MRV in Carbon Pricing Instruments : Making it work
MRV – monitoring reporting and verification – is the underpinning activity of carbon pricing. Without good quality data on the quantity of emissions arising from activities (or the amount of energy being used) it is not possible to have confidence that the relevant carbon pricing instrument (CPI) is delivering the results that it should in a transparent and fair way for all participants. This is all the more important since a CPI is not only an environmental instrument but also a financial instrument. The amount of emissions determines how much tax companies have to pay in a carbon tax system or how many emission allowances must be surrendered in a trading system.
But MRV goes beyond carbon pricing, good quality data is essential for many forms of decision making, be it decisions on strategies for organisations, choices on energy efficiency projects to take forward at facility level, or climate and other policies being proposed by governments.
Currently greenhouse gas inventories submitted to the UN are based on IPCC guidelines that allow for a wide range of estimation methods at economy, region and/or sector level. These guidelines are also used in some countries as a basis for developing the MRV rules for a domestic CPI. The degree to which this is done differs between countries, for example using IPCC default values for emission factors and calorific values, through to adopting standards mentioned in the guidelines or implementing the IPCC tier approach in selected MRV methodologies. Whilst the top tier proposed under IPCC methodologies includes actual measurement this is not always something that is a mandated requirement in CPIs – the choice being left to participants as to the approach that they select. This means that there can be wide variation in the quality of data submitted by similar entities. And even where data is measured, its quality may be open to doubt depending on the quality of the instruments used.
So how can MRV be made to work better, especially for CPIs? Based on our extensive experience of working on carbon pricing instruments across the globe, carbon policy, and survey work to support guidance documents produced for the World Bank Partnership for Market Readiness (PMR), we would propose the following principles for MRV:
- Data should be from the bottom up, wherever possible. i.e. generated at facility or entity level rather than economy level
- Primary data should be from measured and sampled sources wherever possible. However, in some cases this might not be technically feasible or may lead to unreasonable costs for implementation. So it is good practice to define when facilities or reporting entities have to measure and sample and when they can use other means to determine emissions.
- Monitoring boundaries and methodologies should be defined and designed in such a way so as to provide complete data within a specified level of accuracy.
- Measurement instruments should be of defined quality, installed, maintained and calibrated in accordance with specified standards.
- Where estimation or other more uncertain forms of data generation are used, a shift towards measured data over a defined time period should be a requirement.
- Verification of emissions by competent and qualified independent verifiers that are accredited or approved against appropriate standards increases the quality of the data and enhances confidence in the data.
Upcoming part 2 of this blog will discuss considerations policymakers are confronted with when setting up MRV systems for emissions quantification.
Machteld Oudenes and Lucy Candlin