The adoption of the Paris Agreement in December 2015 raised the hopes for carbon market continuity beyond 2020. However, the important strategic question becomes how will the Clean Development Mechanism (CDM) programs continue to generate compliance credits and will they do it at all? If so, what is the best way to transition to the Paris framework and to effectively adapt the new market mechanisms?
What is SCF
The Standardized Crediting Framework (SCF) is a new approach to crediting emission reductions, owned and managed by the country, which allows for more comprehensive geographic coverage, flexibility, has lower transaction costs, and encourages private sector engagement.
The standardized crediting framework is important for several reasons. First, the framework proposes a systematic approach to counting carbon credits. Second, making things simple and standardized helps improve transparency of the carbon market and reduce transaction costs. Finally, country-owned and managed frameworks like SCF would help with capacity building of host country institutions, improve coordination among domestic entities, and help align climate change policy goals with the sectoral ones.
SCF in theory
The concept of the SCF is developed to address challenges faced by the CDM programs in the current crediting system, especially challenges faced by the energy access programs in Africa. These include:
- Capacity of CMEs—through simplification of reporting requirements and standardizing most of the monitoring parameters at the national level;
- Interaction with domestic policies—by focusing on technologies with clear automatic additionality;
- Data needs and the related transaction costs for monitoring—reduced by using more standardized approaches, using simplifications to the MRV system, and simplifying the project cycle.
The SCF approach would support greater private sector engagement by providing simplified, predictable approaches to crediting for energy access projects.
Key elements of SCF
- Positive lists for additionality
Almost all the technologies included in the energy access programs reviewed for the SCF pilot fall under the “positive lists” in the current CDM rules. These technologies are considered automatically additional due to their unit size or their energy source. This implies that the total size of the activity is relevant for assessing additionality because the microscale guidelines are limited to project activities that reduce emissions by less than 20 ktCO2 per year. However, this may not be the case for all technologies and sizes, and hence requires alternative approaches for assessing the additionality.
- Streamlined MRV approaches
The SCF would incorporate streamlined monitoring, reporting, and verification (MRV) approaches, such as a reduced need for site visits, use of local experts for auditing, faster timelines for checking documentation, tiered accuracy requirements, and calibration requirements appropriate to the country. The simplification of documentation would lend itself to greater digitization of forms, building on the current work in this direction under the CDM and other crediting systems.
- Efficient governance arrangements
The SCF is implemented through governance and institutional arrangements independent from the UNFCCC process. This could be achieved through an institutional arrangement that builds on the existing structures and avoids, to the extent possible, the creation of new institutions. This approach would help reduce the administrative and financial burden on the national government, at the same time securing transparency and predictability of the decision making. The identified institutions are required to perform oversight, executive, and administrative functions for the proper implementation and operation of the SCF.
Simplified project cycle
The SCF would build on earlier proposals for streamlining the project cycle by eliminating the validation step, and instead combining verification of the project design, its compliance, and performance into a single ex-post third party audit. Initially, the programs would be “listed” based on information in a simplified ‘listing’ template that would clearly state the requirements for its eligibility. Once listed, the program would initiate a monitoring program to collect data annually to determine emission reductions, which would in turn be verified by a third-party auditor before credits were issued.
SCF in practice