The Role Of Third Party Verification In Building Effective Emission Trading Systems

Adopted on 12 December 2015,the Paris Agreement has made an important step forward in the universal effort to combat climate change.It sets a long-term goal of limiting global warming to below two degrees Celsius compared at pre-industrial level,and committed parties to make efforts to limit it to 1.5 degrees Celsius.It also fundamentally changed the form of international climate governance from the "top-down" Kyoto Protocol style to a new "bottom-up" approach,which countries could set their own targets through"nationally determined contributions(NDCs)".The "intended" nationally determined contributions(INDCs)submitted before the Paris Conference of the Parties(COP)present a significant degree of diversity;however,90 INDCs explicitly seek access to some form of international carbon market mechanism.Released on 30 October 2015,the UNFCCC's INDC Synthesis Report underlines that more than half of the INDCs planed to use,or were considering,using market mechanisms.The Kyoto Protocol allowed Annex I parties(such as the EU)to buy or trade Certified Emission Reductions(CERs)with non-Annex I developing countries,and it established three "flexibility"(i.e.,market-based)mechanisms to help achieve compliance in an economically efficient manner.These mechanisms introduced a quantity-based approach,and one of these,the Clean Development Mechanism(CDM)allowed constrained Annex I parties to buy or trade CERs with non-constrained developing countries(including China).In 2005,the European Union Emission Trading System(EU ETS)was the world's first and(still currently)largest international emissions trading system.Operating in 31 countries(28 EU Member States plus Iceland,Liechtenstein and Norway),the system was proposed and justified as an approach for the EU and its member states to meet their Kyoto obligations.Despite its Kyoto Protocol focus,it remains independent in terms of implementation.The EU ETS covers approximately 11,000 power stations and major industrial sources,along with internal EU aviation activities within these countries.It accounts for approximately 45 percent of total EU greenhouse gas(GHG)emissions.China plans to launch a national carbon market in 2017,building on ten years of emissions trading experience,based upon both the Clean Development Mechanism and its seven pilot carbon markets.The size of China's national ETS is expected to be twice the size of EU ETS,with an expected cap size of at least four billion tonnes.Carbon markets will undoubtedly be a key tool in the post-Paris mitigation effort.However,this proven cost-effective mechanism still faces multiple challenges during the process of implementation,especially in assuring the actual compliance of its individual targets.To ensure that projects and programmes meet clear standards,monitoring,reporting and verification(MRV)of this process are therefore of vital importance for effective enforcement measurement.Trading purposes,participants,trading rules,trading instruments,and incentives and punishments are detailed in laws and regulations.Under these circumstances,compliance means monitoring the operation of covered installations,ensuring that they operate consistent with the requirements,and then determining whether further inspection or enforcement is required.While the legislative design of these ETSs have been frequently addressed in the literature,the evaluation of executive activities is rarely mentioned.During the MRV compliance cycle,independent third parties are required to check covered entities and report the results to the government.The quality of these individual inspections is often neglected.In this thesis,the author addresses this question,evaluating the compliance and enforcement of these emission trading schemes through an analysis of third party verification behaviors.The author conducted interviews with multiple parties related to verification work in China,including third party verifiers,regulated entities included in China's pilot and national schemes,and emission exchange centers.Through conversations,emails and site visits,interviewees provided first-handed and practical information about executive details during the implementation process.Their experience fulfilled the gap between administrative policies and actual compliance.Even though China's national.emission trading will be operated in one country,the degree of diversity between cities and provinces still concerns the administration.In the pilot programs,for example,each pilot adopted different market designs and regulatory rules,searching for the optimal result of the pilot scheme.Learning from the EU ETS,coherent and centralized regulation guidelines need to be formed as assurance of actual compliance.Moreover,compliance should strictly adhere to the guidelines.Cases have shown that standards and requirements were loosened,especially in terms of third party verification entities selections.This situation poses a potential threat towards the accuracy and integrity of third party verification reports.In conclusion,actual compliance is of vital importance,especially under the voluntary nature of the Paris Agreement.Third parties play a significant role in terms of verifying emission reductions.In China and other countries considering establishing emission reduction schemes,it is essential that governments understand the role of third party verifications,and mobilize centralized regulation guidelines and legal protections to assure they are conducted in a professional manner,with the independence they are supposed to provide,and the technical support and regulatory oversight necessary to ensure a successful emissions trading scheme.