Verified Carbon Standard

Currently active program (as of 1/2011).

www.v-c-s.org


Overview
Market Size and Scope
Offset Project Eligibility
Additionality Requirements and Project Methodologies
Project Approval Process


Overview

Type of Standard and Context

The Verified Carbon Standard (VCS Version 3) is a full-fledged carbon offset standard. It focuses on GHG reduction attributes only and does not require projects to have additional environmental or social benefits. The VCS is broadly supported by the carbon offset industry (project developers, large offset buyers, verifiers and projects consultants).

The VCS version 1 was published jointly in March 2006 by The Climate Group (TCG), the International Emissions Trading Association (IETA) and the World Economic Forum (WEF) Global Greenhouse Register. The VCS 2007 was launched in November 2007 following a 19-member Steering Committee review of comments received on earlier draft versions. The Steering Committee was made up of members from NGOs, auditors, industry associations, project developers and large offset buyers. The World Business Council for Sustainable Development (WBCSD) joined in 2007 as a founding partner of VCS 2007. The VCS 2007.1 was launched in November 2008, with the main difference from the earlier version being the incorporation of guidelines for the development of projects in the agriculture, forestry and other land use (AFOLU) sectors. The most recent update, VCS Version 3, was launched in March 2011. Version 3 expands the scope and functionality of the VCS Program, clarifies program rules and requirements, and incorporates the text of program updates issued since the launch of VCS 2007. Start-up funding for the VCS Association comes from the Climate Group, the IETA, and the WBCSD. Donations from commercial organizations are capped at USD 31,600 (EUR 20,000) per year. In the medium- to long- term, costs will be covered by levy charged at the point of Voluntary Carbon Unit (VCU) issuance (USD 0.01 per VCU).

Standard Authority and Administrative Bodies

The VCS is managed by the VCS Association, an independent, non-profit association incorporated under the laws of the District of Columbia in the United States, together with its Board.

The VCS Association is responsible for managing the VCS Program, which responds to stakeholder queries, manages relationships with registry operators and accreditation bodies, supervises the VCS website and project database, oversees validators/verifiers and develops the program.
The VCS Board has a number of responsibilities. It is responsible for approving any substantial changes to the VCS. It also makes a final determination regarding the approval of other GHG programs under the VCS, and has the authority to suspend an approved program temporarily or indefinitely if changes are made to it that affect its compatibility with the VCS Program. The VCS Board has the authority to approve accreditation bodies that will accredit validators and verifiers and also approves registries that can join the VCS Registry System. Finally, the VCS Board makes final decisions on any appeals brought forward to the VCS.

The Technical Advisory Groups (TAGs) support the VCS Association by providing detailed technical recommendations on issues related to the program and its requirements (e.g., the Agriculture, Forestry and Other Land Use TAG for bio-sequestration projects).

Accredited third-party auditors have the authority to validate and verify offset projects, validate new baseline and monitoring methodologies, and, for AFOLU projects, validate market leakage and non-permanence risk assessments.   They can only do this for the project scopes and geographies for which they are accredited, and they must be accredited either under an approved GHG Program or under the ISO 14065:2007 with an accreditation scope specifically for the VCS Program. Unlike the CDM, accredited third-party auditors can validate and verify the same project and give final project approval. Validators and verifiers working under the VCS must agree to the VCS Terms and Conditions, which require them to, among other things, replace VCUs that have been determined to have been issued in excess due to fraud or negligence.

Regional Scope

The VCS is an international voluntary GHG offset program.

Recognition of Other Standards/ Linkage with Other Trading Systems

In early 2008, the VCS Program recognized the CDM and JI, and in late 2008 it recognized the Climate Action Reserve (formerly California Climate Action Registry: CCAR) . The VCS will evaluate and either fully adopt or adopt elements of other offset standards by commissioning a consultant to complete a detailed gap analysis of the two programs. The approval process will be based on the principle of full compatibility with the VCS program, with acceptance required by the VCS Board. If another offset standard is fully adopted by the VCS, all their auditors and methodologies are automatically accepted by the VCS, and credits certified by that standard can be fungible with VCS credits – the Voluntary Carbon Unit (VCU).

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Market Size and Scope

Tradable Unit and Pricing Information

VCS-approved carbon offsets are registered and traded as Verified Carbon Units. One VCU represents emission reductions of 1 metric ton of CO2. VCUs process in 2010: average US$4.7 (State of the Voluntary Carbon Markets 2010)

Standard Users

VCS Version 3 is used widely for the verification of VERs for the European and North American markets.

Current Project Portfolio

VCS Version 3 was launched in March 2011 and the VCS Registry System was launched on 17 March 2009. As of 14 September 2011, there were 670 projects registered under the VCS, and a total of 66.1 million issued VCUs. All of the registration and issuance information can be viewed at the VCS Project Database (www.vcsprojectdatabase.org).  The first verified carbon credits from an AFOLU project were issued in September 2010.

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Offset Project Eligibility

Project Types

All project types are allowed under the VCS Program provided that they are supported by an approved VCS methodology or are supported by a methodology approved under an approved GHG Program. Exceptions include projects that can “reasonably be assumed” to have generated GHG emissions primarily for the purpose of their subsequent reduction, removal or destruction and projects that reduce hydrofluorocarbon (HFC) emissions from the production of HCFC-22 in Kyoto Protocol Annex B countries. In addition, projects that have created another form of environmental credit must provide a letter from the program operator to confirm that the credit has not been used under the relevant program and has now been cancelled to prevent future use.

In January 2010, the scope of the VCS Program was extended to include ozone-depleting substances (ODS).  The destruction of ODS from the following are eligible: refrigeration and air conditioning equipment, systems, or appliances; fire suppression equipment or systems; and thermal insulation foams.

Project Locations

There are no project location restrictions for the VCS. Retirement of corresponding allowances is required for projects in countries or states/provinces that have established legislation to implement a cap and trade system, or that fall under any other form of allowance trading such as the Kyoto Protocol.

Project Size

There is no upper or lower limit on project size. The VCS does however classify projects into three categories based on their size:

  • Projects: less than or equal to 1,000,000 tCO2e per year
  • Mega projects: greater than 1,000,000 tCO2e per year

The rules on validation and verification vary slightly depending on the project size category.

Start Date 

AFOLU projects with a project start date on or after 8 March 2008 shall complete validation within five years of the project start date. AFOLU projects with a project start date on or after 1 January 2002 and before 8 March 2008 shall complete validation before 8 March 2013. AFOLU projects can be earlier than 1 January 2002, provided the following conditions are met:

  • project validation and verification against the VCS has been completed by 1 October 2011. If the project is applying a new methodology, the project shall complete validation and verification within one year of the approval of the methodology and no later than 1 October 2012;
  • the project proponent can verifiably demonstrate that the project was designed and implemented as a climate change mitigation project from its inception; and
  • prior to 1 January 2002, the project applied an externally reviewed methodology and engaged independent carbon monitoring experts to assess and quantify the project’s baseline scenario and net emissions reductions or removals.

For non-AFOLU projects, validation has to be completed within two years of the Project Start Date. If project is using a new methodology and completing validation within one year of the methodology’s approval, the project may complete validation within three years of the project start date. Projects registered sequentially under the VCS Program and a non-approved GHG program, where a validation or verification report has been issued by an approved VVB, the start date has to be on or after 19 November 2008. . AFOLU projects starting on or after 1 January 2002 are not required to complete validation within a specific time frame.

VCUs from CDM pre-registration credits are allowed in accordance with the start date and crediting period rules above. No further proof of additionality is required.

Crediting Period

The earliest permissible start date for the project crediting period is January 1, 2002 for AFOLU projects (the earliest permissible crediting period start date for non-AFOLU projects is limited by the rule that validation must be completed within two years of the project start date). Non-AFOLU projects and Agricultural Land Management (ALM) projects focusing exclusively on emissions reductions of N2O, CH4 and/or fossil-derived CO2 have a maximum crediting period of 10 years which may be renewed at most two times. For AFOLU projects other than such ALM projects, the crediting period is a minimum of 20 years and a maximum of 100 years.

Co-benefit Objectives and Requirements

The VCS does not focus on environmental and social benefits. It is sufficient for VCS projects to show that they are compliant with local and national environmental laws, and project proponents are obliged to present in the VCS Project Description “relevant outcomes from stakeholder consultations and mechanisms for on-going communication”. The requirements for stakeholder involvement are based on ISO 14064-2 requirements: ISO only briefly mentions co-benefits:

The project proponent shall describe the project and its context in a GHG project plan that includes the following:
[…]
k) a summary environmental impact assessment when such an assessment is required by applicable legislation or regulation;
l) relevant outcomes from stakeholder consultations and mechanisms for on-going communication.(ISO 14064-2)

Because adverse social impacts are more likely to occur in projects in the AFOLU sectors, the VCS does require that these projects “identify potential negative environmental and socio-economic impacts and  take steps to mitigate them prior to generating Verified Carbon Units (VCUs).”

The VCS allows co-benefits to be tagged onto VCUs, thereby enabling community, biodiversity and other benefits to be added to the attributes of VCUs. Several of the REDD projects being developed under the VCS are being certified by the Climate Community and Biodiversity Standard (CCBS), and there are several projects in the VCS Project Database that have also been certified under the Social Carbon Standard.

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Additionality Requirements and Project Methodologies

Additionality Requirements

The VCS uses project-based, performance-based and positive technology list-based additionality tests. The project-based tests closely follow the CDM Additionality Tool procedures:

  • Step 1: Regulatory surplus test – the project must not be mandated by any enforced law, statute or other regulatory framework. This criterion also applies to projects using the performance or positive list tests.
  • Step 2: Implementation barriers test – the project must demonstrate that it faces either capital and investment return constraints or an institutional barrier that can be overcome by additional revenues from VCU sales, or that it faces technology-related barriers to implementation of the project.
  • Step 3: Common practice test – the project must demonstrate that it is not common practice in the sector or region when compared with other projects that received no carbon finance, and if it is found to be common practice, then the project proponent must identify barriers it faces that were not faced by the other projects. In order to demonstrate these criteria, the VCS advocates the use of guidance provided by the GHG Project Protocol for Project Accounting.

The project-based tests are outlined in the VCS as minimum requirements for the development of new methodologies. Where an existing methodology is being used, additionality must be demonstrated as given in the methodology. For example, if a VCS project is using a CDM methodology that stipulates use of the CDM Additionality Tool, that tool must be used.

As an alternative to the project-based additionality test, project proponents can use performance tests or positive lists. With a performance test, a project can demonstrate that it is not business-as-usual if the emissions generated per unit of output it generates are below a benchmark level approved by the VCS Program for the product, service, sector or industry. Positive lists are based on the concept that certain technologies are not currently being used and would likely not be implemented without additional incentives, and thus can claim to be additional until a robust level of market penetration is achieved.

While the VCS allows performance and positive lists, there is currently no specific guidance on these approaches under the double approval process for developers. A steering committee was formed in 2010 and has been tasked with streamlining approaches for setting baselines and assessing additionality through discussions over a two-year operational period. Draft requirements were issued for public consultation in September 2011.

Project Methodologies

The VCS accepts projects that use existing quantification methodologies approved either under the VCS Program or by another approved GHG Program, and it also approves new methodologies. All CDM baseline and monitoring methodologies have been approved for use under the VCS, and all non-forestry CAR protocols have also been approved. Some of the approved VCS methodologies are revised CDM methodologies, which change and amend certain CDM requirements, for example:

Other VCS methodologies are not based on pre-existing CDM Methodologies, such as:

A list of all VCS methodologies can be found here

For the most part, the VCS draws on guidelines provided in ISO 14064-2 to guide the development of a VCS Program methodology (see ISO 14064). The VCS Association approves new methodologies using a double approval process, which entails conducting a 30-day public consultation and subsequently seeking approval from two independent accredited auditors – one appointed by the project developer and the other appointed by the VCS Association. The VCS Association will approve the methodology if there is unanimity among the two auditors and would not approve it if there is disagreement between them. The developer can appeal the decision. If the decision is appealed, the VCS Association appoints an independent consultant to review the developer’s claim. The VCS Association makes a final decision based on the review. The expenses for each review are paid by the developer.

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Project Approval Process

Validation and Registration

Validation is required under the VCS, and this can be done at the same time as verification. The VCS provides a template for both the validation and the verification report. A project proponent contracts an accredited auditor of the VCS Program or of a VCS-approved GHG Program to validate the project. The auditor evaluates the project against the VCS validation requirements (see below) and prepares its report according to the VCS Validation Report template requirements. The project is automatically approved if it is successfully validated by the auditor and the VCS registry administrator confirms that due process has been followed. Project validation requires projects to meet ISO 14064-3 validation requirements and to prepare a validation report that follows the VCS Validation Report template requirements and includes:

  • A description of the project design
  • A description of the method used to calculate the baseline
  • A monitoring plan
  • A calculation of the GHG emission reductions
  • A calculation of the environmental impact
  • Comments by stakeholders

Monitoring, Verification and Certification

The emission reductions achieved by VCS projects can be verified by the same entity that validated the project. The VCS Association does not approve or reject projects (in other words, the VCS Association does not function like the CDM EB). Instead, the auditors who verify the projects approve the claimed emission reductions. The third-party auditor verifies the emission reductions and the accuracy of emission reduction calculations as per the requirements of ISO 14064-3. After a project has been validated and verified, the VCS Project Description and all other project documents are submitted to the registry administrator. Electronic copies of these documents are then put on the VCS Project Database and are made publicly available. A verification report is prepared following the same requirements as for the VCS Validation Report template.

Registries and Fees

VCS Registries Graph

On successful verification, projects can issue VCUs by submitting the appropriate documentation to one of the three VCS registries – NYSE Blue, Caisse des Depots, and Markit – who then check the documentation for authenticity, accuracy and consistency and that due process has been followed, and make sure that the emission reductions have not been issued by other GHG programs. The registry administrators then upload the required documentation onto the VCS Project Database which completes a GPS search to make sure the project has not been registered before. Once all those checks are completed, the VCS Project Database issues VCUs with unique serial numbers to the registry that requested issuance.

An important feature of the VCS Registry System is the ability to transfer VCUs amongst the participating registries. The action enables owners holding Verified Carbon Units (VCUs) at one of the VCS registries to transfer these units to a third party account held at a different registry, thereby enabling full inter‐operability within the VCS registry system and thus offering a broader scope for VCU transactions.
To minimize the risks of double counting, the VCS system requires that each of the registries operating under the VCS checks other GHG Programs to ensure that the same units have not been issued elsewhere. All projects are listed in the VCS Project Database, which is the central clearinghouse for VCUs, checks the GPS coordinates of all projects requesting issuance of VCU to make sure that the same project has not issued the same credits before. Furthermore, the project proponent must also submit the following to the VCS:

  • A letter confirming that the VCUs being registered have not been registered, transferred or retired previously;
  • A representation indicating that the emission reductions have not been issued under any other GHG program;
  • If emission reductions occurred in a country with established legislation to implement a cap-and-trade system, a certificate from the national registry of the host country stating that an equal number of AAUs have been cancelled from that registry;
  • Emission reductions from renewable energy projects must show proof that they are not a result of activity to meet a regulatory renewable energy commitment or to generate Renewable Energy Certificates (or the RECs must be cancelled). 

The registration fee for each VCU issued is USD 0.01. Account fees are set by each of the VCS approved registries.

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