1. © 2006 UNDP. All Rights Reserved Worldwide. Proprietary and Confidential. Not For Distribution Without Prior Written Permission. UNDP MDG Carbon RBEC EFP Workshop Monitoring & Reporting Plan; Validation, Reporting and verification Presented by Matt Spannagle Wednesday 27 th September 25-29, 2006, Bratislava, Slovakia

2. 1 UNDP MDG Carbon Certification Workshop 1 Presentation Overview 1. Monitoring and Verification Plan 2. Definitions (assertion, validation, verification) 3. UNDP Roles 4. Controlling validation and verification costs Further information (not presented) 1. General process & ISO14064-3 A. Planning (Level of Assurance, Objectives, Scope, Criteria, Materiality) B. Execution C. Completion

3. 2 UNDP MDG Carbon Certification Workshop 2 What is the Monitoring and Verification Plan for? a working document identifies key performance indicators sets out the procedures for tracking, monitoring, calculating and verifying the impacts of the Project. MVP must be used for: Planning Implementation operation. Once MVP has been validated, adherence to the instructions in the MVP is necessary to successfully measure the Project’s impacts and prepare for periodic verification to confirm ERs have been achieved. Ie – if the MVP is not followed, the ERs will NOT be verified. The MVP is the basis for the production and delivery of ERs and the revenue stream from CERs.

4. 3 UNDP MDG Carbon Certification Workshop 3 The data monitored as part of a good MVP should avoid new monitoring requirements, but rather be integrated with the information routinely collected for the underlying project. include (or utilise existing) monitoring redundancies as quality control: landfill project - monitor gas flow, temperature etc Pumps are major electricity use on site - typically already metered. This gives you monitoring of project indirect emission source (from electricity) as well as a correleation of pump use against gas flow (& hence a check). - Where manual meter reading, or other input requirements, integrate the meter reading into daily site schedules as far as possible The MVP can be updated and adjusted to meet operational requirements, provided such modifications are approved by the Verifier during the process of initial or periodic verification. Integrate the Monitoring and Verification Plan

5. 4 UNDP MDG Carbon Certification Workshop 4 Monitoring the system, not just the data Monitoring covers more than data alone. Also need to monitor: 1. Baseline – changes in regulations 2. Management and controls of the project 3. Failures – to rectify, and ensure that interpolations between measurement times do not include (wrong) assumption of operation 4. Leakage (eg transmission losses, electricity increase) 5. Meter calibration (drift, bias etc) 6. Quality control procedures

6. 5 UNDP MDG Carbon Certification Workshop 5 GHG Assertion (report) – CDM Declaration as a factual and objective statement of performance made by the Project Proponent. FOR CDM projects, GHG assertions made by the PP include:  PDD  Project activities/eligibility  Baseline methodology  Monitoring plan  Subsequent Monitoring reports  Monitoring reports  Any variations on validated plans  Reregistration (ie renewed PDD after 7 years)

7. 6 UNDP MDG Carbon Certification Workshop 6 Project design document Host country approval Designated national authority Designated Operational Entities Project owner Executive Board Validation Registration Financing & implementation Monitoring & Reporting Verification & certification Issue CERs

8. 7 UNDP MDG Carbon Certification Workshop 7 Validation process of systematic assessment leading to a statement on the reasonableness of the GHG assertion regarding future performance. In lay terms – ‘is the plan reasonable?’  a required ‘pre-approval’ step for project registration  Requires assessment of the assumptions, calculations, methodologies, & in particular – justifications regarding the baseline & additionality of planned monitoring & reporting measures.  Provides a ‘statement’ that the prediction is reasonable and plans conform with applicable program rules  Provides no assurance on the project’s future performance  undertaken before the GHG project crediting period, and (typically) before implementation/construction of the project

9. 8 UNDP MDG Carbon Certification Workshop 8 Validation – CDM Undertaken by Designated Operational Entities (DOEs): Validation of the PDD, including: –Confirming the PDD conforms to CDM requirements and correctly applies the baseline methodology and GHG quantification procedures; –Checking calculations are accurate & assumptions are reasonable in the PDD; –Confirming project satisfies the additionality requirement; –Assessing monitoring plan; and – making PDD available for public review. Submission of PDD to CDM EB, including:  required DNA approvals have been issued (ie Letter of Approval)  validation report  PDD (with any adjustments/corrections from the validation) Submission of New Methodology (where applicable). For MDG Carbon – pre-validation done to ensure that validation proceeds smoothly (reduce DOE time, and hence reduce $$$)

10. 9 UNDP MDG Carbon Certification Workshop 9 Verification  process of systematic assessment leading to a statement confirming the GHG assertion regarding past GHG performance has been appropriately calculated and reported In lay terms – ‘confirm the truth of the GHG assertion’  Typically requires rigorous collection, testing & evaluation of evidence in order to present a complete audit trail  Provides a ‘statement’ that past GHG performance has been appropriately calculated & reported in accordance with the validated project plan  undertaken after the GHG project has been implemented & generated reductions, and a monitoring report has been issued

11. 10 UNDP MDG Carbon Certification Workshop 10 Verification – CDM Undertaken by DOEs: Except for small scale projects, the same DOE cannot validate and verify a project. Verify the Monitoring Report, this includes: –Checking report conforms to the principles, –Checking that implementation & monitoring has occurred in accordance with the PDD (& Monitoring Plan) –confirm reported emissions reductions from project activities have in fact occurred. Prepare a certification report –Generally the DOE provides a draft report to the PP before submission Submission of Certification Report to CDM EB. NB – for MDG Carbon – pre-verification done on first Monitoring Report (and may be done on subsequent reports) to ensure that verification proceeds smoothly (reduce DOE time, & reduce $$$)

12. 11 UNDP MDG Carbon Certification Workshop 11 Link between validation & verification Before the project…  Validation gives assurance that if the project is implemented according to the plan, then it will meet eligibility criteria, & once verified, ERs will be issued  Increases the $ value of projected CERs and leverage of PPs with buyers once validation achieved. During the project…  Verification gives assurance that the PP has adhered to the validated plan and ERs did in fact take place.  Once results are verified – CERs can be issued – these are essentially a uniform (hard) currency, and will have a higher $ value than any ‘projected’ CERs.

13. 12 UNDP MDG Carbon Certification Workshop 12 UNDP roles Project Proponent (PP) responsible for design & implementation of the monitoring and reporting systems. UNDP responsibility is to provide assistance to the PP (ie PIN, PDD, MVP) 1. design systems (controls) to minimise chance of error - management oversight, training, checking/internal audits, controlled access etc 2. Design systems (information) to ensure robust and verifiable data - Measurement equipment, automated data collection/handling etc. 3. Implementation as designed - ensure equipment specified is procured and installed correctly; PP assigns roles to appropriate staff, training etc. 4. monitor & reporting. - ensure equipment specified is regularly and appropriately maintained; regular data collection, processing, consolidation, recording-storage- archive; regular and appropriate calibration of meters, etc. - Ensure reporting is undertaken as per MVP, reports are transparent and clear, consistent etc

14. 13 UNDP MDG Carbon Certification Workshop 13 What you need to know about validation Not NECESSARY to know anything about validation, but: If PDD fails validation – you do not have a project. Cost of validation of a project depends on:  Complexity of the project  Quality of the PDD  Quality of underlying control and information systems.

15. 14 UNDP MDG Carbon Certification Workshop 14 Controlling validation cost & maximising likelihood of success:  Ensure all principles considered and followed  Show that the project quantification & monitoring followed a structured approach – not ad hoc  transparency – document assumptions & justify decisions  show how/why assumptions are conservative  Show that all sources were considered – and that they were reasonably included in the project or as leakage  Follow the PDD templates & Approved Methodology rules  User-friendly input interfaces, reporting structures etc.  eg – use standard excel sheets rather than custom built, use SI units etc.  Use consistent formats & platforms where ever possible. Don’t try and hide anything! Its not worth it. Note – UNEP Riso “avoiding the pitfalls” guide is a good reference.

16. 15 UNDP MDG Carbon Certification Workshop 15 What you need to know about verification Not NECESSARY to know anything about monitoring & verification, but:  The best project in the world is worthless if not monitored properly.  If PP does not collect (with calibrated instruments), process, consolidate, record and properly compile relevant data during operation of the project, it is usually NOT POSSIBLE to reconstruct (back-cast) this data.  If data not transparently available to DOE, certification NOT possible - If Monitoring Report fails verification – you have no emission reductions – Cost of verification of a project depends on:  Complexity of the project  Quality of the monitoring report  Quality of underlying control & information systems.

17. 16 UNDP MDG Carbon Certification Workshop 16 Controlling verification cost & maximising likelihood of success  ensure all principles considered and followed  Design of Monitoring Plan (ie – in the PDD) to facilitate verification:  ensure clear roles and responsibilities  include procedures to prevent, detect and correct any errors  Quality control (eg limited authority to change procedures for quantification)  integrate measurement into project fundamentals  automate measurement as far as possible, Etc.  Show that monitoring and reporting followed what was in the Monitoring Plan  transparency – document assumptions & justify decisions – particularly any changes from the monitoring plan  Be conservative with any assumptions and show how/why if things went wrong  Demonstrate that any sources not quantified in PDD (ie non-material sources) have not become material, and reasonably monitor and quantify any leakage  Follow any monitoring templates and Approved Methodology rules to the letter Note – UNEP Riso “avoiding the pitfalls” guide is a good reference.

18. 17 UNDP MDG Carbon Certification Workshop 17 END SLIDE PRESENTATION HERE – following slides are for further information only

19. 18 UNDP MDG Carbon Certification Workshop 18 Independence of the Designated Operational Entity Validator/ Verifier (DOE) (3 rd party) assurance independence Intended User (CDM EB) GHG Assertion Project Proponent (1 st party) accountability statement Independence shown by no financial interest

20. 19 UNDP MDG Carbon Certification Workshop 19 General process of validation and verification  ISO 14064 Part 3 Greenhouse Gases: Specification with guidance for the validation and verification of assertions  lays out the process undertaken to give assurance on a GHG assertion  does not specify requirements for all possible situations but principles provide guidance

21. 20 UNDP MDG Carbon Certification Workshop 20 Plan Execute Complete General process

22. 21 UNDP MDG Carbon Certification Workshop 21 Level of Assurance Level of Assurance is the degree of confidence the intended user requires in a validation or verification statement ie – how much credibility does intended user require from the statement? Levels of Assurance vary from low to high, but is never absolute as a result of factors such as:  use of judgment,  use of testing (sampling),  inherent limitations of control  much of the evidence available to the auditor is persuasive rather than conclusive in nature. For CDM/JI Level of Assurance will need to be HIGH for registration.

23. 22 UNDP MDG Carbon Certification Workshop 22 Validation Objectives for CDM/JI PP Objective - be registered with CDM EB (or JI equivalent). BUT – may be competing objective with DOE: DOE objective is to make a statement on the reasonableness of the PP’s PDD: Conformance with CDM eligibility criteria Justification & documentation of PDD esp. baseline, additionality, GHG estimation, monitoring, quantification & reporting procedures Design of controls Important to confirm objectives between PP & DOE early in the process to: Check expectations - undertaking the validation does not guarantee registration. ensure that PP objectives will deliver what the intended users need. eg – if the PP objective is “register project as CDM”, but the PP does not have DNA approval, validator should point out that PP’s objective will not be met no matter how good their PDD is.

24. 23 UNDP MDG Carbon Certification Workshop 23 Verification Objectives for CDM/JI PP Objective is to have CERs or ERUs issued by CDM EB (or JI equivalent). BUT – may be competing objective with DOE: DOE objective is to make a statement on the ‘truth’ of the PP’s Monitoring report on past performance with respect to: Conformance with criteria (has the project met all the CDM/JI rules?) Implementation of the project in accordance with the validated & registered PDD Significant changes since validation or previous verification including assessment of whether such changes can still be considered as within the scope of the validation Justification & documentation of any variations from the validated PDD including appropriateness of estimation, monitoring, quantification and reporting of any variations ongoing applicability of baseline Effectiveness of controls Accuracy of GHG reductions or removals quantification

25. 24 UNDP MDG Carbon Certification Workshop 24 Scope 4 main scope dimensions: Organizational: -’what’  project boundaries including legal, financial, operational boundaries;  what divisions/activities of the PP are included in the PDD? e.g., a single facility, a single project, or a bundle of projects for one PP?  Physical infrastructure, activities, technologies & processes  GHG sources & sinks  Types of GHGs Spatial: - ‘where’  what geographic areas are covered by the project? Single region? single province? Multiple provinces or countries?  different jurisdictions can have different requirements

26. 25 UNDP MDG Carbon Certification Workshop 25 Scope (cont’d) 4 main scope dimensions (cont’d): Temporal: - ‘when’  what time period is covered by the PP’s PDD (ie 3*7 year or 1*10 year)?  Does the PDD include base year or baseline measurements?  frequency of any previous or subsequent verification processes expected or required during the GHG project life?  When is the validator/verifier statement required? Intended User: - ‘who’  Who is the intended user (ie – CDM EB, JISC and/or other parties – eg also reporting to national governments, stakeholders)?  Any other relevant program (ie in addition to CDM/JI) the PP is participating in (eg CDM Gold Standard, MDG Carbon), and what rules apply to the project (eg – reporting MDG contribution for MDG Carbon)  Contacts & information resources with the PP and, if needed, with the Program Administrator

27. 26 UNDP MDG Carbon Certification Workshop 26 Criteria The criteria are the GHG reporting requirements that the PP’s assertion will be held to & audited against. For CDM & JI, criteria include:  Internationally recognized GHG reporting standards, –Marrakesh accords, CDM requirements  Country-specific GHG reporting standards, – DNA requirements  Industry or sector specific GHG reporting practices, –Fuel production & transporting standards Within these documents, specific criteria may be, for eg:  Report all Kyoto gases  metering required to have accuracy of +/-10%  Fuel inputs must be sampled hourly

28. 27 UNDP MDG Carbon Certification Workshop 27 Concept of materiality Errors, omissions & misrepresentations that affect the PP’s GHG assertion and could influence the intended user’s decisions are considered material. Materiality:  refers to the significance of discrepancies identified during the audit process  may be due to an individual error, or the aggregate of several errors  has both quantitative and qualitative aspects  is determined from the intended user’s perspective, not the PP’s Errors and omissions that are unlikely to affect the intended user’s decisions are considered immaterial.

29. 28 UNDP MDG Carbon Certification Workshop 28 Concept of materiality (cont’d) Materiality is a concept that:  may be used to conclude that an identified omission or miscalculation results in sufficient deviation from the true value to actually influence the decisions of the intended users – ie a material discrepancy  can apply to a specific statement or conclusion contained in a report that, in the opinion of the validator or verifier, is incorrect or misleading.  involves a value judgement on behalf of the auditor & therefore it is sometimes difficult to say explicitly ‘this is material, that is not material’.  is often contentious, and during audits has been the cause of dispute between the PP and auditor  Is not exact!

30. 29 UNDP MDG Carbon Certification Workshop 29 When above 4 elements are agreed… DOEs determine a validation/verification plan for: 1. The overall approach to take  Site visits, expertise of staff required, time to spend etc 2. Sampling plan  Which sites to visit (if > 1 site), sources of GHG to be focused on, data streams to examine, how many samples to take in each data stream, etc Note – validation and verification is about more than just looking at data!

31. 30 UNDP MDG Carbon Certification Workshop 30 Plan Execute Complete General process

32. 31 UNDP MDG Carbon Certification Workshop 31 All aspects of the Project management, (financial, OH&S, legal, etc) The GHG Internal Control PP’s structure, organisation of procedures, processes, methods etc; For: preventing, detecting, & correcting errors & omissions in the GHG data. Eg: Methods to identify and monitor GHG program requirements Methods to identify reporting requirements Methods for determining and monitoring baseline Process of identifying relevant sources and sinks, and monitoring boundaries Methods of identifying measurement technologies and data sources Selection and application of selected GHG quantification methodologies Selection and application of the processes and tools used for collecting, processing, and reporting GHG information Methods for assessing the effect of other related systems changes Procedures for authorizing, approving & documenting information systems changes. NB – in practice, typically a subset of this list is used. Internal control

33. 32 UNDP MDG Carbon Certification Workshop 32 GHG IMS is a subset of overall Project management system. analogous to the financial accounting system as a subset of the project management system. GHG IMS purpose is to collect, process, report and store GHG data and produce a trail of entries, manipulations, transactions, documents and reports. This is often called the ‘data trail’ and is necessary to understand as part of the audit process. Internal control – GHG Information Management System (IMS)

34. 33 UNDP MDG Carbon Certification Workshop 33 Collecting data Processing data Consolidating data Reporting data Data transfer Storage/Data Integrity/Data Backup Security/Controlled Access/Confidentiality Staff Training/Resources/Infrastructure Data transfer Internal control – GHG Information Management System (IMS)

35. 34 UNDP MDG Carbon Certification Workshop 34 To test Controls or GHG data? More efficient to test controls When Project has good, transparent, robust controls DOE can validate the controls, and not do as much data testing For projects with effective controls, DOE may partly rely on controls to generate reliable GHG information & thus DOE tests the controls. For projects with ineffective controls, DOE must test GHG information. More efficient to test controls - no situations where DOE can completely rely on tests of controls. Every audit must test some GHG information.

36. 35 UNDP MDG Carbon Certification Workshop 35 Assess evidence against the Criteria The criteria can have many aspects, including:  eligibility or scheme entry requirements (eg host country KP ratification),  Specified or required GHG estimation, quantification, monitoring & reporting approaches & methodologies (eg approved methodologies),  GHG data & information accuracy requirements, including materiality thresholds or de minimus limits (eg may be set by local regulations, licencing conditions etc)  GHG performance criteria (eg LFG minimum % flaring required). DOE uses collected objective evidence to determine if PP has met the criteria. Where criteria are project specific (eg selected financial return criteria for additionality (least cost) assessment), DOE assesses: 1 st whether this criteria is appropriate 2 nd whether project meets the criteria.

37. 36 UNDP MDG Carbon Certification Workshop 36 Assess the GHG Assertion DOE compares the PP’s assertion (eg PDD) to the findings/conclusion In particular this comparison includes:  principles of reporting*  Appropriate representation of information  eligbilitly/applicability to the program (where applicable) Rarely are GHG assertion(s) without errors or omissions. The question the DOE must answer is whether they are material.

38. 37 UNDP MDG Carbon Certification Workshop 37 Plan Execute Complete General process

39. 38 UNDP MDG Carbon Certification Workshop 38 Completion DOE prepares a validation or verification report Shown to PP (& UNDP) for opportunity to correct any errors and confirm conclusions when finalised, DOE submits Certification Report to CDM EB CDM EB has opportunity to review the report If CDM EB does not request review, CERs credited to PP’s account