Unlocking the Potential of Digital Infrastructure to Streamline Post-2020 Carbon Markets

Digital For Climate

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Digital For Climate

Digital For Climate (D4C) is a collaboration between the European Bank for Reconstruction and Development (EBRD), United Nations Development Program (UNDP), United Nations Framework Convention on Climate Change (UNFCCC), European Space Agency (ESA), International Emissions Trading Association (IETA) and World Bank Group that aims to coordinate respective workflows and create a modular and interoperable end-to-end digital ecosystem for the carbon market. The overarching goal is to support a transparent, high integrity global carbon market that can channel capital for impactful climate action and low-carbon development.

Framework of D4C Working Group

Digital for Climate Overview & Governance of Digital Public Goods

1. Digital for Climate Overview

The European Bank for Reconstruction and Development (EBRD), United Nations Development Program (UNDP), United Nations Framework Convention on Climate Change (UNFCCC), International Emissions Trading Association (IETA), European Space Agency (ESA), and World Bank Group have initiated a collaboration in the form of a Working Group [Digital 4 Climate, D4C] with the aim to coordinate the respective work streams and creation of an end-to-end digital ecosystem for the carbon market.

The goal of the joint initiative is to standardize the modular components of the ecosystems (digitizing methodology, D-MRV, data, and registry systems, issuance engines all tracked through the Climate Action Data Trust metadata layer and coordinated through digital workflow. As discussed in Bonn (June 2022), the approach is to design each work element as modular, interoperable, and standardized. This design will enable mitigation activities and programs to use different modules with minimal customization, allowing for utilization across various programs, sectors, and national circumstances.

2. Digital Public Goods Governance

Digital Public Goods Governance is a collaborative workstream co-led by the United Nations Development Programme and the World Bank. The objective of this initiative is to establish a governance framework, which comprises the following components:

Setting up a governance structure including a framework with procedures.
Developing a sustainable business model for long-term governance.
Creating standards such as a code of conduct, systematic legal and privacy checks, and Intellectual Property, with a completion target of September 2023.
UNDP will act as the Secretariat for the Github open-source code base generated through the D4C workstream.

Digitization of Methodologies & Digital Workflow

1. Digitization of Methodologies

The Digitization of Methodologies is a piece of software that enables the creation of web-based applications (tools) for digitization of the requirements contained in methodologies and other regulatory documents.

The United Nations Framework Convention on Climate Change (UNFCCC)

UNFCCC secretariat developed a system able to support the full digitization of the regulatory framework and an automated assessment of compliance with its requirements, as well as an automated determination of the GHG mitigation impact of an activity to completely address the issue of complexity. As a smart contract, this is an important step forward for the full digitization end to end of the GHG mitigation activity cycle.

Features:

The platform was developed and after in-house testing, was strengthened by the UNFCCC secretariat to improve its performance. The platform has the capabilities of meeting the needs for digitization of the full range of regulations. It can be used by a GHG mitigation activity developer for preparing, without any support from a consultant, of:

GHG mitigation development reports such as the CDM PDDs or PoA-DDs and CPA-DDs;
Other reports which structure and format have been standardized, such as monitoring reports, validation reports and verification reports.

The current version of the methodology digitization system incorporates already, in digitalized form, the requirements from the following CDM regulatory documents:

Methodology: “ACM0002: Grid-connected electricity generation from renewable sources” – all requirements;
CDM project standard for project activities – relevant requirements;
CDM validation and verification standard for project activities – relevant requirements;
The PDD form and the instructions contained therein;
CDM tools: all the methodological tools applicable to ACM0002 – 12 tools, 2 guidelines.

In the context of the D4C initiative, the digitized system aims to be incorporated as a smart contract in a broader end-to-end digitized cycle of GHG mitigation activity cycle.

Test the UNFCCC PDD generation tool:

If you would like to test interactively the UNFCCC PDD generation tool for methodology ACM0002, please register as a UNFCCC external user at the following address: https://userregistration.unfccc.int. Please send an e-mail to psiyag@unfccc.int sharing your UNFCCC ID/email, which will look like xxx@ext.unfccc.net. If you already have such an ID, you do not need to register again.

2. Digital Workflow Platforms

UNDP Carbon Cooperation Platform

The digital Platform for Voluntary Bilateral Cooperation facilitates the implementation of national ITMO project implementation processes in host and buying countries. The ITMOs project implementation procedures are being developed in the light of Article 6 of the Paris Agreement and decisions of the CMA and the NDCs of the host and buying governments. The ITMO project implementation procedures have also adopted the learnings from existing carbon market-based mechanisms such as the CDM, Gold Standard, Verra, ISO-14064, Standardized Crediting Framework (SCF) etc. The modular platform supports developers, validators/verifiers, receiving countries, and host countries in simplifying the processes necessary for implementation. The platform is set to be connected to the World Bank’s core registry and UNDP Digital Public Goods Registry which offers adopters options for the use of registries. However, the ITMO project implementation procedures are subject to revisions and updates over time based on new international guidance by the CMA, updated NDCs of the host and buying governments, and potential future bi-lateral and multilateral agreements with other countries or development partners.

UNDP Carbon Payment for Development Initiative

Carbon Payments for Development (CP4D) initiative promotes ambitious climate action. Through a performance-based payments (PBPs) modality, the CP4D will de-risk and incentivise private sector investments into climate change mitigation projects. Through engaging partners across the value chain—from donors to local project developers—over its ten-year lifespan, the CP4D aims to reduce emissions by approximately 27 million tCO2e. By targeting a private sector-driven approach to NDC implementation, the CP4D stimulates lasting changes to developing countries’ economies and frontier markets and catalyse sustainable, low carbon development. By de-risking investments into climate projects, the CP4D will create jobs and drive market growth. The CP4D has been designed to do just that: deliver climate and social impacts quickly and at scale. Alongside its core objectives of reducing emissions, mobilizing private green finance, providing value for money for donors, generating new projects in underserved communities, the provision of technical assistance to countries entering carbon markets is an essential element of the support the CP4D will offer to countries, to facilitate the achievements of the above listed objectives.”

Resources will be available soon.

Digital MRV Systems

MRV is a multistep process to measure, report, and verify emission reductions achieved by a specific mitigation activity. Digital MRV covers the use of digital technologies to improve data collection and verification by increasing transparency, speed and reducing transaction costs substantially while reducing the level of effort.

1. D-MRV systems

The European Bank for Reconstruction and Development (EBRD)

D-MRV solution for renewable energy facilities

Emerging digital technologies offer promise to post-2020 carbon markets to streamline MRV processes and generation of emission reduction credits (ERC) and to support scale, efficiency, enhanced transparency and increased market confidence. Mitigation activity- or program-level D-MRV systems and carbon asset transaction registries are essential components of the digitalization of the carbon market ecosystem, as they effectively underlie the generation of ERC.

To this end, EBRD has commissioned a Protocol for D-MRV and implemented its core principles to create a pilot D-MRV solution, initially focusing on renewable energy facilities. The D-MRV system is a cloud-based software solution which enables the acquisition of on-site measured data directly from renewable energy plants, automatic validation and cross-checks of the data collected, automatic calculation of GHG emission reductions according to the applicable methodology, and generation of monitoring reports on system-verified GHG emission reductions. System modular structure facilitates development, testing, and deployment while hosting in the industry-class cloud enables scalability, flexibility, security, and high availability.

The European Space Agency

Earth Observation based MRV systems
Satellite Earth Observation-based MRV has the potential to enhance transparency, accuracy and reliability related to the issuance of carbon credits, thereby enabling carbon markets. In doing so it holds tremendous potential to drive sustainable finance.

Therefore, considering those potential benefits, the European Space Agency is collaborating with the World Bank and other members of the Digital 4 Climate working group to demonstrate the use of Earth Observation for digital MRV systems and not only raise awareness regarding the opportunities related to the use of earth observation data but also clarify the potential limitations and challenges related to those technologies. This entails the implementation of Earth Observation-based MRV systems targeting different dimensions such as Soil Organic Carbon in Nigeria or biomass in Mozambique.

2. MRV system

World Bank Group

The World Bank provides support with the design of project-level MRV (Measurement, Reporting, and Verification) systems, harnessing the power of new technologies to streamline processes and drive efficiency. By leveraging these innovative systems, the Bank aims to significantly reduce MRV-related transaction times and costs. This approach not only enhances the accuracy, transparency, and reliability of MRV but also ensures that data acquisition and processing remain robust and meet the required standards.

United Nations Development Programme (UNDP)

National MRV System

The challenge of many countries is the need of a digital system for transparency; Nationally Determined Contributions (NDCs) measurement, reporting, and verification (MRV) and carbon credit management to implement the Paris Agreement. Each country, especially in LDCs and SIDS, share similar challenges and system needs, but developing bespoke solutions will lead to duplicate efforts and funding.

Considering these challenges, the UNDP has chosen to adopt a digital public good approach by building up a modular, open-source codebase, co-designed with countries they support, for easy replication of MRV/carbon registries by countries, already interoperable with others in the ‘ecosystem’.

Features:

Open for all countries to build or implement in each of their national climate or environmental entities
Supports effective management of data and information following complex requirements
Future proofing- collectively investing for future development as technology and guidance evolve
Interoperability with other major platforms, including the Climate Action Data Trust and UNDP ITMO Platform
Extensive documentation available and accessible on a dedicated website for the national registry allowing any country to take part and be able to benefit from the code and documentation supporting the solution
Supported by a Community of Practice of countries for cross-pollination and knowledge sharing

The Governments of Kenya, The Gambia, Uganda and Vanuatu, with support from UNDP have developed an integrated Monitoring Reporting and Verification (iMRV) tool for tracking GHG emissions, the impact of mitigation and adaptation actions, climate finance flows and the impacts on SDGs. The five components of the iMRV tool allow the government to enhance the transparency on national greenhouse gas emissions and climate actions in the country and helps in reporting to the UNFCCC, development partners and other stakeholders, including national inventory report, integrated MRV report, SDG, and NDC reports, National Communications, Biennial Update Reports, and reports on international financial and technical support. The integrated MRV tools allows the monitoring of GHG emission reductions and co-benefits, mitigation, adaptation benefits, SDG benefits and financial flows for each project or program in the countries, improving international cooperation and support. The tracking of GHG emission reductions helps the countries to fulfil the transparency requirements of the Paris Agreement.”

Resources will be available soon.

Registry Systems

National Carbon Registries are registry systems that allow countries to administer various accounts, perform internal transactions and international trade with other registries, amongst other capabilities.

United Nations Development Programme (UNDP)

Standard registry

UNDP developed an open source, ‘ready to install’ and adaptable National Carbon Registry System as a Digital Public Good. A national registry opens-up provisions for domestic and international emission trading and may participate in the complex network of international voluntary and compliance market-based mechanisms along with new domestic market-based instruments.

The registry code was developed based on an early example developed by the Government of Vanuatu with the support of UNDP in establishing and operationalizing the national institutional arrangement for Article 6 by setting up the enabling environment for future ITMOs transfer, as well as good practice from World Bank and other D4C working group members.

To ensure accuracy and integrity; the registry is backed by the cloud-based robust monitoring, reporting, and verification (MRV) system (iMRV Tool), and Article 6.2 platform (developed by UNDP) also recognizes all leading market-based standards e.g., Gold Standard, Verra, GCC, ISO, etc.

World Bank Group

The World Bank has developed an open-source national carbon registry:

The Core Registry is a national-level registry that provides basic manual entry functionalities to upload projects and units' data in sync with the CADT.

Resources:

Core Registry Specific Components:

Tokenization Instruments

Increased penetration of blockchain technologies in the carbon market will lead to the development of new marketplaces to trade on-chain credits, launching of opportunities to finance novel carbon removal projects, and creation of platforms that provide tokenization as a service to project developers and registries.

The World Bank Group

Tokenization

The World Bank is currently conceptualizing market mechanisms to enable native tokenization of carbon credits and plans to pilot these prototypes with carbon market participants to capture knowledge and lessons learned. The approach is “native direct” tokenization. Tokens are issued by the original issuing authority (the Standard) and the environmental attributes are transferred from the credit to the token.

Resources:

The Tokenization Engine:

The Climate Wallet:

https://github.com/Chia-Network/Climate-Wallet

The Climate Explorer:

https://github.com/Chia-Network/climate-explorer-ui

The Climate Token Driver, used by the Tokenization Engine, Climate Wallet and Climate Explorer:

https://github.com/Chia-Network/climate-token-driver

International Emissions Trading Association (IETA)

Digital Taskforce Work

The International Emissions Trading Association (IETA) has established the Digital Taskforce, a dedicated working group comprising key private sector actors involved in tokenization. The group has collaboratively developed protocols and best practices for the implementation of tokenization.

Metadata Layer

The metadata layer platform links, aggregates and harmonizes all major carbon registry data to enhance transparent accounting in line with Article 6 of the Paris Agreement.

The World Bank Group

Climate Action Data Trust

CAD Trust is a global public metadata layer that powers a new global carbon market infrastructure through a decentralized information technology platform built on blockchain. CAD Trust uses distributed ledger technology to create a decentralized record with the aim to mobilize climate action toward the Paris Agreement’s objectives by avoiding double counting, increasing trust in carbon data, and enhancing climate ambition. The data layer can be used to support data sharing, and it provides a backbone infrastructure that can support services built by the public and private sectors to support market activity, such as compliance reporting, transacting, and benchmarking services.

The official launch was announced on December 7, 2022, at the Asia Climate Summit in Singapore. It is planned to deliver a platform that can integrate multiple carbon credit registries in Q2, 2023.

Resources:

For more information on the testing and simulation activities, please visit these sites here:

Official CAD Trust Website: https://climateactiondata.org
Climate Warehouse Program Website: https://www.theclimatewarehouse.org/work/climate-action-data-(cad)-trust
CAD Trust Simulation III Webpage: https://www.theclimatewarehouse.org/tools/simulation-3

The CADT repos:

Core Registry version of CADT:

The goal of the effort is to standardize the modular components of the carbon market ecosystem:

Digital 4 Climate Working Group collaborates in order to build and pilot modular components of the ecosystem needed to digitize the determination and assessment of claimed GHG emission reduced, avoided or removed as well as the generation, reporting, and transfer of related carbon assets.