The monitoring, evaluation, reporting, and verification of climate change mitigation projects: Discussion of issues and methodologies and review of existing protocols and guidelines

THE MONITORING, EVALUATION, REPORTING AND VERIFICATIONOF CLIMATE CHANGE PROJECTS

EDWARD VINE and JAYANT SATHAYEEnergy Analysis Department, Environmental Energy Technologies Division, Ernest OrlandoLawrence Berkeley National Laboratory, 1 Cyclotron Road, Berkeley, CA 94720, USA

Abstract. Because of concerns with the growing threat of global climate change from increasingemissions of greenhouse gases, the United States and other countries are implementing, by them-selves or in cooperation with one or more other nations, climate change projects. These projectswill reduce greenhouse gas (GHG) emissions or sequester carbon, and will also result in non-GHGbenefits (i.e., environmental, economic, and social benefits).Monitoring, evaluating, reporting, and verifying (MERV) guidelines are needed for these projects toaccurately determine their net GHG, and other, benefits. Implementation of MERV guidelines is alsointended to: (1) increase the reliability of data for estimating GHG benefits; (2) provide real-timedata so that mid-course corrections can be made; (3) introduce consistency and transparency acrossproject types and reporters; and (4) enhance the credibility of the projects with stakeholders.In this paper, we review the issues involved in MERV activities. We identify several topics that futureprotocols and guidelines need to address, such as: (1) establishing a credible baseline; (2) accountingfor impacts outside project boundaries through leakage; (3) net GHG reductions and other benefits;(4) precision of measurement; (5) MERV frequency and the persistence (sustainability) of savings,emissions reduction, and carbon sequestration; (6) reporting by multiple project participants; (7) ver-ification of GHG reduction credits; (8) uncertainty and risk; (9) institutional capacity in conductingMERV; and (10) the cost of MERV.

Keywords: carbon offsets, emission trading, energy efficiency, evaluation, forestry, global climatechange, greenhouse gas emissions, joint implementation, monitoring, reporting, verification

1. Introduction

Because of concerns with the growing threat of global climate change from in-creasing emissions of greenhouse gases, more than 166 countries (as of May 13,1997) have become Parties to the U.N. Framework Convention on Climate Change(FCCC) (UNEP/WMO, 1992). The FCCC was entered into force on March 21,1994, and the Parties to the FCCC recently adopted the Kyoto Protocol for con-tinuing the implementation of the FCCC (UNFCCC, 1997). The Protocol requiresdeveloped countries to reduce their emissions by about 5% below 1990 levels bythe 2008–2012 time period. Projects undertaken by developed countries will notonly reduce greenhouse gas (GHG) emissions or sequester carbon, but will alsoresult in non-GHG benefits (i.e., environmental, economic and social benefits).

Mitigation and Adaptation Strategies for Global Change 4: 43–60, 1999.© 1999 Kluwer Academic Publishers. Printed in Belgium.

miti6498.tex; 26/04/1999; 13:00; p.1Article: miti6498 Pips nr. 194276 (mitikap:spacfam) v.1.0

44 EDWARD VINE AND JAYANT SATHAYE

The Kyoto Protocol establishes procedures to ensure the reporting and measure-ment of anthropogenic emissions by sources, and removals by sinks, of greenhousegases at the national level.1 For example, countries would have to set nationalsystems for estimating emissions accurately, achieving compliance with emissionstargets, and ensuring enforcement for meeting emissions targets. Annual reportson measurement, compliance and enforcement efforts at the national level wouldbe required and made available to the public. Article 6 of the Protocol allowsfor joint implementation projects between developed countries: i.e., project-leveltrading of emissions reductions (‘transferable emission reduction units’) can occuramong countries with GHG emission reduction commitments under the Protocol.Article 12 of the Protocol provides for a ‘clean development mechanism’ (CDM)that allows legal entities in the developed world to enter into cooperative projects toreduce emissions in the developing world for the benefit of both parties. Developedcountries will be able to use certified emissions reductions (‘certified emission re-duction units’) from project activities in developing countries to contribute to theircompliance with GHG targets. The CDMwill certify and score projects. The CDMalso allows developing countries to develop projects where there is no immediatedeveloped country partner. The key provisions of the Kyoto Protocol remain to bedeveloped in more detail as negotiations clarify the existing text of the Protocol.The focus of this paper is: (1) at the project level, not at the program level (e.g.,

utility energy-efficiency programs, or national programs); (2) primarily at the locallevel with well-defined system boundaries, not at the national level; and (3) on theissues related to the MERV of climate change projects, not the actual developmentof guidelines or protocols (the subject of the next phase of our study).2 The targetaudience of this paper is primarily government policymakers, but we hope that thispaper will also be useful for project developers and investors, nongovernmentalorganizations, and the research community.Climate change projects typically proceed through three phases: (1) project de-

velopment (e.g., bringing together project investors and hosts, preparing feasibilitystudies, estimating the GHG reduction, and negotiating contracts); (2) project im-plementation (e.g., training project staff, implementing the project, managing theproject finances, and preparing reports); and (3) project assessment (e.g., monitor-ing and evaluating the project, calculating the GHG reductions, and verifying theGHG reduction). MERV activities can occur in all project phases.

The focus of this paper is on project assessment (after a project has started im-plementation) and the following MERV activities:

1 GHG sources include emissions from fossil fuel combustion, industry, decomposing and ox-idized biomass, soil carbon loss, and methane from agricultural activities, livestock, landfills andanaerobic decomposition of phytomass. GHG sinks include storage in the atmosphere, ocean uptake,and uptake by growing vegetation (IPCC, 1995; Andrasko et al., 1996).2 For more details about the issues covered in this paper, see Vine and Sathaye (1997) which is

available on the World Wide Web: http://eetd.lbl.gov/EA/ccm/MonitoringMitigation.pdf.

miti6498.tex; 26/04/1999; 13:00; p.2

CLIMATE CHANGE PROJECT GUIDELINES 45

1.Monitoring: refers to the measurement of GHG reductions3 and other associatedeconomic, social and environmental benefits and activities that actually occur as aresult of a project. Monitoring does not involve the calculation of GHG reductionsnor does it involve comparisons with previous baseline measurements. For exam-ple, monitoring would involve the measurement of kilowatts produced by a windgenerator, or the number of hectares preserved by a forestry project. The objectivesof monitoring are to: inform interested parties about the performance of a project,adjust project development, identify measures that can improve project quality,make the project more cost-effective, improve planning and measuring processes,and contribute to a learning process for all participants.

2. Evaluation: refers to both impact and process evaluations of a particular project,typically entailing a more indepth and rigorous analysis of a project compared tomonitoring emissions. Project evaluation usually involves comparisons requiringinformation from outside the project in time, area, or population. The calculation ofGHG reductions is conducted at this stage. Project evaluation would include GHGimpacts, non-GHG impacts (i.e., environmental, economic, and social impacts),determination of the proper baseline, estimation of leakage and project spillover,etc. Evaluation organizes and analyzes the information collected by the monitoringprocedures, compares this information with information collected in other ways,and presents the resulting analysis of the overall performance of a project. Projectevaluations will be used to determine the official level of GHG emissions reduc-tions and carbon sequestration that should be assigned to the project. The focus ofevaluation is on projects that have been implemented for a period of time, not onproposals (i.e., project development).

3. Reporting refers to measured GHG and non-GHG impacts of a project (in somecases, organizations may report on their estimated impacts, prior to project imple-mentation, but this is not the focus of this paper). Reporting occurs throughout theMERV process (e.g., periodic reporting of monitored results and a final report oncethe project has ended).

4. Verification refers to establishing whether the measured GHG reductions actuallyoccurred, similar to an accounting audit performed by an objective, certified party.

These activities have different objectives and timing, but they potentially havemuch overlap and interactions among each other as well as among the institutionsthat might perform these activities.

3 GHG reductions refer to GHG emission reductions or carbon sequestration in this paper. Carbonsequestration refers to the process where carbon is absorbed or taken out of the atmosphere and storedin a terrestrial or oceanic reservoir. This differs from the preservation of existing carbon stocks in areservoir.

miti6498.tex; 26/04/1999; 13:00; p.3


2. Carbon Credits and Trading

The MERV guidelines will be important management tools for all parties involvedin carbon mitigation. They will help project participants determine how effectivetheir contributions have been in curbing GHG emissions, and they will help plan-ners and policy makers in determining the potential impacts for different types ofprojects, and for improvements in project design and implementation. And theywill also be needed for ensuring consistency and transparency across project typesand sectors.In the longer term, MERV-type guidelines will be a necessary element of any

international carbon trading system, as proposed in the Kyoto Protocol. A coun-try could generate carbon credits by implementing projects that result in a netreduction in emissions. These carbon credits could be used as ‘transferable emis-sion reduction units’ under joint implementation (Article 6), ‘certified emissionreduction units’ under the CDM (Article 12), and ‘assigned amount units’ un-der emissions trading (Article 17). The valuation of such projects will requireMERV-type guidelines that are acceptable to all parties. These guidelines will yieldverifiable findings, conducted on an ex-post facto basis (i.e., actual as opposed topredicted project performance).

3. MERV Principles

Any proposed MERVguidelines should reflect the following principles: they shouldbe consistent, technically sound, readily verifiable, objective, simple, relevant, trans-parent, and cost-effective. These basic principles should be used to guide the devel-opment of the protocols, although tradeoffs may be necessary to include additionalinformation (e.g., simplicity and cost-effectiveness versus obtaining measured dataon environmental and socioeconomic impacts). If guidelines are not designed withthese principles in mind, then their use and application will be limited and op-portunities for providing false and misleading information may go unchecked. Inreality, tradeoffs will have to be made for some of these criteria: e.g., simplicityversus the technical soundness of a guideline. Because of concerns about hightransaction costs in responding to MERV guidelines, the guidelines cannot be toocomprehensive and burdensome (e.g., Andrasko et al., 1996; Dudek and Weiner,1996; Embree, 1994; Heister, 1996).

4. MERV Impacts and Responsibilities

Based on our review of the literature and discussions with experts in the field,we believe that the MERV guidelines should address the following types of im-pacts: net reduction in GHG emissions; other environmental impacts; and eco-nomic and social impacts. We include a broad array of impacts for three reasons.

miti6498.tex; 26/04/1999; 13:00; p.4


First, a diverse group of stakeholders (e.g., government officials, project managers,non-profit organizations, community groups, project participants, and internationalpolicymakers) are interested in, or involved in, climate change projects and areconcerned about their multiple impacts. Second, the persistence of GHG reduc-tions and the sustainability of climate change projects depend on individuals andlocal organizations that help support a project during its lifetime. Both direct andindirect project benefits will influence the motivation and commitment of projectparticipants. Hence, focusing only on GHG impacts would present a misleadingpicture of what is needed in making a project successful or making its GHG benefitssustainable. Third, it is premature to peremptorily decide which impacts are moreimportant than others. Each project will need to decide the appropriate allocationof resources for addressing project impacts.We realize that it will be very difficult and expensive for one organization to

conduct MERV activities on all of these impacts. We expect that multiple organi-zations will be involved in the MERV process and that the financial burden of theseactivities will be shared by many groups. For example, in the case of projects thatare sponsored by Annex 1 countries and implemented in non-Annex 1 countries,we expect both investor and host countries to collaborate and share the costs ofMERV activities. In addition, we expect each stakeholder to assess the transactioncosts of complying with the MERV guidelines. As a result, not all of the issuesproposed for inclusion in the guidelines may be addressed by the organizationsresponsible for monitoring, evaluation, reporting or verification.

5. GHG Emissions Impacts

The Kyoto Protocol contains emissions targets for six major greenhouse gases:carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons(HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6). In climate changeprojects, GHG emission reductions may include physical quantities of individualgases involved, tons of carbon equivalent, or total amount of carbon. Project devel-opers could also calculate the various effects of different gases on climate by usinga common index, such as the equivalent effect in tons of carbon dioxide. Emissionfactors can also be used to estimate GHG emission reductions (World Bank, 1994a;see also IPCC, 1995). The emission factors represent the basic conversion betweenenergy consumption and generation of greenhouse gases. These factors are usuallyexpressed in mass of emitted gas per unit of energy input (g/GJ) or sometimes inmass of gas per mass of fuel (g/kg or g/t).Forestry projects are more complex, and information should be provided on

the amount of carbon accumulated in forest plantations, managed natural forestsand agroforestry land uses. Changes in four main carbon pools (above-ground bio-mass, below-ground biomass, soils and standing litter crop) need to be described(MacDicken, 1996).

miti6498.tex; 26/04/1999; 13:00; p.5


6. Other Environmental Impacts

Climate change projects have widespread and diverse environmental impacts thatgo beyond GHG impacts. The environmental benefits associated with climate chan-ge projects can be just as important as the global warming benefits. The Kyoto Pro-tocol exhorts Annex B parties, in fulfilling their obligations, to minimize negativesocial, environmental and economic impacts, particularly on developing countries(Articles 2.3 and 3.14).4 Accordingly, the MERV guidelines should contain infor-mation on environmental impacts in addition to GHG impacts, including changesin emissions of other gases and particulates, biodiversity, soil conservation, water-shed management, sustainable land use, water pollution reduction, and indoor airquality. This information will be useful for better describing the stream of environ-mental services and benefits of a project, in order to attract additional investmentand to characterize the project’s chances of maintaining reduced GHG emissionsover time. This information will, hopefully, also help in mitigating any potentiallynegative environmental impacts and encouraging positive environmental benefits.At a minimum, baseline data on key environmental indicators need to be col-

lected. For some projects, a full year of baseline data is desirable to capture theseasonal effects of certain environmental phenomena. Short-term monitoring couldbe used to provide conservative estimates of environmental impacts, while longer-term data collection is being undertaken. Any negative impacts of the project on lo-cal, regional and possibly national air sheds, watersheds, ecosystems and economiesshould be measured (Andrasko et al., 1996). Opportunities for environmental en-hancement should be explored. The extent and quality of available data, key datagaps, and uncertainties associated with estimates should be identified and esti-mated. The following key issues need to be examined for environmental impacts:what type of monitoring and evaluation is needed, who should do the monitoringand evaluation, how much will monitoring and evaluation cost, and what otherinputs (e.g., training) are necessary?

7. Economic and Social Impacts

A project’s survival is dependent on whether it is economically sound: i.e., the ben-efits outweigh the costs. Different economic indicators can be used for assessingthe economics of climate change projects: e.g., cost-benefit ratio, net present value,payback levels, rate of return, cost in dollars per ton of carbon, carbon sequesteredper hectare, etc. Similarly, these indicators should be calculated from different per-spectives: e.g., government, investor, consumer, etc. In addition, the distribution ofproject benefits and costs need to be evaluated to make sure one population groupis not being unduly affected.4 As defined in the Kyoto Protocol, Annex B countries are OECD countries and countries

undergoing the process of economic transition to a market economy (UNFCCC 1997).

miti6498.tex; 26/04/1999; 13:00; p.6


The types of questions to address in examining the economic and social impactsinclude: who the key stakeholders are, what project impacts are likely and uponwhat groups, what key social issues are likely to affect project performance, whatthe relevant social boundaries and project delivery mechanisms are, and what socialconflicts exist and how they can be resolved (World Bank, 1994b). To addressthese questions, evaluators could conduct informal sessions with representatives ofaffected groups and relevant non-governmental organizations.

8. Generic MERV Issues

Future protocols and guidelines need to address the following generic MERV is-sues: (1) establishing a credible baseline; (2) accounting for impacts outside projectboundaries through leakage; (3) net GHG reductions and other impacts; (4) pre-cision of measurement; (5) MERV frequency and persistence (sustainability) ofsavings, emissions reduction, and carbon sequestration; (6) reporting by multipleproject participants; (7) verification of GHG reduction credits; (8) uncertainty andrisk; (9) institutional capacity in conducting MERV; and (10) the cost of MERV.

8.1. ESTABLISHING A CREDIBLE BASELINE

One of the critical questions that needs to be addressed by users of the guidelinesis how much of an impact can be attributed to a particular project. In order toconduct this type of calculation, one needs to establish a credible baseline (refer-ence case). Without an appropriate baseline, it is impossible to accurately estimateGHG reductions due to a particular project. Baseline monitoring is required forjoint implementation and CDM projects, but is not required for emissions trading,although it may form the basis for emissions trading.The baseline should describe the existing technology or practices at the facility

or site and associated sources and sinks of GHG emissions (USIJI, 1996). Theemissions from sources and sequestration of greenhouse gases by sinks should beestimated for a full year before the date of the initiation of the project and foreach year after the initiation of the project over the lifetime of the project withoutthe project. The guidelines should remind the project proposers that future GHGemission levels may differ from past levels, even in the absence of the project, dueto growth, technological changes, input prices, product prices, policy or regulatoryshifts, social and population pressure, market barriers, and other exogenous factors.

8.2. MONITORING DOMAIN (LEAKAGE)

Due to the complexities in delineating the appropriate monitoring domain, devel-oping a credible baseline is difficult. The domain that needs to be monitored (i.e.,the monitoring domain, see Andrasko, 1997; MacDicken, 1997) is typically viewedas larger than the geographic and temporal boundaries of the project. If one of the

miti6498.tex; 26/04/1999; 13:00; p.7


objectives of the guidelines is to provide the capability to compare GHG reductionsacross projects, a monitoring domain needs to be defined for each project. Consid-eration of the domain needs to address the (1) temporal and geographic extent of aproject’s direct impacts, and (2) coverage of indirect project impacts.

8.2.1. The temporal and geographic extent of a project’s direct impactsA climate change project might have local (project-specific) impacts that are di-rectly related to the project in question, or the project might have more wide-spread (e.g., regional) impacts. For example, leakage occurs if a natural forest area,previously used to meet local needs for timber and firewood, is closed due to apreservation project and, as a result, fuelwood and timber are harvested elsewhere(MacDicken, 1996; Watt et al., 1995). Some projects may involve internationalleakages: e.g., in 1989, when all commercial logging in Thailand was banned, thelogging shifted to neighboring countries such as Burma, Cambodia and Laos aswell as to Brazil (Watt et al., 1995).Each applicant should identify potential sources of leakage and describe the

steps that will be taken to reduce the risks of potential leakage, or to ensure thatthe benefits of the proposed project would not be lost or reversed in the futuredue to leakage. Each project developer should describe all of the situations whereleakage might occur, identify which of these situations are most likely to occur andwhy they are likely to occur, indicate how much of the GHG savings could be lostby leakage, and identify the manner in which the project developer would act tominimize the likeliest forms of GHG leakage.

8.2.2. Indirect project impactsEnergy projects may impact energy supply and demand at the point of production,transmission, or end use. The MERV of such impacts will become more complexand difficult as one attempts to monitor how emission reductions are linked be-tween energy end users and energy producers (e.g., tracking the emissions impactof 1,000 kWh saved by a household in a utility’s generation system). Similarly, theMERV of emissions of forestry projects can be conducted at the point of extrac-tion (e.g., when trees are logged) or point of use (e.g., when trees are made intofurniture), and when forests are later transformed to other uses (e.g., agriculture,grassland, or range). Thus, one needs to decide whether MERV should focus solelyon the emissions from the logging of trees at the project site, monitor the emissionsover time from the new land use type, or account for the wood products producedand traded outside project boundaries.One could broaden the monitoring domain to include, for example, leakage and

off-site baseline changes. Widening the system boundary, however, will most likelyentail greater MERV transaction costs. Transaction costs are the costs incurred bythe people responsible for monitoring, reporting, evaluating, and verifying climatechange projects. These costs include not only out-of-pocket expenditures, but alsoopportunity costs (e.g., the lost time (delay) and resources (e.g., money and man-

miti6498.tex; 26/04/1999; 13:00; p.8

https://www.researchgate.net/publication/236570179_The_institutional_needs_of_joint_implementation_projects?el=1_x_8&enrichId=rgreq-78ccb24a-3f53-4061-9f23-7d1c2c98bbbb&enrichSource=Y292ZXJQYWdlOzI1NzgxODg4OTtBUzoxMDM2NTY3NjY1NzQ2MDFAMTQwMTcyNTEwODc3NA==



agerial attention) that could have been devoted to the next best opportunity for thatparticipant (Dudek and Weiner, 1996).

8.3. NET GHG AND OTHER IMPACTS

For joint implementation and Clean Development Mechanism projects implement-ed under the Kyoto Protocol, the emission reductions from each project activitymust be ‘additional to any that would otherwise occur,’ also referred to as ‘addi-tionality criteria’ (Articles 6.1b and 12.5c). Therefore, project benefits need to beseen as net benefits to reflect the differences from what most likely would havehappened without the project (the baseline, or modified reference case).For example, one of three approaches may be used to estimate net energy sav-

ings (as used in EPA’s Conservation Verification Protocols): (1) default ‘net-to-gross’ factors for converting calculated ‘gross energy savings’ to ‘net energy sav-ings;’5 (2) project-estimated net-to-gross factors, based on measurement and evalu-ation activities (e.g., market research, surveys, and inspections of nonparticipants);or (3) if a developer does not do any monitoring nor provide documentation and thedefault net-to-gross factors are not used, then the net energy savings of a measurewill be 50% of the first-year saving (Meier and Solomon 1995; U.S. EPA 1995band 1996).No project should claim emission reductions unless project proponents make a

reasonable demonstration that the project’s practices are ‘additional’ to ‘businessas usual’ circumstances (the baseline). After establishing a baseline, one needs todetermine additionality by evaluating program intent (i.e., was the project initiatedwith the specific intent of lowering emissions?), emissions additionality (i.e., didspecific measures lead to reductions in emissions?), and financial additionality (i.e.,did the project rely on new funds or already committed funds?).

8.4. PRECISION OF MEASUREMENT

Because of the difficulties and uncertainties in estimating energy savings and re-duced emissions, the level of precision and confidence levels associated with theestimated savings need to be identified. Project developers and evaluators shouldreport the precision of their estimates and results in one of two ways: (1) qual-itatively, by indicating the general level of precision of the estimate (e.g., low,medium or high), or (2) quantitatively, by specifying the standard deviation aroundthe mean. If possible, one should also specify the level of confidence associatedwith the mean values, or provide confidence intervals around their mean estimates.5 The ‘net-to-gross’ factor is defined as net savings divided by gross savings. The gross savings

are the savings directly attributed to the project and include the savings from all measures and fromall participants; net savings are gross savings that are ‘adjusted’ for free riders and free drivers. Freeriders are participants who would have installed the same measures if there had been no project, andfree drivers are nonparticipants that hear about a project measure from a participant and decide topursue it on his or her own. Multiplying the gross savings by the net-to-gross factor yields net savings.

miti6498.tex; 26/04/1999; 13:00; p.9

https://www.researchgate.net/publication/237429976_JOINT_IMPLEMENTATION_TRANSACTION_COSTS_AND_CLIMATE_CHANGE?el=1_x_8&enrichId=rgreq-78ccb24a-3f53-4061-9f23-7d1c2c98bbbb&enrichSource=Y292ZXJQYWdlOzI1NzgxODg4OTtBUzoxMDM2NTY3NjY1NzQ2MDFAMTQwMTcyNTEwODc3NA==


TABLE IOptions for earning energy savings over time

Monitoring option:A utility can obtain credit for a greater fraction of the savings and for a longerperiod: biennial verification in subsequent years 1 and 3 (including inspection)is required, and savings for the remainder of physical lifetimes are the averageof the last two measurements. The monitoring option requires a 75% confidencein subsequent-year savings (like in the first year).

Default option:Greatly restricts the allowable savings: a utility can obtain credit for 50% offirst-year savings, and limited to one-half of the measure’s lifetime.

Inspection option (confirming that the measures are both present and operating):A utility can obtain credit for 75% of first-year savings for units present andoperating for half of physical lifetime (with biennial inspections), or 90% offirst-year savings for physical lifetimes of measures that do not require activeoperation or maintenance (e.g., building shell insulation, pipe insulation andwindow improvements).

Source: U.S. EPA (1995b and 1996)

8.5. FREQUENCY AND DURATION (PERSISTENCE)

MERV frequency will most likely be linked to the schedule of transfer of carboncredits. MERV frequency will also depend on the variables being examined andmethods used. For example, monitoring of litter might be done in the first year ofa forestry project and then once every five years, while the monitoring of the enduses of wood might be done annually. Also, within each activity, the duration andfrequency might vary by method: e.g., hourly end-use monitoring conducted for atwo-week period, or short-term monitoring of lighting energy use for five-minuteperiods. The monitoring period may also last longer than the project implementa-tion period: for example, a project to install compact fluorescent lamps may last3 years, but electricity savings from those lamps will continue beyond the projectimplementation period.The sustainability of climate change mitigation projects is critical if the impacts

from these projects are to persist. Information is needed on the institutional capa-bilities and support for implementing the project over the project’s lifetime and onthe risks and uncertainties of a project. The institutional, community, technical andcontractual conditions likely to encourage persistence are of utmost concern.

miti6498.tex; 26/04/1999; 13:00; p.10


In our review of existing guidelines and protocols, we encountered only oneguideline that directly addressed the issue of persistence: the U.S. EnvironmentalProtection Agency’s (EPA) Conservation Verification Protocols (CVP). The CVPencourages monitoring over the life of the measure, but gives credit for less strin-gent verification. Three options are available for verifying subsequent-year energysavings (see Table I): monitoring, inspection and a default (Meier and Solomon1995; U.S. EPA 1995b and 1996).For all three options, the gross-to-net conversion factor is calculated once for

the first-year savings; the same conversion factor is used in all subsequent yearsto convert estimates of gross savings. A utility may, if it wishes, re-evaluate thegross-to-net conversion factor in subsequent years, and use updated values.Finally, where there is more than one project, a preferred approach is for de-

velopers and evaluators to rank (prioritize) projects by their persistence or lack ofpersistence – this will be reflected in ‘project lifetime.’ For example, if a projectarea is likely to undergo serious changes in 10 years, then the carbon emissionreductions for that project are limited to that 10-year lifetime. The value of thosereduced emissions may be less than for emissions from similar projects that areexpected to last longer (e.g., 20 years).

8.6. MULTIPLE REPORTING

Several types of reporting might occur in climate change projects: (1) impacts of aparticular project are reported at the project level and at the program level (wherea program consists of two or more projects); (2) impacts of a particular project arereported at the project level and at the entity level (e.g., a utility company reports onthe impacts of all of its projects); and (3) impacts of a particular project are reportedby two or more organizations as part of a joint venture (partnership) of two or morecountries. To mitigate the problem of multiple reporting, project-level reportersshould indicate whether other entities might be reporting on the same activityand, if so, who. If there exists a clearinghouse with an inventory of stakeholdersand projects, multiple reporting might not constitute a problem. For example, intheir comments on an international emissions trading regime, Canada (on behalf ofAustralia, Iceland, Japan, New Zealand, Norway, Russian Federation, Ukraine andthe United States) has proposed a national recording system to record ownershipsand transfers of assigned amount units (i.e., carbon offsets) at the national level(UNFCCC, 1998). A synthesis report could confirm, at an aggregate level, thatbookkeeping was correct, reducing the possibility of discrepancies among Parties’reports on emissions trading activity.

8.7. VERIFICATION OF GHG REDUCTIONS

As carbon credits become an internationally traded commodity, then verifying theamount of carbon reduced or fixed by projects will become a critical component ofany trading system. Investors and host countries may have an incentive to overstate

miti6498.tex; 26/04/1999; 13:00; p.11


the GHG emission reductions from a given project, because it will increase theirearnings when excessive credits are granted; as an example, these parties mayoverstate baseline emissions or understate the project’s emissions. We believe thatexternal (third-party) verification processes need to be put in place and not rely oninternal verification or audits.As part of the verification exercise, an overall assessment of the quality and

completeness of each of the GHG impact estimates needs to be made by askingthe following questions: (1) are the monitoring and evaluation methods well docu-mented and reproducible? (2) have the results been checked against other methods?(3) have results (e.g., monitored data and emission impacts) been compared for rea-sonableness with outside or independently published estimates? (4) are the sourcesof emission factors well documented? and (5) have the sources of emission factorsbeen compared with other sources? (IPCC, 1995).Because emission reduction credits will most likely receive detailed scrutiny, it

is probably prudent that the credits be differentiated by type of gas (e.g., methane,carbon dioxide, etc.) and by the method used for monitoring and evaluation. Eachmethod will have a specific level of precision and confidence associated with it.Accordingly, when verifying credits, one should take into account the confidenceone has in the data and methods used for estimating the reductions.

8.8. UNCERTAINTY AND RISK

The evaluation of GHG reductions is a risky business, especially with respectto the reliability of the GHG reduction estimates and the credibility of the in-stitutions implementing climate change projects. Important sources of the firsttype of uncertainty (i.e., reliability) are: (1) differing interpretations of source andsink categories or other definitions, assumptions, units, etc.; (2) use of simpli-fied representations with averaged values (especially emission factors); (3) inher-ent uncertainty in the scientific understanding of the basic processes leading toemissions and removals of non-CO2 GHG; (4) operation risk (e.g., if the energy-consuming equipment is not used as projected or if the number of trees harvested isincreased, then carbon savings will change); and (5) performance risk (IPCC, 1995;U.S. AID, 1996).The credibility of the organization is critical to assess, since it affects two types

of risk: (1) project development and construction risk, i.e., the project won’t beimplemented on time or at all, even though funds have been spent on project devel-opment; and (2) performance risk. The project developer’s experience, warranties,the reputation of equipment manufacturers, the performance history of previousprojects, and engineering due diligence are the main methods for evaluating theserisks. Furthermore, one should evaluate the political and social conditions that existthat could potentially affect the credibility of the implementing organizations (e.g.,political context, stability of parties involved and their interests, potential barriers,

miti6498.tex; 26/04/1999; 13:00; p.12


existing land tenure system, and the potential for displacement of land pressure toother areas).Some of these uncertainties vary widely by source categories for each gas,

projects (depending on approach, levels of detail, use of default data or projectspecific data, etc.), and length of projects (e.g., a short-term project might increasereliability if the management of local forests is known to be poor). It is importantto provide as thorough an understanding as possible of the uncertainties involvedwhen monitoring, evaluating, reporting and verifying the impacts of climate changeprojects. In addition to qualitative analyses of uncertainties, it is useful to ex-press uncertainty quantitatively and systematically in the form of well-developedconfidence intervals (IPCC, 1995).Proposers of climate change projects should: (1) provide a contingency plan

that identifies potential project risks and discusses the measures provided withinthe project estimates to manage the risks; (2) identify and discuss key uncertaintiesaffecting all emission estimates; (3) assess the possibility of local or regional po-litical and economic instability and how this may affect project performance; and(4) provide confidence intervals around their mean estimates.The World Bank has established a Global Climate Initiative to investigate the

potential of market mechanisms to reduce GHG emissions and to support environ-mentally sustainable growth for developing countries (see the World Bank’s Webpage: http://www-esd.worldbank.org/cc/). In this context, the Bank is exploring theestablishment of a Carbon Investment Fund (or ‘Prototype Carbon Fund’) as onesuch mechanism whereby buyers and sellers of carbon offsets can efficiently investin a pool, or fund, of carbon investments. Several risk mitigation strategies arebeing considered, including the following: (1) incentive measures to motivate thesupplier to ensure that the project performs at the design level; (2) portfolio diver-sification to eliminate exogenous risk factors; (3) highly credible project baselines;(4) supervision, quality assurance, and monitoring and evaluation by the WorldBank; and (5) third-party verification.

8.9. INSTITUTIONAL ISSUES

It is unclear at this time which institutions have the authority and capability ofconducting MERV activities: government authorities, auditing companies, self-reporting by project developers or host countries, etc. We expect the roles andresponsibilities will vary byMERV activity, although some overlap is expected. Weexpect the division of labor to be a function of available resources and capabilities,the credibility of the person (or organization) in charge of the activity, and the costof conducting the particular MERV activity.The capacity of organizations to implement the projects and to conduct MERV

activities needs to be addressed by examining whether these organizations candemonstrate: (1) financial capacity (i.e., the organization must demonstrate thatit has sufficient financial resources to implement the project throughout its time

miti6498.tex; 26/04/1999; 13:00; p.13


frame); (2) management capacity (i.e., the organization must demonstrate its ca-pacity to document and implement the project); and (3) infrastructure and tech-nological capacity (i.e., the organization must demonstrate access to appropriatelabor pools, technical skills, technologies and techniques and general infrastructurenecessary for the implementation and maintenance of the project throughout itstime frame) (EcoSecurities, 1997).

8.9.1. Roles and responsibilitiesRoles and responsibilities need to be clarified as early as possible, so that theyare tailored to the appropriate organization; otherwise, delays in the designationwill likely lead to delays and disputes later. The guidelines could also recommendthat independent verification teams be established (see Watt et al., 1995). Theverification teams could either be composed of members from host and investorcountries for joint implementation projects, or from an international agency forother projects. Individual verifiers or verification teams would be responsible forconducting the verification activities.Some resolution of disputes over verification results will also be needed. Re-

course in the event of disagreement about the results of a verification could includeresolution by the initial verification team, introduction of a second verificationteam, development of new calculation methodologies, or recourse to a tribunal,depending on the project and the nature of the disagreement. The tribunal mightconsist of people from the UN, or from a country. If the latter, someone maystill be needed at the international level to monitor the activities of individualcountries. The tribunal might also be responsible for developing a common setof standardized MERV guidelines.

8.9.2. Qualifications of MERV personnel and organizationsBecause of the diverse individuals and organizations involved in the MERV of en-ergy savings and carbon sequestration with varying levels of technical expertise, theguidelines may need to recommend qualification criteria for allowing these peopleto report, monitor, evaluate and verify GHG reductions, so that the findings are per-ceived as objective and credible. Certification workshops may be needed to ensurethat the activities are being conducted in a responsible and credible manner. Trainingand certification should be sector specific: e.g., a certified evaluator in forestry. Theentity(ies) responsible for certification should be identified in the guidelines.

8.9.3. Staffing, training, instrumentation, and lab facilitiesMERV will entail significant resources, including the potential hiring and trainingof new staff (or contractors), equipment, and laboratory facilities. The users of theguidelines should be aware of the need for these resources prior to developing theirMERV plans.

miti6498.tex; 26/04/1999; 13:00; p.14



8.10. COST OF MERV

Conducting MERV activities is not inexpensive. For example, based on the expe-rience of U.S. utilities and energy service companies, monitoring and evaluationactivities can easily account for 5–10% of a project’s budget (monitoring of GHGimpacts is likely to be higher). Similarly, carbon monitoring efforts require special-ized equipment, methods and trained personnel that can be expensive for individualorganizations to procure and maintain, and can result in similar percentage expen-ditures. The cost will vary by size of area, scope of project, type of GHG, variationwithin and between land use types, type of monitoring, and amount of trainingrequired. For example, the monitoring of N20 may require more direct measure-ments than for the monitoring of CO2, so that the percentage of costs devotedto measurement and evaluation for N20 may be higher than for CO2. Early in theprocess of developing guidelines, the cost of implementing the guidelines will needto be examined, and the costs will need to be disaggregated by institution as wellas by activity (MERV).

9. Summary

Based on our review of the literature and existing guidelines and protocols, wecompiled a list of generic issues that need to be addressed in the development ofMERV guidelines. In Table II, we summarize the critical questions for each of theseissues and, where possible, provide possible options for addressing these questions.For most of these issues, there is not one simple answer. Several alternatives maybe possible for addressing some of the issues, while guidance from policymakers(rather than guidelines) will be needed for addressing other issues.

10. Conclusions

MERV guidelines are needed for climate change projects in order to accuratelydetermine their net GHG, and other, benefits. New protocols and guidelines will beneeded for turning GHG reductions into credible, internationally acceptable GHGcredits that would trade at a single market price. The MERV issues discussed in thispaper need to be worked out before putting a credible emissions trading system inplace.The strictness of MERV guidelines needs to be carefully considered. Strict

guidelines may easily lead to burdensome and complex procedures, thereby in-creasing the transaction costs and reducing the cost-effectiveness of a project.However, if the guidelines for international verification are ‘loose’, then projectsponsors might be more able to manipulate the ‘measured’ emission reductions,e.g., inflating the net emission reductions from the project. Thus, the guidelines

miti6498.tex; 26/04/1999; 13:00; p.15


TABLE IIGeneric MERV issues and potential response options

Generic issue Potential Response Options

Credible baselineMonitoring domainLeakage

Identify most likely areas of leakage and possible mitiga-tion measures.

Net GHG and other impactsFree riders, project spillover,and market transformation

Use net-to-gross ratios and comparison groups. Assessmarket effects and market barriers.

Precision of measurementConfidence levelsSampling

Use a 75% confidence level, or provide options foraddressing precision. Estimate variance, confidence in-tervals, or standard error. Use 20–30% standard erroror lower range of standard error. Develop measurementstandards .

MERV frequency Reporting depends on schedule of payments for car-bon credits. For monitoring, focus on key parametersfor forestry projects. Examine variables and monitoringmethods. Consider seasonality.

Persistence of impactsInstitutional capabilitiesRisks and uncertainties

Use monitoring, default, and inspection options. An-nual monitoring for forestry projects. Monitoring every3 years for energy projects. Rank projects by likelihoodof persistence of GHG emissions reductions. Monitorproject after termination.

Multiple reporting Ask project developers to report on multiple reporters.

Verification of GHG reductionsResponsible partiesFrequency

Use third-party verifiers. Use verification system. Certifyverifiers. Use multi-tiered crediting: credits vary by typeof verification .

Risks and uncertaintiesReliability of estimatesCredibility of institutionsControllable risks

Provide a contingency plan. Discuss key uncertainties.Use confidence intervals. Develop MERV protocols andguidelines. Use default estimates where appropriate.Monitor factors affecting risk.

Institutional capabilitiesLocal institutionsAdministrative burdenPolitical impactsRoles and responsibilitiesQualifications & training

Request information on institutional capacities and rela-tionships among project stakeholders. Use different par-ties for implementation, evaluation, and verification. Useindependent verification teams. Develop qualificationcriteria. Provide training and certification workshops.

Cost of MERV Disaggregate costs by institution, type of GHG, andMERV activity. Balance tradeoffs between cost and otherMERV issues.

miti6498.tex; 26/04/1999; 13:00; p.16


should not be overly burdensome but credible. There needs to be a balance between(1) the need to gather sufficient data and information to accurately measure realGHG emissions reductions and build confidence in climate change projects and (2)the need to promote efficiency by minimizing MERV burdens at all levels (Embree,1994; Heister, 1996). Such a balance would limit reporting to what is necessaryand reduce costs and the number of transactions among institutions and projectparticipants.What are the true information needs? In this paper, we have presented our list

of key issues that need to be addressed. Information needs will differ with eachorganization’s goals with respect to climate change projects. Based on our reviewof existing protocols and guidelines, we expect all organizations to support sustain-able GHG emissions reductions. Options should be available for project developersto decide how much effort should be spent in addressing each MERV issue (seeVine and Sathaye, 1997).

Acknowledgements

We would like to thank Maurice N. LeFranc, Jr. and Jackie Krieger of the U.S.Environmental Protection Agency, Climate Policy and Program Division, Officeof Economics and Environment, Office of Policy, Planning and Evaluation fortheir assistance. We would also like to express our appreciation for the followingreviewers of an earlier draft of this paper: Chris Busch, Trini Pipi Krœmer, Mau-rice LeFranc, Joel Swisher, and John Wilson. Finally, we appreciate the helpfulsuggestions provided by the two anonymous reviewers of this journal article. Thiswork was supported by the U.S. Environmental Protection Agency through theU.S. Department of Energy under Contract No. DE-AC03-76SF00098.

References

Andrasko, K.: 1997, Forest Management for Greenhouse Gas Benefits: Resolving Monitoring Is-sues Across Project and National Boundaries, Mitigation and Adaptation Strategies for GlobalChange 2(2–3), 117–132.

Andrasko, K., Carter, L. and Van der Gaast, W.: 1996, Technical Issues in JI/AIJ Projects: A Surveyand Potential Responses, a background paper prepared for the Critical Issues Working Group,for the UNEP AIJ Conference, San Jose, Costa Rica.

Dudek, D. and Weiner, J.: 1996, Joint Implementation, Transaction Costs, and Climate Change.OCDE/GD(96)173. Organization for Economic Co-Operation and Development, Paris, France.

EcoSecurities, Ltd.: 1997, SGS Forestry Carbon Offset Verification Services. Draft. SGS Forestry,Oxford, United Kingdom.

Embree, C. (Sid): 1994, Monitoring, Accounting, Verifying, and Reporting on Joint ImplementationActivities: Preliminary Issues and Considerations, presented at the Workshop on Designing JointProject Mechanisms to Promote Benefits for Developing Countries, Rio de Janeiro, Brazil, Dec.13–15.

miti6498.tex; 26/04/1999; 13:00; p.17


Heister, J.: 1996, Towards a Methodology for Quantifying Greenhouse Gas Offsets from Joint Im-plementation Projects and Activities Implemented Jointly, draft working paper, Global ClimateChange Unit, Global Environment Division, World Bank, Washington, D.C.

International Panel on Climate Change (IPCC): 1995, Greenhouse Gas Inventory Workbook andReporting Instructions. IPCC, Bracknell, United Kingdom.

MacDicken, K.: 1997, Project Specific Monitoring and Verification: State of the Art and Challenges,Mitigation and Adaptation Strategies for Global Change 2(2–3), 191–202.

MacDicken, K.: 1996, A Guide to Monitoring Carbon Sequestration in Forestry and AgroforestryProjects. Working Paper 96/04 (revised 9/96). Forest Carbon Monitoring Program, WinrockInternational Institute for Agricultural Development, Arlington, Virginia.

Meier, A. and Solomon, B.: 1995, The EPA’s Protocols for Verifying Savings from Utility Energy-Conservation Programs, Energy: The International Journal 20(2), 105–115.

UNEP/WMO Information Unit on Climate Change: 1992, United Nations Framework Conventionon Climate Change. UNEP/WMO Information Unit on Climate Change, Geneva, Switzerland.

UNFCCC: 1997, Kyoto Protocol to the United Nations Framework Convention of Climate Change,FCCC/CP/1997/L.7/Add.1, Dec. 10, 1997.

UNFCCC: 1998, Non-paper on Principles, Modalities, Rules and Guidelines for an InternationalEmissions Trading Regime, FCCC/SB/1998/MISC.1/Add.1/Rev.1.

U.S. Agency for International Development (AID): 1996, Strategies for Financing Energy Efficiency.Business Focus Series. U.S. Agency for International Development, Washington, D.C.

U.S. Environmental Protection Agency (EPA): 1995a, Acid Rain CEMS Program SubmissionInstructions. U.S. Environmental Protection Agency, Washington, D.C.

U.S. Environmental Protection Agency (EPA): 1995b, Conservation and Verification Protocols,Version 2.0. EPA 430/B-95-012. U.S. Environmental Protection Agency, Washington, D.C.

U.S. Environmental Protection Agency (EPA): 1996, The User’s Guide to the Conservation andVerification Protocols, Version 2.0. EPA 430/B-96-002. U.S. Environmental Protection Agency,Washington, D.C.

U.S. Initiative on Joint Implementation (USIJI): 1996, Guidelines for a USIJI Project Proposal. U.S.Initiative on Joint Implementation, Washington, D.C.

Vine, E. and Sathaye, J.: 1997, The Monitoring, Evaluation, Reporting, and Verification of ClimateChange Mitigation Projects: Discussion of Issues and Methodologies and Review of ExistingProtocols and Guidelines. LBNL-40316. Lawrence Berkeley National Laboratory, Berkeley,California.

Watt, E., Sathaye, J., de Buen, O., Masera, O., Gelil, I., Ravindranath, N., Zhou, D., Li, J. andIntaraprvich, D.: 1995, The Institutional Needs of Joint Implementation Projects. LBL-36453.Lawrence Berkeley National Laboratory, Berkeley, California.

World Bank: 1994a, Greenhouse Gas Abatement Investment Project Monitoring & EvaluationGuidelines. World Bank, Washington, D.C.

World Bank: 1994b, Incorporating Social Assessment and Participation Into Biodiversity Conserva-tion Projects.World Bank, Washington, D.C.

miti6498.tex; 26/04/1999; 13:00; p.18

The monitoring, evaluation, reporting, and verification of climate change mitigation projects: Discussion of issues and methodologies and review of existing protocols and guidelines

Documents