the engagement in ‘Designated Operational Entities Forum’ (DOEF). Amendments to CDM rules can be made at any time in relation to the CDM improvements in accuracy and conservativeness, and these mostly concern M&R rules. Members of the CDM Executive Board attend the annual COP158 meetings and conduct both a Q&A Session and present its Annual Report to the COP, outlining changes made to the rules. In addition, anyone can attend Executive Board meetings by webcast (except for closed sessions) or in person provided that they are registered in advance through a UNFCCC accredited organisation. Written inputs can be made at any time, and these are discussed at the Executive Board meetings. Stakeholder Stakeholder engagement can also be • International Accreditation Forum (IAF): This is the world association of engagement carried out internationally. accreditation bodies. It is responsible for developing guidance that interprets with standards such as ISO 17011 and ISO 14065. Guidance developed by the accreditation IAF is mandatory for accreditation bodies that are a member of the IAF. bodies that are This organisation provides direct support to CPIs for which ISO based part of the ISO accreditation bodies approve and oversee verifiers. However, they can framework also indirectly influence processes through the development of guidance explaining the application of standards, cross border accreditation, and other topics. More information can be found on: http://www.iaf.nu/ • IAF Regional Accreditation Groups: Group members are accreditation and other bodies that cooperate within an identified geographical region to establish and maintain a multilateral recognition agreement based on peer review, and to represent the interests of group members, regional accredited entities, industry, and users of standards in relation to assessment by IAF members. For the EU ETS the IAF Regional Group is the ‘European Cooperation for Accreditation’ (EA)159 which plays an important role in the implementation of the EU ETS Directive. To ensure competent and impartial accreditation bodies the AVR has allocated a significant supervision role to the EA. All national accreditation bodies involved in the EU ETS must be a member of EA, which not only develops mandatory guidance for its members, but also monitors the performance and competence of accreditation bodies working under the AVR rules. It organises regular meetings where accreditation bodies discuss problems and experiences, and it provides capacity building by helping new accreditation bodies set up EU ETS specific procedures. Note 158 » ‘Conference of the Parties’ to the UN Note 159 » Other regional accreditation groups are the Framework Convention on Climate Change, which also African Accreditation Cooperation, the Inter American serves as the Meeting of the Parties to the Kyoto Protocol. Accreditation Cooperation, the Pacific Accreditation Cooperation, the ARAB Accreditation Cooperation, and the Southern Africa Development Community 148 Cooperation in Accreditation. Common principles that apply to both approval and verification processes Requirement of Requirement of Principles Meaning verifiers & auditors oversight assessors Integrity Integrity is a prerequisite for all those who act in the public Exercise ethical conduct at Exercise ethical conduct interest. It is essential that auditors and assessors act, and all times to ensure delivery at all times to ensure the are seen to act, with discretion and integrity. This requires of a verification outcome in approval process results in not only honesty but a broad range of related qualities, the public interest. trust in the independence such as fair dealing, truthfulness, candour, courage, and competence of verifiers. intellectual honesty, and confidentiality. Integrity requires that the auditor is not affected, and is seen not to be affected, by conflicts of interest. Conflicts of interest may arise from personal, financial, business, employment, and other relationships which the verification team, the verifier, or its other staff have with the entity being verified and its connected parties. Objectivity Objectivity is a state of mind that excludes bias, prejudice, Maintain objectivity throughout their work to ensure that and compromise and that gives fair and impartial findings and conclusions are based on objective evidence consideration to all matters that are relevant to the task and triangulated across different types of evidence. at hand, disregarding those that are not. Like integrity, objectivity is a fundamental ethical principle and requires that the individual’s judgment is not affected by conflicts of interest or the undue influence of others. Evidence- Findings and conclusions are based on factual evidence based decision obtained during verification/assessment activities. making Professional An attitude that includes a questioning mind, being alert to Not to automatically accept evidence obtained during scepticism and conditions which may indicate possible misstatements due verification/ assessment activities and be sceptical of due care to error or fraud, and a critical assessment of evidence. information offered and associated findings. Professional scepticism includes being alert to, for example: Thoroughly analyse evidence at all times, cross reference different pieces of evidence. • Assessment or verification evidence that contradicts other evidence obtained. • Information that brings into question the reliability of documents and responses to inquiries that may be used Be attentive to identify Be attentive to identify as evidence. errors or anomalies in the inconsistencies or data and evidence provided anomalies in the evidence • Conditions that may indicate possible fraud or by the operator. provided by the verifier or its malfeasance. auditors. • Circumstances that suggest the need for verification or assessment procedures in addition to those required by the CPI programme rules. Confidentiality To respect confidentiality of information acquired as a Secure confidential information obtained or created during result of professional and business relationships and, verification/assessment. therefore, to not disclose any such information to third parties without proper and specific authority, unless there Implement safeguards to ensure that confidentiality is is a legal or professional right or duty to disclose. This maintained by the verifier/assessor. includes the requirement not to use the information for the personal advantage of the auditor or third parties. (continued on next page) DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 149 (Table continued) Requirement of Requirement of Principles Meaning verifiers & auditors oversight assessors Independence Independence is made up of two elements: ‘Independence of Maintain a ‘distance’ from Maintain a ‘distance’ from and impartiality mind’ and ‘independence of appearance’. The former is defined the party whose report the the verifier that the assessor to include integrity, objectivity, and scepticism. The latter is verifier is checking or from is evaluating for approval defined as being free from ‘facts and circumstances’ that the project/ programme would lead a reasonable and informed third party to conclude activity it is evaluating or that integrity, objectivity, or scepticism was compromised. validating. Independence is related to and underpins objectivity. Assessors, verifiers, auditors, and lead auditors should be However, whereas objectivity is a personal behavioural free from bias and conflict of interest. characteristic concerning the individual auditor’s/ assessor’s state of mind, independence relates to the circumstances surrounding the verification or assessment, including financial, employment, business, and personal relationships between the relevant parties (e.g., approval assessor and verifier; or verifier, individual auditors, and the entity being verified and its connected parties). Relationships with parties whose interests may be contrary to the interests of the entity being verified/assessed may also be relevant to the appearance of independence. Professional To maintain professional knowledge and skills at the The verifier, auditor, lead The assessor and other competence level required to ensure that a client or employer receives auditors, and other members members of the assessment competent professional services based on current of the verification team shall team shall have the developments in practice, legislation, and techniques and have the necessary skills necessary skills and act diligently and in accordance with applicable technical and competence to carry competence to carry out the and professional standards. out the tasks assigned to evaluation and approval tasks them under the agreed assigned to them under the verification scope. required approval scope. Options for selection and payment of a third-party verifier Option Considerations for policy makers When would the option be appropriate? 1a • In some cases, this option is chosen if the CPI is in a pilot phase or in its early stages. In particular, in the case when Payment by policy makers fear that direct payment by the obligated entity might lead to conflicts of interest. the regulator from general/ • Mostly in smaller schemes with limited number of facilities covered by the CPI. nominated • If the regulator wants to have more direct control over verifiers at the start of the programme. budget Examples of application: Chinese pilot systems where provincial authorities paid the verifiers; Swiss ETS in the first years where the regulator organised a procurement phase; several countries in Europe in the early years of the EU ETS. Advantages Disadvantages • Possibility to control the quality of verifiers as the regulator • This can put a large strain on government budgets selects and pays for the verifier and can have more influence and may impose limitations on when verification on the choice of verifier and the specific activities that the can commence, based on government budgetary verifier carries out. cycles, risking insufficient time to complete work with appropriate rigor. • Less risk that an obligated entity will put pressure on the verifier to conclude the verification with a positive opinion statement. (continued on next page) 150 (Table continued) Option Considerations for policy makers • Less costs for the obligated entity. • Risk to the independence of the verifier from the regulator, as the verifier may seek to keep regulators happy and • More control of the regulator over the time a verifier may be less inclined to report issues found during the should allocate to verification work. verification, in particular if it concerns methodologies or monitoring plans that have been approved by the regulator. Observations: • Regulator would have to arrange for funds from general taxation or other sources and ensure that such funds continue to be available for the life of the scheme. • There need to be clear rules or instructions on the role of the verifier versus the role of the regulator, how to select verifiers, whether a contract needs to be closed between the verifier and the obligated entity, etc. • Clear requirements and criteria on qualification and selection of verifiers are necessary. • There needs to be a balance between the budget cycle and the needs of the compliance and verification cycle for the CPI. It may be difficult for a regulator to estimate how much time and budget is needed for a particular verification as this is very much specific to each entity, facility, or project developer depending on the risks involved. When would the option be appropriate? 1b • See option 1a. Indirect payment from • This option highly depends on from where the regulator can secure funds for payment of the verifiers. For example, regulator auctioning revenues are not available in all CPIs. using CPI or environmental Advantages Disadvantages specific funds • See option 1a. • Requires an alternate funding source to be established, potentially removing the advantage of reduced cost to • Burden on budget for regulator can be mitigated through obligated entities, if they are required to contribute to secured revenues. such funding. • Risk to independence of verifier from the regulator as they may seek to keep regulators happy and may be less inclined to report issues. Observations: • See option 1a. • Possible specified funds from which the regulator can draw are auctioning revenues, carbon tax revenues, surcharges from emission allowances or offset credits that are traded, fees that regulators charge obligated entities (e.g., fees for registry accounts, fees for permits), etc. When would the option be appropriate? 2 • In more complex CPIs, such as ETSs and offset mechanisms that cover many sectors, and many facilities or companies Payment by that have more complex M&R requirements. obligated entity • The use of international standards such as ISO 14064-3 and ISO 14065 and CDM standards may move the policy maker to select this option as they generally require verifiers to be independent from the obligated party and the regulator. • Often used when the CPI has been in place for a longer time. • The legal system can move the regulator to select this option. In EU ETS the operator pays for the verifier as this originates partly from principles in European legislation that the polluter should bear the expenses of taking measures to avoid damaging the environment and reduce emissions. Examples of application: • Most CPIs use this option, e.g., EU ETS, California ETS, Korea ETS, CDM/JI, Japanese offset mechanism, Australian offset mechanism. (continued on next page) DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 151 (Table continued) Option Considerations for policy makers Advantages Disadvantages • The obligated party is freely able to select its verifier from • Potential pressure from obligated entities on the verifier the approved list and negotiate the fee.160 to reduce the time allocated to the work below what is required for a rigorous verification. • Independence from the regulator. • Risk to independence of verifier as they seek to keep • No additional cost to the government. obligated entities happy and are less inclined to report • More inclined to act with professional scepticism on recommendations for improvement or noncompliance issues that might have been overlooked by the regulator issues if this is not regulated by law. when approving monitoring plans, etc. • Potential pressure from obligated entities to conclude the • More in line with the independence principles in verification with a positive opinion statement. international standards such as ISO 14065. • Economic efficiency associated with the costs of internalising the costs of climate change being borne by the emitters rather than the taxpayer (polluter pays principle). Observations: Requires additional measures to be taken to ensure that verifiers remain independent from the obligated entities they are checking and to avoid the risk that verifiers come under pressure from obligated entities to conclude the verification with a positive verification opinion statement. Such safeguard measures include, for example, specific requirements on time allocation according to complexity and risk; impartiality and competence; rotation of Lead Auditors and/or verification bodies; and a strong approval and supervision structure for verifiers that is ongoing. When would the option be appropriate? 3 • Could be applied if the costs of verification exceed the amount that an obligated entity can gain by selling credits. Payment from pool • Could be considered if there are concerns over payment of third-party verifiers by obligated entities threatening impartiality of verifiers, and the regulator does not have sufficient funds to pay for verifiers. Examples of application: This option is used with respect to Gold Standard microscale projects. As the amount of credits was limited, verification was economically not feasible. Each project contributed a certain amount of money to the Gold Standard Verification Fund. Verification costs of microscale projects are covered by this fund. If 8 to 10 projects requested issuance, the Gold Standard selects a verifier to check one of the projects/reports.161 Advantages Disadvantages • Independence from the regulator and obligated entity; • Not easy to implement legally if the market is large (see verifiers are more inclined to act with professional below under considerations); requires an independent scepticism. body or regulator to manage the pool funds. • Requires determination of the contributions to be made by obligated entities that are in relation to their likely verification risk and effort required for individual obligated entities. • Same-day rates for all verifiers may mean some withdraw from the market if the fee rate offered is not commensurate with the risk levels associated with emissions or the risks associated with the verification effort. Observations: • Have clear rules in place on how such a pool may work and the liabilities associated with the management of funds in the pool to ensure there are sufficient resources to cover all necessary verifications. • Need to have clear rules on how the amount of work for different verification audits is determined. If there is a standard fee per verification, there will be a risk that verifiers do the minimum amount of work, and the time allocation is not specifically tailored to the particular verification and its risks. (continued on next page) Note 160 » The time required for verification should be regulators provide guidance on the costs of verification, Note 161 » Further information can be found at: determined by the verifier to meet the risks associated best practice would be to provide guidance on the https://globalgoals.goldstandard.org/101-1-or- with the work. It should not be up for negotiation with potential amount of time required and not a specific cash gold-standard-for-the-global-goals-micro-scale- the operator. However, the fee rate per day can be value as this can vary significantly depending on the requirements/#_Toc485667757. 152 negotiated in an open market process. Note that where individual fee rates of specific verifiers. International The table below provides an overview they are applied, as relevant to the part. of the relevant recognised international As outlined in section 3, most carbon recognised standards and which CPIs have adopted tax systems do not have a verification them in full or in part; these documents system as defined in this guidance, standards have been referenced in parts 3 and 4 therefore these standards generally of this guide with information on how do not apply to carbon tax systems. International Standard What the standard covers and examples of CPIs that use these standards ISO 14064-3 Greenhouse gases – Part 3: Specification with guidance for the validation and verification of greenhouse gas assertions. What does the international standard regulate? This standard specifies the minimum requirements for conducting any type of validation and verification activities. This covers the principles of independence, ethical conduct, fair presentation, and due professional care; and the structure of a validation/ verification process including key activities such as: • Scope, criteria, level of assurance, and materiality; • Planning for verification, sampling of the data universe, and evidence requirements; • Assessing the GHG information management systems and controls; • Assessing the GHG data and associated information against specified criteria; • Evaluating the assertion (data report) and evidence collected in order to form a conclusion on its validity. The International Accreditation Forum (IAF) provides mandatory guidance in MD6-2014162 on the application of ISO 14064-3 for bodies that are being accredited under ISO 14065. Examples of emission trading schemes: California ETS, EU ETS, Kazakhstan ETS, Korea ETS, and Tokyo Cap-and-Trade System; and any verifier accredited under ISO 14065 is required to apply ISO 14064-3 by reference from the accreditation standard. Examples of offset mechanisms: Australia Emissions Reduction Fund, Alberta’s crediting mechanism (Canada), The Climate Action Reserve, RGGI crediting mechanism (US), and the Verified Carbon standard mechanism. ISO 14065 Greenhouse gases – Requirements for greenhouse gas validation and verification bodies for use in accreditation or other forms of recognition. What does the international standard regulate? This standard specifies principles and requirements for bodies that undertake validation or verification of greenhouse gas (GHG) assertions. It contains general requirements on competence, impartiality, and legal organisation of verification bodies; requirements on what procedures and management systems the verification body must set up and implement; and requirements on addressing appeals and complaints. A normative reference to ISO 14064-3 is included which means that it is applicable as a mandatory supporting standard. Examples of CPIs using such standards: California ETS, Canadian CPIs (Quebec, British Colombia, Ontario – both ETS and offset crediting mechanism), EU ETS, Kazakhstan ETS, and Korea ETS & crediting mechanism.163 ISO 14066 Greenhouse gases – Competence requirements for greenhouse gas validation teams and verification teams. What does the international standard regulate? This international standard specifies competence requirements for validation and verification teams for the benefit of GHG programme administrators, regulators, accreditation bodies, and validation and verification bodies. It contains general requirements on a verification team, auditors, and lead auditors, including requirements on sector competence and what type of auditing competence and other knowledge a verifier, auditor, and lead auditor should have. The standard is used as a reference guide during accreditation to ISO 14065. (continued on next page) Note 162 » IAF Mandatory Document for the Application of ISO 14065:2013, MD 6-2014. Note 163 » Korea is migrating to the international standard. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 153 (Table continued) International Standard What the standard covers and examples of CPIs that use these standards Examples of CPIs using such standards: California ETS, Canadian CPIs (British Columbia, Ontario, Quebec), EU ETS, Japan, Kazakhstan ETS, South Africa, Korea ETS, and Thailand. ISO 17011 Conformity assessment – General requirements for accreditation bodies accrediting conformity assessment bodies. What does the international standard regulate? This International standard specifies requirements for the competence, consistent operation, and impartiality of accreditation bodies assessing and accrediting conformity assessment bodies,164 such as: • The steps in the accreditation process; • General requirements on competence and impartiality of the accreditation body, and its assessors; • Sanctions that can be imposed by the accreditation body; • Procedural requirements such as processes for handling complaints, appeals, and procedures for corrective action. International Accreditation Forum (IAF) provides mandatory guidance and nonbinding guidance on accreditation and the application of ISO 17011. Examples of CPIs using such standards: Any CPI that uses the ISO national accreditation process for approval of verifiers (i.e., ISO 14065) will be subject to the application of this standard; however there are some CPIs – such as California – that use ISO 14065 as the basis of their approvals, but which are not a National Accreditation Body and hence are not subject to ISO 17011. ISO 17024 Conformity assessment – General requirements for bodies operating certification of persons. What does the international standard regulate? This international standard specifies principles and requirements for a body certifying persons against specific requirements, and includes development and maintenance of certification schemes for individuals – such schemes are usually implemented in response to a specific programme owner requesting it. The standard ensures that such certification schemes operate in a consistent, comparable, and reliable manner worldwide; and covers the structure and governance of the certifying body, characteristics of the certification programme, information to be available to applicants, and recertification initiatives of the certifying body, including: • General and structural requirements for the certification body; • Resource requirements; • Records and information requirements; • Development of certification schemes; • Certification process requirements; and • Management system requirements The standard is designed to help organisations conduct well-planned and structured evaluations in order to ensure impartiality of operations and reduce any conflict of interest. Further supporting guidance is published by ISO on the development of personnel certification schemes in line with ISO 17024. CDM/JI What does the international standard regulate? standards The CDM accreditation standard : Contains the minimum requirements for the approval of a designated operation entity (verifier) to conduct validation/verification of CDM crediting projects (validation of project design plans and verification of project emissions reductions). The CDM validation and verification standard for programmes of activities : Contains minimum requirements for the validation and verification of a programme of activity by designated operational entities, including communications and stakeholder engagement processes. These CDM requirements are approved by the Executive Board which also acts as the regulator in the context of acceptance of the validation/verification report, etc. The CDM validation and verification standard for project activities : Similar to the programme standard, contains minimum requirements for validation and verification of a project by designated operational entities. (continued on next page) Note 164 » A verifier is considered a conformity produced by an obligated party conforms to the rules 154 assessment body in that it is checking that a report and requirements laid down for the relevant CPI. (Table continued) International Standard What the standard covers and examples of CPIs that use these standards Examples of CPIs using such standards: The standards are applied to CDM offset crediting projects and programmes of activity; they have also provided reference or input to protocols used for many domestic offset crediting mechanisms, such as for Brazil, Japan, South Africa, and Thailand. Verified What does the internationally recognised voluntary standard regulate? Carbon Standard Operated by Verra, the VCS Program provides a global programme with a standard and framework for independent validation (VCS) of projects and programmes, and verification of GHG emission reductions and removals for use also outside the UNFCCC context (i.e., by nongovernment actors); this framework is based on ISO 14064-2 and ISO 14064-3. As its core requirements for approval of validators and verifiers it uses the requirements set out in ISO 14065. The VCS Program facilitates the joining up of domestic crediting programmes by means of demonstrating compliance with VCS principles and requirements through a gap analysis, following which the VCS Board makes a final decision on whether to approve the GHG programme for recognition under VCS. Once approved the following applies: 1) GHG credits under the approved GHG programme may be canceled and issued as VCS Units (VCUs, i.e., the credits are converted into VCUs); 2) Validation/verification bodies under the approved GHG programme are approved to deliver VCS validation and verification (for the corresponding sectoral scopes for validation and verification respectively, and provided they have signed the required agreement with the Verra); and 3) Methodology elements under the approved GHG programme may be used for developing VCS projects. Further detailed information can be found on: • The VCS Standard : https://verra.org/project/vcs-program/rules-and-requirements/ • Becoming approved as a verifier : https://verra.org/project/vcs-program/validation-verification/become-a-vvb/ Examples of CPIs using such standards: California has recognised VCS credits as part of its compliance programme. Registry offset Credits (ROCs) issued under the VCS Program using CARB approved offset protocols can be converted into California compliance offset credits (CCOCs). Similarly, the VCS Early Action Offset Program has been recognised by the California Compliance Offset Programme as generating credits that can be converted into CCOCs that can be surrendered to meet compliance obligations under the California ETS. Brazil is currently consulting on plans for a VCS JNR Jurisdictional Subnational Program on Incentives for Environmental Services of Carbon of the State of Acre. The South African offsetting mechanism will also use VCS for specific sectors and activities. ISAE 3410 International standard on Assurance Engagements on Greenhouse Gas Statements What does the international standard regulate? First published in 2012, the International Standard on Assurance Engagements No. 3410 builds upon the International Framework for Assurance Engagements and ISAE 3000 (the Standard for ‘Assurance Engagements other than Audits or Reviews of Historical Financial Information’). ISAE 3410 follows the elements of the Framework of ISAE 3000 but is tailored specifically for the assurance of GHG statements (other elements of ISAE3000 are mandatory if ISAE3410 is being used). The framework and standards are designed for professional financial accounting firms and assumes that: a) The engagement team and technical reviewer are subject to parts A and B of the Code of Ethics for Professional Accountants (see below) issued by the International Ethics Standards Board for Accountants; and b) The auditors are members of a firm that is subject to ISQC1165 (and overseen by an appropriate National Body). Where the standards are used by an organisation that is not a professional financial accounting firm, the user must take into account the above requirements and demonstrate that they are subject to equivalent professional/legal requirements (i.e., that are at least as demanding). The standard specifies requirements in relation to the planning and delivery of GHG statement verification with a reasonable or limited level of assurance. (continued on next page) Note 165 » International Standard on Quality Control 1 – of Financial Statements and Other Assurance and Related Quality Control for Firms that Perform Audits and Review Services Engagements. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 155 (Table continued) International Standard What the standard covers and examples of CPIs that use these standards Definitions and requirements are stated for elements including: roles and responsibilities; principles such as professional scepticism and professional judgment; assurance skills and techniques; verification processes and elements such as materiality; quality assurance processes: formal documentation and written representations from the party responsible for the statement (e.g., the client). These standards form an underpinning for many of the other standards used in GHG accounting and assurance as they (or earlier versions) were in existence before GHG accounting came into practice.166 Further detailed information can be found in the following: • International Framework for Assurance Engagements: http://www.ifac.org/system/files/downloads/b003-2010-iaasb-handbook-framework.pdf And the following standards which are published in the 2018 Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements (publically available documents, but registration is required): http://www.ifac.org/publications-resources/2018-handbook-international-quality-control-auditing-review-other-assurance • ISAE 3000: Assurance engagements other than audits or reviews of historical financial information (page 129) • ISAE 3410: Assurance engagements on greenhouse gas statements (page 278) Examples of CPIs using such standards Australia Emissions Reduction Fund (approves ISAE 3000 and ISAE 3410); Canada (Alberta) requires the application of ISAE 3000 (the development of its programme predated the existence of ISAE 3410). Verification under the Alberta programme can only be done by chartered accountants and professional engineers. Scope of requirements. Although this may not check implementation of the specific be a specified requirement in some approved plan. The plan becomes one verification CPIs, the verifier should check this of the verification criteria the verifier to manage its own verification risk. must take into account. This annex explains what the verifier As part of the quality assurance and checks during the verification and how control system the verifier should • Where the monitoring methodologies the design of the system and coverage also check monitoring equipment prescribed by the CPI for an obligated of the CPI can affect the scope of and associated maintenance, entity or project/programme activity verification and the checks a verifier calibration, and so on. relate to specific methodologies such carries out during verification. as for carbon capture and storage, • That the reported data are free from afforestation projects, or the application In general, the verifier checks: material misstatements as specified of continuous measurement, this by the CPI’s rules. In that respect the can also impact verification as • Completeness of relevant sources, verifier will check data details and any specific requirements may apply in fuels, and materials as well as assumptions being made. such cases.169 Policy makers need associated data reported by the to consider this when defining the obligated entity. The design of the M&R system and the verification rules. coverage of the CPI167 is a determining • Compliance with requirements factor for the scope of verification and the • The scope and boundaries of the CPI as and specific plans and/or other checks that the verifier has to carry out: well as the coverage of emissions affect documents validated or approved by how the verifier checks completeness a regulator or other institutions such • Where a CPI requires obligated entities of emissions, sources, and fuels or as designated operational entities. to have a monitoring plan168 approved materials. The verifier usually checks by the regulator or an independent these elements by visiting the site • Effectiveness of the obligated third party, this affects the criteria of an installation, entity, or project entity’s internal quality assurance used by the verifier to check the and confirming that boundaries and and control system that is designed accuracy of reported data. The detail coverage of sources, emissions, and to mitigate the risk of errors in the in the monitoring plan has an impact fuels or materials have been taken into data and to ensure compliance with on the verification since the verifier will account in the correct manner. Note 166 » Ethics Code Part A covers – integrity, Note 167 » Which sectors fall under the scope of the CPI Note 169 » Specific requirements apply in CDM objectivity, professional competence & due care, and what monitoring boundaries apply. for carbon capture storage project activities and confidentiality, and professional behaviour. It provides a afforestation and reforestation project activities. In some Note 168 » A monitoring plan outlines how data are to conceptual framework to identify threats to compliance CPIs, simplified requirements are applied to small scale be monitored and reported by the obligated entity or how with these principles, evaluate significance of threats, project activities (CDM) and small emitters (Tokyo Cap- projects or programmes are to be implemented in the 156 and apply safeguards. Part B covers – how Part A applies and-Trade System, EU ETS). case of some crediting mechanisms (such as CDM). • Where the reporting entity consists verifier’s activities are focused on Some CPIs give indicative guidance on of multiple facilities and is required this facility. the selection of a sample of facilities to to monitor and report energy or check, but ultimately it is the responsibility emissions associated with all its In some CPIs the obligated entity of the verifier to manage their verification locations, the verifier will have to check consists of multiple facilities because risk and check all facilities that their risk how the data generated at the facility of legal systems or political decisions. analysis indicates should be included in level is integrated at the aggregate If the obligated entity consists of the sample. level for the whole entity (including multiple facilities, this can affect how the whether all sources and fuels or verification is carried out. The data for materials from all facilities have been the various facilities must be checked taken into account). Depending on by the verifier to ensure the aggregated how the rules of the CPI are set up data for the whole entity is accurate. In Verification the verifier may find it necessary to that case it is important that the verifier carry out site visits to all facilities checks the data and quality assurance/ report involved. In general, this depends on quality control measures from most, if not the required level of assurance and all, of the multiple facilities or locations. In In addition to the opinion statement the heterogeneity of the emissions some circumstances a CPI might allow the itself, the verification report includes sources and data accounting verifier to sample a range of the facilities the scope, basis of the opinion, processes – these will be taken into or locations, but this will depend on how responsibilities of the different parties account in the verifier’s risk analysis to homogeneous the activities and the data and a summary of findings. This annex determine whether omitting a facility accounting and internal control processes outlines the different verification from the visit programme is of low risk are across all the facilities/locations. It will opinion statements that can result from to the verification conclusion. Available also depend on the risk analysis.170 The verification activities. It also gives an resources of course also factor into more similarities between all facilities/ indication of what should be included such decisions. locations and their accounting and in the broader verification report. This internal control processes, the lower the information is based on good practices • Where the M&R requirements are verification risk associated with selecting identified from CPIs around the world imposed on a single facility, the a sample of facilities/locations to check. and international standards. Verification opinion statements Type of verification opinion statement Explanation The reported data are free from This does not necessarily mean that the obligated entity’s report does not contain material misstatements misstatements or noncompliances with the monitoring plan or requirements. Reported data can be accepted by the verifier provided that there are no material anomalies in the professional The report is verified as satisfactory judgment of the verifier and a verified opinion statement can be given. If there are nonmaterial issues within the reported data, good practice is that these must be transparently listed in the verification report itself and subsequently addressed by the obligated entity. The reported data are free from As above, but the verifier may add specific comments to their opinion statement section to material misstatements, but there are draw the data users’ attention to aspects that might impact the way readers use the data, but items the verifier wishes to draw the without this issue being material. users’ attention to For example, where metered data was used but the CPI rules do not require a certain level of The report is verified as satisfactory, but maintenance and calibration, the verifier might draw attention to the fact that meters were not with comments calibrated or had not been maintained with reasonable frequency – as this might impact the quality of data but would not be a noncompliance. The reported data are not free from The report contains material misstatements and cannot be verified as satisfactory. This means material misstatements the reported data are denied an assurance opinion statement and therefore may be in breach of the CPI’s legal requirements. In this case action should be taken by the regulator. The report is not verified as satisfactory (continued on next page) Note 170 » The less homogeneous the higher the risk locations. Another factor to take into account is whether and therefore the more likely the verification plan would the contributions of the facility to the total amount of need to include a visit to all or most of the individual emissions are material or not. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 157 (Verification opinion statements continued) Type of verification opinion statement Explanation There is a limitation of scope A limitation of scope for verification means that something has occurred that prevented the verifier from obtaining evidence that is required to achieve the specified level of assurance. For The report is not verified as satisfactory example, primary source data are missing or data are only available at an aggregated level; or the verifier has been prevented from inspecting parts of a facility (or facilities). A limitation could also occur if the obligated entity has failed to (or declined to) make sufficient information available to carry out the verification fully or where a required approved/validated monitoring plan is not available or unclear in scope. A limitation of scope means that the emission report cannot be verified as satisfactory under the specified level of assurance, and action needs to be taken by the obligated entity and/or regulator.171 Based on lessons learnt from different • Where relevant, recommendations Examples of CPIs, it is good practice to require for improvement in accuracy, verifiers to include the following elements transparency and robustness of impartiality in a verification report: reporting, and robustness of data accounting and control processes; measures • Objectives and scope of verification as well as a specific dated reference • Other relevant information that the This annex provides examples of to the report that was verified; verifier may want to bring to the situations that have led to impartiality attention of the user of the report: risks; it also outlines what type of • The criteria used to verify the reported for example, the regulator or other safeguards or measures can be taken data, such as legal requirements, parties such as traders for crediting to mitigate or avoid these risks. including the latest version of the or trading systems; monitoring plan (where relevant); • Names of the lead auditor, auditor(s), • Aggregate total emissions and the and technical experts involved and reporting period; the verification body; • Responsibilities of the obligated • The oversight body that has entity, the verifier, and the approved the verifier; regulator(s); • Data and signature of an authorised • Verification opinion statement (the person signing on behalf of the verifier. actual conclusion reached by the verifier); For some CPIs more detailed information must be included in verification reports. • Threshold(s) for materiality; For the CDM, information needs to be included on the methods used • Confirmation that compliance for verification, such as verification obligations have been met; approaches followed, application of materiality, and site visits carried out. • List of (outstanding) misstatements and cases of noncompliance with the monitoring plan (if relevant) and legal requirements; Note 171 » Note, the limitation needs to be imposed from outside the verification team. The verifier using the risk analysis to focus its efforts on certain elements or areas of an obligated party’s accounting system does not 158 constitute such a limitation. Risk area Description of risk Potential mitigation measures Sources of In some CPIs verifiers are paid by • Including requirements on minimum time allocation in legislation or providing revenue the obligated entity which can lead guidance on how to allocate time (see section 7.4 under step 1); to potential risks to impartiality. Obligated entities can, for example, • Requiring a mandatory technical review of all verifications by independent persons put pressure on verifiers to issue a from within the verification body (see section 7.4 under step 8); positive verification opinion where • Transparency of verification reporting by establishing the minimum required content this is not justified or to carry out in legislation (see section 7.4 under step 9); the verification in less time than is needed. • Strong oversight and supervision of verifiers by formal oversight bodies (see section 11.4); Examples of such CPIs are EU ETS, California Cap-and-Trade System, • In most of these CPIs, accreditation to ISO 14065 is prescribed which requires Australian Emission Reduction verifiers to take internal measures and safeguards to avoid and mitigate these risks; Fund. • Similar requirements are laid down in the CDM rules on accreditation. The type of internal measures to be taken is very much dependent on individual circumstances. Self- Risk of fraud by altering verification It is a common requirement in all CPIs that verifiers may not enrich themselves by interest results to gain personal profit. This taking money for altering the verification opinion or influencing the verification. In some can be through direct payments or countries this is part of general legislation on fraud whereas in others CPI programme indirect benefits. specific requirements have been included in legislation or reference has been made to ISO 14065. Owning shares in the obligated entity whose report is being verified or sharing common ownership or common resources with that obligated entity is forbidden in most CPIs. The type and detail of requirements can vary between CPIs. In some countries, auditors are required as part of the verification process to submit a document to the regulator that vouches for good behaviour and that states that there is no conflict of interest in relation to the specific verification being undertaken.172 Self-review A common principle in all CPIs is Application of standards such as ISO 14065: restrictions are placed on personnel that a verifier should not review and organisations that provide consultancy activities to the obligated entity as well as or evaluate its own work when offering verification activities. undertaking verification. In some countries these general requirements have been made more specific. In the However, there are different EU ETS, for example, the verifier is not allowed to provide consultancy on monitoring interpretations of what constitutes systems or monitoring plans for a company whose report it is verifying. Consultancy self-review risk: and verification are two types of activities that should be kept separate. Auditors should act impartially during the verification and refrain from making detailed • In some domestic offset suggestions for how to specifically improve the obligated entity’s M&R processes mechanisms, and CDM173 large whilst verifying (even inadvertently), although weaknesses can be identified. Otherwise scale projects, verifiers are not this would result in self-review when they come to issue a subsequent opinion. allowed to verify emissions or emission reductions of project If the verifier is part of an organisation that also provides consultancy advice, it is good activities for which they have practice to have a clear division of responsibilities and management between advisory validated the monitoring plan or and assurance services offered by the organisation. Both the CDM rules and ISO project design document. 14065 have specific requirements on this. • In other CPIs there are no such The reasons for adopting a specific approach are influenced by: impediments or verifiers can conduct such verifications only • Whether there is a specific standard that prescribes a particular approach, such as under certain conditions. the CDM rules174; • Whether countries have sufficient competent verifiers;175 and • The size and complexity of the scheme. (continued on next page) Note 172 » Such documents are required in Tokyo Cap- authorisation from the CDM Executive Board. Approval competent designated operational entities. Furthermore, and-Trade System, some of the Chinese pilot schemes, is not required if it relates to a registered small-scale the benefits of improving efficiency and quality of the and in California. CDM activity or a CDM project activity for which it has review were considered to outweigh the disadvantages performed the validation of postregistration changes. and the risks to impartiality for some CPIs, in particular in Note 173 » For JI it depends on which Track is used. the early stages of a CPI. Note 175 » Among the reasons for allowing designated Note 174 » If the designated operational entity would operational entities to do the validation and verification like to verify the same project activity for which it of the same project activity has been the lack of available has performed validation activities, it must obtain DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 159 (Table continued) Risk area Description of risk Potential mitigation measures Familiarity This risk can occur if verifiers or Measures that avoid or mitigate these risks can include rotation of staff after a set auditors are verifying the report of number of years verifying a specific obligated entity or even rotation of the verifier an obligated entity year after year. itself, although required rotation of verifiers does not occur often in the CPIs examined. Although a reoccurring verifier and auditor can do the work more efficiently, there is a higher risk that the verifier or auditor becomes so familiar with the obligated entity that it does not raise issues with the entity or misses things (tunnel vision, blind spots). Intimidation If there are relationships between In CPIs where ISO 14065 or the CDM rules on accreditation are applicable, verifiers are the verifier – or one of its auditors – required to implement procedures and safeguards to mitigate risks to impartiality, e.g., by and the obligated entities, they are requiring verifiers to regularly monitor the impartiality of their personnel or requiring them more prone to intimidation actions. to come forward where there are potential conflicts of interest. In particular, verifiers need to show their auditors that they are protective of their staff and supportive of actions auditors need to take, such as complaining about a client’s behaviour if pressure is being applied by them to get an auditor to change its conclusion. Examples of of 5% related to emission reductions lower materiality threshold for obligated means that a misstatement is material entities with large total values of application of if identified issues are estimated to reportable data (for example, 2% instead lead to an (aggregate) overestimate (or of 5% of the data value). Similarly, for materiality underestimate) of the total GHG emission an obligated entity that is made up of reductions by more than 5% of the total a number of facilities it is reasonable Materiality has both quantitative and amount of reductions declared. If errors to define a materiality threshold at qualitative aspects. This annex provides and anomalies are corrected, the total each level: one at the individual facility more detailed information on the declared value is updated to the corrected level (for example, 5%) and one at the application of quantitative materiality. It total and the materiality of any remaining aggregated entity level (for example, outlines how to define the thresholds used uncorrected issues is reevaluated. 2%). This ensures that significant errors for quantitative materiality and provides at an individual facility can be taken into examples of such thresholds. Finally, this In some CPIs, the materiality threshold account at the aggregate entity level. annex contains more detailed information is predefined in legislation; in others Otherwise it might be possible to have a on how the verifier takes into account the this percentage is set by the verifier at facility where there is a significant error qualitative aspect of materiality. the beginning of its work based on a in its reported data (either from a single case-by-case decision and as part of its major error or the sum of many smaller Quantitative materiality engagement agreement with the client. ones) but the impact on the total entity For consistency across all verifications declared emissions is not large enough For quantitative materiality a threshold for a specific CPI a predefined materiality to affect the entity level materiality and needs to be defined; this is usually a threshold is considered good practice. hence the verifier’s conclusions. The certain percentage of the total reported table below provides examples for the data value (a typical level is ±5% of total Furthermore, it is good practice to application of quantitative materiality declared emissions for most facilities or distinguish between those obligated thresholds in different CPIs. reporting entities), although benchmarks entities that have, for example, high are also used. When the materiality reported emissions and those with threshold relates to a percentage of the low emissions, by having a different total reported data, a misstatement or quantitative materiality threshold defined noncompliance issue that affects the for different categories of emitters. The data calculation is defined as having a reason for this is that a small (relative) material impact on the reported data if error in a large reported value could the materiality threshold is exceeded.176 still be a very large absolute number. For example, a materiality threshold Therefore, it is reasonable to set a Note 176 » Either as an individual item or as an 160 aggregate of all identified – and uncorrected – errors. CPI Example of predefined materiality thresholds in legislation or standards EU ETS • Quantitative materiality threshold is ±5% of the total reported emissions for the relevant reporting period for installations that emit <500 ktCO2 and for aircraft operators with annual emission ≤500 ktCO2 • Quantitative materiality threshold is ±2% of the total reported emissions for the relevant reporting period for installations that emit ≥500 ktCO2 and aircraft operators with annual emission >500 ktCO2 California • Quantitative materiality threshold is ±5% of the total reported emissions (i.e., 95% accuracy) ETS CDM • ±0.5 % of emission reductions or removals for registered CDM project/programme of activities achieving a total emission reduction/removal ≥500,000 tCO2e per year; • ±1% of the emission reductions or removals for registered CDM programme of activities achieving a total emission reduction/removal of between 300,000 and 500,000 tCO2e per year; • ±2% of the emission reductions or removals for registered CDM large scale project activities/ programme of activities achieving a total emission reduction/ removal of <300,000 tCO2e per year; • ±5% of the emission reductions or removals for registered CDM small scale project activities/ programme of activities comprised only of small-scale component project activities other than registered CDM programme of activities covered under subparagraph (e) below; • ±10% of the emission reductions or removals for registered CDM projects/programme of activities comprised only of microscale component project activities Emission The materiality threshold is defined by the verifier before the verification starts on a case-by-case basis using their professional Reduction judgment. Guidance from the regulator indicates that the verifier should consider materiality in the context of the relative Fund significance of anomalies and errors identified and whether a misstatement or noncompliance could influence the user of the data. (Australian offset For quantitative materiality, this includes considering the size, significance, and pervasiveness of the issue and the effect that mechanism) it has on the reported data (or compliance) as a whole. The overall materiality threshold for the whole obligated entity and any subsidiary level materiality threshold set for individual benchmark parameters (such as different emissions scopes [1, 2, etc.], source streams, facilities, etc.), including the percentages and benchmarks on which they are based, are documented in the assurance engagement plan. In general, the verifier will use a percentage value that is typical for the type of accounting scheme being verified; Australian verifiers’ feedback is that they mostly apply a threshold of ±5% of total declared emissions at the start. JCM • The materiality threshold is ±5% of the total reported emissions. Qualitative materiality there are serious weaknesses in the whether misstatements individually or in obligated entity’s processes, systems or aggregate exceeds the defined materiality Materiality also has a qualitative aspect. controls, and the potential for fraudulent threshold (see table above). If it does, the If the quantitative materiality threshold reporting. Therefore, the verifier must project developer is requested to make a has not been exceeded at any applicable use its professional judgment to decide if correction; if they do not implement the level of the data, the verifier should still the misstatement or noncompliance has correction, the designated operational consider whether the nature, size, or material impact on such decisions. entity issues a negative verification opinion. particular circumstances of any misstatement or noncompliance However, in some CPIs there are In general, applying the concept of individually or in aggregate could cause exceptions to the general rule that materiality does not mean that identified the user of the data to change any considerations of materiality should be errors are not corrected. If it is possible decision it might make using the reported both quantitative and qualitative. For to correct and there is time to do so data. Such users can, for example, be example, in CDM only the quantitative before reporting deadlines arise the the regulator responsible for receiving a aspect of materiality is considered by the verifier should (and for most CPIs, must) report or the oversight body evaluating verifier because qualitative aspects such ask the obligated entity to address verifier performance. Factors that can as omissions or noncompliance with rules identified errors regardless of whether it influence their decisions can include would be deemed a ‘no verification’. In is material or not. This helps to minimise the likelihood of reoccurrence, whether terms of the quantitative materiality, CDM verification risk (that is, that the verifier the error can be corrected, whether designated operational entities assess will reach an incorrect conclusion). DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 161 Important concepts therefore, its materiality in relation to generally no specific reporting deadlines the total reported emissions value. to be met that might influence the quality When considering the concept of of work delivered by the verifier/validator. materiality in a verification system, the • Materiality is a tool to aid the following is a helpful aide-memoire which verifier in determining if the total Verification ideally will start sufficiently is applicable to any CPI: reported data value is acceptable, early to avoid pressure on all the parties taking into account any anomalies concerned as fixed deadlines approach. • Uncertainty is inherent in the that have been identified but that Closely connected with this is one of the design of a methodology used cannot be corrected by the time choices a policy maker must make when for monitoring (for example, the the reporting deadline is reached. designing the verification system: at characteristics of the design and Thus it is not a tolerance band for what frequency should verification installation of meters, the method of the participant to use in presenting be carried out and which reporting lab analysis to determine emissions their data or to decline to correct period should be subject to factors). It cannot be completely identified errors. If misstatements verification. eliminated so it is evaluated and or noncompliance are identified minimised where possible through by the verifier, these should be For many CPIs, deadlines are defined maintenance, calibration of corrected and addressed by the in legislation, for example, when the instruments and other methods. party responsible for monitoring and verified data must be submitted, Uncertainty of measurement reporting before the completion of allowances surrendered or taxes paid. (where this is accepted as part of reporting and verification. Experience over the last decade or so an approved methodology, either of CPI schemes being implemented generally or at a defined level Materiality can also be used by the has shown that verification should start such as the ‘tiers’ approach177) is verifier as a tool for planning its sufficiently early to meet those deadlines not considered to be an error and verification work to ensure that the focus without imposing stress on the obligated so is not part of the materiality of testing, for example, is on the most entity or on verifier, as that might result in assessment. However, if a required significant sources and the areas of the mistakes on either side. uncertainty level has been defined accounting process that are most liable in the CPI rules, any uncertainty in to failure – these would be considered For ETS and carbon tax systems measurement beyond the required material elements for checking. that have an annual cycle, starting level is considered to be an error and verification during the reporting period must be taken into account in the and spreading the work out over time materiality analysis. For clarity on the is recommended over starting after the accuracy of emissions declared, it is end of the reporting period and trying good practice to define in the rules Timelines of to complete all the required work in a an acceptable level of uncertainty very short period of time. For example, (for example, how high quality verification: starting in Quarter 3 of a reporting year measurement instruments must allows the verifier time to do checks be or what analytical methods are additional on compliance and also eight to nine acceptable). months’ worth of the data set, and then considerations the obligated entity has plenty of time • Error is a fault in the accounting to make corrections before getting too process that means the (agreed) This annex provides more specific close to deadlines. Compliance checks accounting protocol has not been information on appropriate timelines are not generally time dependent so applied properly, the rules have not of verification; ex ante validation is sorting them out early is helpful and been obeyed, there are mathematical not covered here because there are also enables timely resolution of issues errors in the accounting process, instruments have not been maintained or calibrated to stay within the approved uncertainty FIGURE 26.  Typical frequency of verification level; and/or other failures of internal control have occurred that impact Emission Carbon tax Credit the data. The magnitude of the trading systems mechanisms error and its directionality (that is, • Annual • Annual • Flexibility as to when whether it causes an overstatement they seek credits and [+] or understatement [-]) need to be • Basis for surrendering • Basis for determining therefore when they allowances and credits tax obligations need verification of taken into account when evaluating reductions, etc. the overall impact of the error and, Note 177 » The regulator accepts that there will be some 162 uncertainty in the final results. and data gaps identified before the FIGURE 27. Example timeline for a verification starting after the verification has to be closed. Getting end of the reporting period eight to nine months’ worth of data 1 3 checked early means that there are only Stage 1 Stage 3 three months or so of data that needs Document review & Reporting and strategic analysis completion detailed checking at the Year End along Stage 2 with confirming that the obligated entity 0 Detailed verification has resolved any compliance and other Contract review, proposal & 2 4 issues identified during Stage 1 of the commissioning Stage 4 work, reducing the pressure on both End Independent verifier and obligated entity. Reporting technical Year review & opinion issue Leaving all the verification work until Start Reporting reporting Q1 Q2 Q3 Q4 & opinion after the end of the reporting period year deadline could place high pressure on verification resources (potentially increasing 3 months costs) or on the time allocated to Source: based on training material from Planet & Prosperity Ltd the verification which may result in verifiers making errors or arriving at an inappropriate conclusion. It can also give rise to significant amounts of work in a short space of time for regulators and FIGURE 28. Example timeline for a verification starting during the obligated entities to make amendments reporting period to approved monitoring plans or permits 2a 3 (where applicable), or to approve Stage 2a Stage 3 alternate methods for data gaps and Verification of compliance and 2b Reporting and data check based on H1 or Q3 completion other changes that might be requested. data plus full year forecast Stage 2b Year end reconciliation On the other hand there has to be against forecast & investigate / close sufficient data available to be able to 0 1 4 out of anomalies Contract review, Stage 1 Stage 4 plan the verification and assess the risks proposal & Document Independent End of misstatements and noncompliance commissioning review & Reporting technical strategic Year review & issues. Figure 27 and Figure 28 below analysis opinion issue provide examples of two verification Start Reporting reporting Q1 Q2 Q3 Q4 & opinion timelines – one starting after and one year deadline before the end of the reporting period. Figure 27 illustrates the verification 6-9 months with all the steps outlined in section 7.4 Source: based on training material from Planet & Prosperity Ltd being carried out in a maximum of two and a half178 months, with the deadline for submitting emission and verification reports set three months after the end of the reporting period. In Figure 28 the activities are spread out over a longer period of time. For crediting mechanisms there is more flexibility to organise timelines for verification because there is normally no set deadline for submitting the report claiming credits. Such reports are submitted when the report is completed and verification has been conducted. Note 178 » It normally takes the operator a couple of weeks after the end of the reporting period to have finished the monitoring of data for the last month of the period, therefore the verifier usually would not start its work until the report has been finalised. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 163 Example of an accreditation certificate Key organisational and procedural requirements Organisational and procedural requirements Explanation Design, document, implement, and The establishment of a formal management system and procedures ensures, for example, that: maintain a formal management system and procedures • All key activities are formally defined and controlled in the verification process, from the preparation of proposals and quotes through to final verification reporting and the issuing of opinion statements; • Documents are under control, properly filed, and appropriate records are maintained; • Safeguards are in place to guarantee confidentiality of information obtained from clients; • Verifications are conducted in a standardised and controlled way; • Regular internal audits are carried out to ensure compliance with quality controls and any requirements needed to ensure verifiers maintain their ‘licence’ to do verification; • Corrective action is taken to address identified cases of noncompliance; • Preventive action is taken to avoid (reoccurrence of) noncompliances; • Complaints about the verifier or its individual auditors, or appeals against verification decisions, are addressed in a proper manner; • Internal verification documentation is compiled to high standards aiding transparency and demonstrating that steps in the verification process were carried out robustly and according to the rules. As good practice, such a management system might follow the framework specified in ISO 9001 or other quality management standards, even if it is not independently certified as conforming to a particular standard. (continued on next page) 164 (Table continued) Organisational and procedural requirements Explanation Keep information obtained in the Information obtained during the verification should be held confidential and the verifier should verification process confidential implement measures to ensure that confidentiality is maintained, whether information is held in electronic or hardcopy format. For example, if electronic information is obtained and held on the verification team’s laptops during the course of their work, it should be removed to a central controlled archive after completion of the work when the auditors no longer need regular access to it. If this laptop is lost or hacked, the information is not accessible. ISO 20000 and ISO 27000 provide recognised standards and guidance on information security and IT systems management. In some countries environmental or other information can fall under legislation related to public access to information if that information comes under control of the regulator. The regulator needs to be aware of the importance of confidentiality of information obtained in the verification and may need to include provisions concerning confidentiality in the legislation. Design, document, implement, This process covers a situation in which an error is identified after the verification report is and maintain process to address a submitted (whether by the regulator, operator, or verifier personnel). The process should define situation where an error is identified in how such errors are addressed and should cover communication between the verifier and other the verification report parties as well. Resource The table below provides information from international projects initiated on the type and amount of resources by national governments, Europe Aid, requirements for needed for the development of a WB programmes, or other international V&A system for CPIs. The activities organisations. developing and mentioned in the table below concern primarily activities of regulators and implementing approval/oversight entities. It indicates what factors can influence the type of a V&A system resources and what measures can be taken to reduce the costs. On a number for CPIs of these activities support can be gained Type of Factors that influence Measures that can reduce Phase Activities resources needed amount of resources resource requirements Design of Setting up • Staff to develop • Complexity of legislation • Combining the design of frameworks the legislative legislation the legislative framework framework • The number of institutions involved for V&A with drafting the • Initially a one-off activity in drafting legislation details of the overall CPI that is carried out before system. This not only the start of operations of • Whether the legislation on V&A is developed in parallel to other parts improves efficiency, it also the CPI. has a positive effect on of the CPI legislation • In the case of updates of the output quality. legislation in future years, • Whether (elements of) existing legislation and institutions can be • Developing V&A it can be a reoccurring legislation in parallel to activity (see programme used as a basis the M&R legislation review in this table) (continued on next page) DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 165 (Table continued) Type of Factors that influence Measures that can reduce Phase Activities resources needed amount of resources resource requirements Setting up the • Financial resources for • How many regulators are involved, Making use of existing institutional setting up procedures, including whether local or regional institutions that have the framework systems, institutions, etc. regulators are involved competence and capacity to carry out the required • Staff to carry out work in • Whether the oversight body work new/ existing institutions responsible for the approval and oversight of the verifier is the same • One-off activity before the as the regulator responsible for the start of the CPI CPI implementation • Complexity of the CPI and the number of obligated entities involved • Whether there are existing structures and institutions to build on • Whether or not there is (or can be) coordination between regional authorities Stakeholder • Costs for setting up • Stand-alone events vs. Utilising existing channels engagement consultations and engagement through existing for communication and workshops organisations (e.g., professional engagement, including institutes) utilising representative • Staff organising and groups such as industry conducting stakeholder • The number of stakeholders associations consultations and involved engagement Utilising existing procedures • The complexity of the CPI and / structures • Staff developing legislation instructions / work processes on activities • Whether the regulator is also the to be carried out in body approving and supervising implementation of CPI, verifiers such as the review of emission reports/ verification reports, communication with verifiers Design of Designing staff • Staff developing • Whether the regulator is also the Utilising existing procedures implementation instructions/ instructions / work body approving and supervising / structures tools/processes processes on processes on activities verifiers implementation to be carried out in of CPI implementation of CPI, such as the review of emission reports/ verification reports, communication with verifiers Developing • Costs for advisory • Quantity and complexity of Utilising engagement guidance, support in drafting and guidance, templates, and tools processes to get templates, and consulting on documents contributions of and tools feedback on documents. • Staff involved in However, this could also developing guidance, increase costs, if the templates, and tools engagement processes generate extensive feedback. Structuring the engagement process is therefore important. (continued on next page) 166 (Table continued) Type of Factors that influence Measures that can reduce Phase Activities resources needed amount of resources resource requirements Designing • Costs for advisory • Area in which the helpdesk • Utilising existing sources helpdesks (if support for experts provides support (only MRVA topics or also other questions) • Utilising simple applicable) • Costs for setting up the functionalities such a helpdesk which could • Sophistication and type of general e-mail to which range from setting up helpdesk (only e-mail or also questions can be sent an e-mail address to phone, online platform), response times • Begin simple and make which questions can it more advanced when be directed, setting up system is up and running procedures in answering questions or creating a helpdesk tool/system • Staff involved in designing helpdesk (for operating and maintaining the helpdesk, see implementation and ongoing management) Designing IT • Costs for specialist IT • Whether IT covers the whole • Alignment with existing systems (if advisory support workflow of the CPI or only parts systems applicable) • Costs of IT system • Whether all stakeholders are • One system for all, no expected to have access to the parallel systems IT system and whether all are required to use the IT systems • While IT systems in first (or whether parallel non-IT-based instance increase costs, systems need to be established these could be paid back and maintained as well) by increases in efficiency and quality in the long • The sophistication and type of IT run in other phases of the system (e.g., whether it uses web- process forms, xml) • Whether it needs to communicate with other electronic environmental reporting systems and registries Training verifiers • Establishment of a • The complexity of the CPI and how • Specifying a training (if applicable) training syllabus and many types of training are required179 syllabus and letting the associated materials (e.g., open market develop slides, briefings, and • Whether the training is paid for materials and deliver exams) by the regulator or the verifier; classes in response to Training staff of and whether it is open market or demand (either with oversight entities • Specialist qualified regulator provided. or without a process trainers (e.g., experienced of approval of training auditors who can also providers). train) • Requiring the verifier to pay for training so that it goes to those most likely to deliver work180 • Gaining support from international projects initiated by national governments, Europe Aid, WB programmes, or other international organisations. (continued on next page) Note 179 » For example, the training done for the Note 180 » Where training has been provided and Californian and Korean ETSs and associated crediting paid for by the regulator (see Note 74, for example) it mechanisms included both Lead Auditor training and has been found that many of the successful training sector specialist training for the majority of sectors participants did not then go on to provide verification involved in the ETS as well as specific training on some of work. Participation cost them nothing and required no the relevant crediting protocols. ongoing commitment. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 167 (Table continued) Type of Factors that influence Measures that can reduce Phase Activities resources needed amount of resources resource requirements Implementation Helpdesk • Staff support Complexity of CPI and areas in which • Set-up processes for implementation helpdesk provides support staff to structure and • Maintaining the record responses so that functionalities of helpdesk reoccurring questions can system/procedures be easily answered • Draft frequently asked questions and publish these on the website. Payment of • Financial budget • Budget cycles and whether it is Require obligated entities verifiers (if identified as long-term funding181 to pay for verifiers and relevant) • Administrative staff to implement rigorous rules on manage accounts, check • Source of the funding (government impartiality invoices, etc. general revenue, capitation of tax, trade or crediting values, etc.) Activities of • Staff involved in the • Complexity of the CPI and number Develop simple regulator during communication with of obligated entities involved communication lines the verification obligated entity as a result cycle of issues raised during • The type of approval and oversight verification (if applicable) system selected and whether/to which extent the regulator checks • Staff involved in the verifiers’ results communication with verifier (if applicable) • Type of communication structure Approval/ • Staff involved in the • Whether the regulator is the • Using existing supervision approval/supervision of body responsible for approval or experienced assessor of verifiers if verifiers supervision of verifiers. Otherwise organisations such as relevant these costs are borne by another professional institutes and • Costs for carrying out entity accreditation bodies. approval/ supervision of verifiers (e.g., in the case • The type of approval or supervision • Tools to facilitate of on-site witnessing, system. The costs involved for an implementation of there are traveling costs) approval system with examination activities including or document review is less than standardised planning • Costs involved with the costs involved for an approval schedules, checklists and maintaining management system that requires document template process, and system and processes for review, visit to verifier’s premises, reporting forms. approval and supervision and on-site witnessing. of verifiers • Complexity of CPI and sector scopes covered by the CPI, and whether approval is done on sector-specific scopes or not Ongoing Monitoring the • Staff of regulator involved • Which option is chosen to monitor Developing tools to management quality of verifiers in carrying out these the quality of verifiers (e.g., review facilitate such monitoring activities of emission reports, review of (e.g., checklists, use of IT internal verification documentation, systems) • Financial resources for etc.). The regulator doing basic paying experts or other checks on emission reports would parties to carry out cost less than selecting a second inspection, reverification, verifier to redo the verification. carrying out checks (if applicable) • Complexity of CPI and number of obligated entities involved • Costs for carrying out the relevant activities (e.g., traveling costs in the case of on-site inspections, use of inspection tools) (continued on next page) Note 181 » This primarily impacts the availability until the budget is finalised. If the new financial year and timing of resources which in turn may impact the is close to the deadlines for emissions reporting or if practicalities of when verification occurs. For example, budgets are delayed/agreed late, this could squeeze the if the regulator is paying the verifier from a current year available time for delivery of verification work with knock- 168 budget, it may not be possible to commission the verifier on consequences on quality and potential for error. (Table continued) Type of Factors that influence Measures that can reduce Phase Activities resources needed amount of resources resource requirements Ongoing capacity • Costs for training and • The complexity of the CPI and • Approving/recognising building briefing workshops for how many types of training are publically available verifiers and/or staff required182 training courses for at oversight entities verifiers and approval (e.g., involving trainers, • Whether the training is paid for assessors (with or maintaining training by the regulator or the verifier; without a standardised material, organising and whether it is open market or curriculum) trainings) regulator provided. • Encouraging active • Staff involved with • Other ongoing capacity building engagement of all updating guidance, FAQ & (workshops) verifiers and assessors help desk responses, etc. in knowledge sharing/ capacity building (formal • Advisory costs for or informal). updating guidance and other material (if • Allowing flexibility to use applicable) subcontract auditors as they share knowledge when working across different verifiers Ongoing • Costs for setting up • Stand-alone events vs. Utilising existing channels stakeholder consultations and engagement through existing for communication and engagement workshops, etc. organisations (e.g., professional engagement institutes) • Staff involved in stakeholder engagement • The number of stakeholders involved • The complexity of the CPI and legislation Information • Man-days staff to • The type of information to be Creating templates, exchange exchange information exchanged choosing simple between communication methods regulator and • Costs involved in creating • The type of communication method oversight body of databases where (e.g., informal, by e-mail, through IT information is stored systems) • Costs involved in • Frequency of information exchange developing tools/ templates for information • Whether templates or databases exchange (if applicable) are used Programme Assessment • Costs involved in • Complexity of the CPI • Using existing structures review of system and developing questionnaires for evaluation and tailored update of system to get stakeholder input • The number of years a CPI is in questionnaires/studies or legislation if on functioning system operation • Defining evaluation applicable • The type of evaluation method • Stakeholder consultation methodologies and costs chosen required parameters to • The scope of system changes be monitored ex ante, • Costs for carrying out and monitoring of those impact assessments or foreseen/feasible parameters during system studies evaluating the • The type of stakeholder operation CPI (man-days, advisory consultation costs in carrying out these studies) • Staff involved in amending legislation if needed (continued on next page) Note 182 » For example, the training done for the sector specialist training for the majority of sectors Californian and Korean ETSs and associated crediting involved in the ETS as well as specific training on some of mechanisms included both Lead Auditor training and the relevant crediting protocols. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 169 (Table continued) Type of Factors that influence Measures that can reduce Phase Activities resources needed amount of resources resource requirements Monitoring • Costs for organising this • Type of method chosen and the Outsource review activities the quality of activity extent to which this approach is to other parties such oversight entities applied. Where a governmental as peer organisations, responsible for • Staff involved in carrying authority monitors how the academics, other qualified approving and out this activity) oversight body is carrying out its experts who work under supervising activities, the costs are different contract to the CPI owner verifiers than if peer review is applied or information exchange is carried out. • The type of governmental authority overseeing the quality of oversight body. The costs may be different if parliament carries out those activities compared to another Ministry or governmental authority doing this supervision. • Whether the costs are borne by other parties than accreditation bodies. Peer review of accreditation bodies under EU ETS is, for example, carried out by the European Cooperation for Accreditation. The costs for peer review is borne by that party. Overview of This table provides an overview of legislation, guidance, and tools that are legislation, applicable in CPIs that are currently operational. Where possible, reference guidance, and is made to websites where such information can be found. tools in countries Country Type of CPI Legislation, guidance, and tools Australia Emission Legislation reduction • Carbon Credits (Carbon Farming Initiative) Act 2011, Carbon Credits (Carbon Farming Initiative) fund: an Offset Regulations 2011 and Carbon Credits (Carbon Farming Initiative) Rule 2015. Crediting Mechanism • Australian National Registry of Emissions Units Act 2011 and Australian National Registry of Emissions Units Regulations 2011. • National Greenhouse and Energy Reporting Act 2007 and National Greenhouse and Energy Reporting Regulations 2008 (NGER Regulations).183 • National Greenhouse and Energy (Auditor Registration) Instrument 2017(2) (NGER Auditor Registration Instrument).184 National Greenhouse and Energy Reporting (Audit) Determination 2009 (NGER Audit Determination): Regulations can be found on: http://www.cleanenergyregulator.gov.au/About/Legislation-and-regulations (continued on next page) Note 183 » These instruments provide a framework the safeguard mechanism and audit requirements. In Note 184 » This Instrument sets out the ways in which for reporting and disseminating company information particular, divisions 6.3–6.7 of the regulations specify the requirements of the NGER Regulations in relation about greenhouse gas emissions, energy production, eligibility requirements and standards of professional to auditing knowledge and experience may be met for energy consumption, and other information. They give conduct for registered greenhouse and energy auditors. registration as a greenhouse and energy auditor. 170 effect to policy details on the operational elements of (Table continued) Country Type of CPI Legislation, guidance, and tools Relevant guidance: • Audit determination handbook: http://www.cleanenergyregulator.gov.au/DocumentAssets/ Documents/Audit%20determination%20handbook.pdf • Greenhouse and energy auditor registration guidelines: http://www.cleanenergyregulator.gov.au/ DocumentAssets/Pages/Greenhouse-and-energy-auditor-registration-guideline.aspx • Audits under the Emission Reduction Fund Guideline, October 2017: http://www.cleanenergyregulator.gov.au/DocumentAssets/Documents/Audits%20under%20the%20 Emissions%20Reduction%20Fund%20guideline.pdf • Auditor control: http://www.cleanenergyregulator.gov.au/Infohub/Audits/audits Canada Alberta – Offset Legislation Crediting • Specified Gas Reporting (SGR) Regulation 2004: Mechanism http://www.qp.alberta.ca/documents/Regs/2004_251.pdf • Specified Gas Reporting Standard – January 2018: https://open.alberta.ca/publications/1912-5313 • Standard GHG Compliance Reports – December 2018: https://www.alberta.ca/assets/documents/ CCI-standard-completing-ghg-compliance-forecasting-report.pdf Guidance • Guidance For Greenhouse Gas Verification 2014: https://open.alberta.ca/publications/9781460107751 • Technical Guide Offset Project – Feb 2013: https://open.alberta.ca/publications/9780778588078 - as superseded by - Technical guidance for offset protocol development and revision: https://open.alberta.ca/publications/9781460140611 British Columbia Legislation ETS and Offset Crediting • Greenhouse Gas Emission Reporting Regulation: Mechanism http://www.bclaws.ca/civix/document/id/lc/statreg/249_2015 • Greenhouse Gas Emission Control Regulation: http://www.bclaws.ca/civix/document/id/lc/statreg/250_2015 Ontario ETS and Legislation Offset Crediting • Reg. 143/16: Quantification, Reporting and Verification of Greenhouse Gas Emissions: Mechanism https://www.ontario.ca/laws/regulation/160143 Guidance • Guideline for Quantification, Reporting and Verification of Greenhouse Gas Emissions: http://www.downloads.ene.gov.on.ca/envision/env_reg/er/documents/2017/013-0104_d_Guide.pdf Quebec ETS and Legislation Offset Crediting Mechanism • Regulation respecting mandatory reporting of certain emissions of contaminants into the atmosphere: https://www.goldstandard.org/globalgoals Chile Carbon Tax Legislation under development: • Chile – Directrices para el MRV: http://portal.mma.gob.cl/wp-content/uploads/2016/05/Directrices-MRV-Namas.pdf • Chile – Implementing a Greenhouse Gas Emissions Trading System in Chile: http://www.precioalcarbonochile.cl/wp-content/uploads/2017/07/Motu.pdf • Chile – MRV Compliance and registry: https://www.thepmr.org/system/files/documents/2390a1 PMR Chile A1 MRV_121218.pdf • Chile – Scaled-up Crediting Mechanism: https://www.thepmr.org/system/files/documents/Scaled up Crediting Mechanism Options for Chile_3.0_10 September 2012.pdf (continued on next page) DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 171 (Table continued) Country Type of CPI Legislation, guidance, and tools China ETS Beijing – ETS Legislation pilot systems pilot • Principal legislation: Decision on Launching ETS Pilot under Strict Emission Cap Supporting Regulation and Guidelines: • Regulation on the verification body of Beijing ETS (Trial) • Allocation method of Beijing ETS (Trial) • Reporting procedures for GHG emissions in Beijing • Trial Detailed Rules for OTC Trading of GHG Emission Permits for Enterprises in Beijing • Trial Measures by CBEX for GHG Emission Permits Trading Guidance • CO2 Accounting and Reporting Guidance for Enterprises in Beijing • Operational guidance for the Registry system of Beijing ETS Chongqing – ETS Legislation pilot • Principal legislation: Regulation on Chongqing ETS management and trading • Bylaws for GHG emission reporting and verification • Bylaws for GHG emission permits management • Bylaws for GHG emission trading for Chongqing United Assets and equity exchange Guidance • GHG emission accounting and reporting guideline for industrial enterprises in Chongqing • GHG emission verification guideline for enterprises in Chongqing Fujian – ETS pilot Legislation • Interim Measures for the Management of Emissions Trading • Guidelines on verification Guangdong – Legislation ETS pilot • Principal legislation: Regulation on Guangdong Carbon Emission Management. • Regulatory documents issued by GD DRC: on allowances management and MRV; • Allowances Trading Rules of CEEX Guidance • Allowance Allocation Plan (each year) • A guidance document of verification published by GD DRC • A guidance document of monitoring and reporting, published by GD DRC, includes a principal document, and • Sectoral documents for each sectors included in the pilot Hubei – ETS pilot Legislation • Hubei ETS Regulation; Rules for MRV implementation for Hubei ETS Shanghai – ETS Legislation pilot • Regulation/Trial measures for Shanghai ETS Management • GHG Permit Allocation and Management Solution for Shanghai ETS during 2013-2015 • GHG Permit Trading Rules of SEEX Guidance • Guidance on GHG Accounting and Reporting for Shanghai Enterprises (and nine sectoral guidelines) • Guidance on Verification for Shanghai ETS (continued on next page) 172 (Table continued) Country Type of CPI Legislation, guidance, and tools Shenzhen – ETS Legislation pilot • Principal legislation: Provisions of Shenzhen Special Economic Zone for ETS Regulation Supporting regulation and guidelines: • Interim Measures for Spot Trading in CEX of Shenzhen • Draft Interim Regulation for Shenzhen ETS Management Guidance • Specification with guidance for quantification and reporting of the organisation’s greenhouse gas emissions • Specification with guidance for verification of the organisation’s greenhouse gas emissions Tianjin – ETS pilot Legislation • Principal legislation: Tianjin ETS Interim Regulation Supporting regulation. Guidance GHG Permit Trading Rules of TJCX • Guidance for the accounting of GHG emissions for enterprises in Tianjin National Chinese Legislation ETS • Primary legislation on emission trading is incorporated in the ‘Interim Measures on the Administration of Carbon Emissions Trading.’ (NDRC Order Number seventeen, 2014) • Further, more detailed legislation is included in ‘NDRC Notice on the implementation of activities needed to set up the National Carbon Emissions Trading Market’ (NDRC Notice, 2016). Guidance • Sector specific monitoring and reporting guidelines have been developed for 24 industries to harmonise the collection of data for the determination of historical emissions. These guidelines will be further elaborated for monitoring and reporting annual emissions of these 24 industries. • The interim measures provide a legal basis for NDRC to develop verification guidelines. National – Legislation Offset Crediting Mechanism185 • Interim Measures for the Management of Voluntary GHG emission reduction transactions Guidance • Validation and Verification Guidelines of Voluntary GHG emission reduction projects Europe EU ETS: Legislation (28 EU Member (supranational States plus • Directive 2003/87/EC of the European Parliament and Council establishing a scheme for greenhouse regional) ETS Liechtenstein, gas emission allowance trading within the Community and amending Council Directive 96/61/EC: Norway, and http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:02003L0087-20090625&from=EN Iceland) • Commission Regulation 2018/2067 of 19 December 2018 on the verification of data and on the accreditation of verifiers pursuant to Directive 2003/87/EC of the European Parliament and of the Council: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32018R2067&from=EN • ISO 14065 and ISO 17011 Guidance • Commission guidance, templates and tools are published on the Commission website: https://ec.europa.eu/clima/policies/ets/monitoring_en#tab-0-1 Carbon tax186 For more information on applicable legislation and guidance please see PMR carbon tax guide: https://openknowledge.worldbank.org/handle/10986/26300 (continued on next page) Note 185 » CCER, i.e., Chinese Certified Emissions Note 186 » A carbon tax is applied in a number of Reductions. individual EU countries, i.e., by Denmark, Estonia, Finland, France, Ireland, Latvia, Norway, Poland, Portugal, Slovenia, Sweden, and the UK. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 173 (Table continued) Country Type of CPI Legislation, guidance, and tools Japan Tokyo – ETS Legislation • The Tokyo Metropolitan Environmental Security Ordinance is the primary legislation followed by an implementing regulation: Regulation for the enforcement of the Tokyo Metropolitan Environmental Security Ordinance. Guidance • Guideline for Monitoring and Reporting Energy Related CO2 Emissions • Guideline for Verifying Energy Related CO2 Emissions • Guideline for Monitoring and Reporting GHG Emission Other than Energy Related CO2 • Guideline for Monitoring and Reporting/Verifying GHG Emissions Reductions Other than Energy Related CO2 • Guideline for Certifying/Verifying Operation Management in Facilities • Guideline for Monitoring and Reporting/Verifying Small and Midsize Facility Credits • Guideline for Monitoring and Reporting/Verifying Renewable Energy Credits • Guideline for Monitoring and Reporting/Verifying Outside Tokyo Credits • Guideline for Emissions Trading (How to use the Registry) • Basic Approach on Accounting • Certification Standards for Top-Level Facilities • Guideline for Certifying Top-Level Facilities • Guideline for Verifying Top-Level Facilities • Guideline for Application to Register as a Verification Agency Further information is available on: http://www.kankyo.metro.tokyo.jp/en/climate/cap_and_trade/index.html National – Guidance Offset Crediting Mechanism187 • Guidelines for designation as a third-party entity (validator/verifier) • Rules of procedures for the Joint Committee • Validation and Verification guidelines • Bilateral rules between Japan and the respective country Further information can be found on: https://www.jcm.go.jp/ Kazakhstan ETS and Offset Legislation under development Crediting Mechanism New Zealand ETS Legislation • Primary legislation is Climate Change Response Act. Under this Act there are several relevant implementing regulations: • Climate Change (Agriculture Sector) Regulations 2010 • Climate Change (Eligible Industrial Activities) Regulations 2010 • Climate Change (Emissions Rulings: Fees and Charges) Regulations 2010 • Climate Change (Forestry Sector) Regulations 2008 • Climate Change (Liquid Fossil Fuels) Regulations 2008 • Climate Change (Other Removal Activities) Regulations 2009 • Climate Change (Stationary Energy and Industrial Processes) Regulations 2009 (continued on next page) Note 187 » Joint Crediting Mechanism: this is a bilateral 174 offset mechanism. (Table continued) Country Type of CPI Legislation, guidance, and tools • Climate Change (Synthetic Greenhouse Gas Levies) Regulations 2013 • Climate Change (Synthetic Greenhouse Gas Levies) Regulations 2013 • Climate Change (Unique Emissions Factors) Regulations 2009 • Climate Change (Unit Register) Regulations 2008 • Climate Change (Waste) Regulations 2010 Legislation can be found on: http://www.legislation.govt.nz/act/public/2002/0040/78.0/DLM158584.html Guidance • Becoming a recognised UEF verifier: https://epa.govt.nz/assets/Uploads/Documents/Emissions- Trading-Scheme/Guidance/Becoming-a-recognised-UEF-verifier.pdf Singapore Carbon Tax188 Legislation • ECA (GHG Measurement & Reporting Regs) 2017: https://sso.agc.gov.sg/SL-Supp/S746-2017/Published/20171222?DocDate=20171222 • Carbon Pricing Act 2018: https://sso.agc.gov.sg/Acts-Supp/23-2018/Published/20180601?DocDate=20180601 South Africa Carbon tax, Legislation under development Offset Crediting Mechanism and carbon budgets189 Korea ETS and Offset Legislation Crediting Mechanism • Allocation and trading of greenhouse gas emissions permits Act No. 11419, May 14, 2012 as amended by Act No. 11690, Mar. 23, 2013 and Act No. 14839, Jul. 26, 2017: https://elaw.klri.re.kr/eng_service/lawView.do?hseq=45670&lang=ENG • Decree No. 24429, 23.03.13 – Decree to act on the allocation and trading of greenhouse gas emissions permits: https://elaw.klri.re.kr/eng_service/lawView.do?hseq=46598&lang=ENG • Operational Regulation on Auditor Education (NIEHRD) • Regulation on designation and management of verification body (NIER): http://www.law.go.kr/admRulLsInfoP.do?admRulSeq=2100000031307 Guidance • Greenhouse Gas Energy Specifications Verification General Manual – Final • Guidelines on verification for ETS (MoSF): http://www.law.go.kr/admRulLsInfoP.do?admRulSeq=2100000089937 Switzerland ETS Legislation • Federal act on reduction of emissions (CO2 Act): https://www.admin.ch/opc/en/classified-compilation/20091310/index.html • Ordinance on the reduction of CO2 emissions (CO2 Ordinance): https://www.admin.ch/opc/en/classified-compilation/20120090/index.html • Eignungskriterien für die Verifizierung der Monitoringberichte EHS (Eligibility criteria for the verification of the EHS monitoring reports): https://www.bafu.admin.ch/bafu/en/home/topics/ climate/info-specialists/climate-policy/emissions-trading/swiss-emissions-trading-scheme--ets-/ emission-trading-scheme--ets---information-for-ets-companies.html#-836923670 (continued on next page) Note 188 » This is associated with a mandatory Note 189 » Due to commence in 2018 (in part). reporting programme and is due to commence in 2018. DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 175 (Table continued) Country Type of CPI Legislation, guidance, and tools Guidance • Communication on Swiss ETS: https://www.bafu.admin.ch/bafu/de/home/themen/klima/publikationen-studien/publikationen/ emissionshandelssystem-ehs.html • Verification report template: https://www.bafu.admin.ch/bafu/en/home/topics/climate/info-specialists/climate-policy/ emissions-trading/swiss-emissions-trading-scheme--ets-/emission-trading-scheme--ets---information- for-ets-companies.html#-836923670 CO2 tax Legislation • Federal act on reduction of emissions (CO2 Act): https://www.admin.ch/opc/en/classified-compilation/20091310/index.html • Ordinance on the reduction of CO2 emissions (CO2 Ordinance): https://www.admin.ch/opc/en/classified-compilation/20120090/index.html Offset Crediting Legislation Mechanism • Federal act on reduction of emissions (CO2 Act): https://www.admin.ch/opc/en/classified-compilation/20091310/index.html • Ordinance on the reduction of CO2 emissions (CO2 Ordinance): https://www.admin.ch/opc/en/classified-compilation/20120090/index.html Guidance • Communication on offset mechanisms MRV: https://www.bafu.admin.ch/bafu/de/home/themen/ klima/publikationen-studien/publikationen/projekte-programme-emissionsverminderung-inland.html • Different tools, application forms, and information on validators and verifiers can be found on: https://www.bafu.admin.ch/bafu/en/home/topics/climate/info-specialists/climate-policy/ compensation-for-co2-emissions/compensation-projects-in-switzerland/validators-and-verifiers.html United States California ETS Legislation and Offset Crediting • CARB – accreditation oversight: Mechanism https://www.arb.ca.gov/cc/reporting/ghg-ver/accreditation_oversight.pdf • CARB – accreditation requirements: https://www.arb.ca.gov/cc/reporting/ghg-ver/acc2.pdf • CARB – FAQ on accreditation requirements: https://www.arb.ca.gov/cc/reporting/ghg-ver/qa_ver2.pdf • Regulation for the Mandatory Reporting of Greenhouse Gas Emissions: https://ww2.arb.ca.gov/mrr-regulation Guidance • CARB – Technical Guidance for Offset Verifiers: https://www.arb.ca.gov/cc/capandtrade/offsets/offset-verification-guidance.pdf Regional GHG Legislation Initiative (RGGI) – ETS and • The RGGI Model Rule: Offset Crediting https://www.rggi.org/program-overview-and-design/design-archive/mou-model-rule Mechanism The Climate Guidance Action Reserve • The Climate Action Reserve – Verification Program Manual: http://www.climateactionreserve.org/how/verification/verification-program-manual/ The Climate Guidance Registry • The Climate Registry – General Verification Protocol: http://www.theclimateregistry.org/tools-resources/verification/general-verification-protocol/ • The Climate Registry – Guide to Accreditation: https://www.theclimateregistry.org/wp-content/uploads/2014/12/TCR-Accreditation_May-2008.pdf 176 Icon credits Icon made by Freepik from www.flaticon.com Icon made by Bogdan Rosu from www.flaticon.com Icon made by Gregor Cresnar from www.flaticon.com Icon made by Smashicons from www.flaticon.com Icon made by Freepik from www.flaticon.com Icon made by Freepik from www.flaticon.com Icon made by Freepik from www.flaticon.com Icon made by Chanut from www.flaticon.com Icon made by Freepik from www.flaticon.com Icon made by Freepik from www.flaticon.com Icon made by Vaadin from www.flaticon.com Icon made by Freepik from www.flaticon.com Icon made by Daniel Bruce from www.flaticon.com Icon made by Freepik from www.flaticon.com Icon made by Icomoon from www.flaticon.com Icon made by Freepik from www.flaticon.com Icon made by Freepik from www.flaticon.com Icon made by Freepik from www.flaticon.com Icon made by Freepik from www.flaticon.com Icon made by DinosoftLabs from www.flaticon.com Icon made by Dave Gandy from www.flaticon.com Icon made by Freepik from www.flaticon.com Icon made by Freepik from www.flaticon.com Icon made by Freepik from www.flaticon.com Icon made by Dave Gandy from www.flaticon.com Icon made by Freepik from www.flaticon.com All other icons created in-house DESIGNING ACCREDITATION AND VERIFICATION SYSTEMS 177