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Key Principles of VERs

The voluntary market has evolved a simplified process based on the CDM project cycle, but to lower-cost. Less rigorous standards are also applied to a wide variety of project types, with evolving buyer preference having driven the adoption of several core principles to assure value retention in the assets. These are:

Additionality:

VERs must represent real emissions reductions in addition to the business-as-usual scenario.  While tests are generally not as strict as for CERs, the principle remains the same.

Sustainability:

The compliance regime mandates that projects have a twin mandate – to reduce emissions, and contribute to local sustainability.  However, the strict project cycle of the CDM, designed to maintain environmental integrity, has also resulted in projects which are more focused on emissions reductions rather than sustainability. Such large scale industrial technologies yield strong profits to their private owners, but do not improve local conditions.  The voluntary market however, driven by buyer preferences, is far more sensitive to sustainability concerns due to the impact on pricing and relative value.  In fact, there are currently two broad types of VERs – those with high community and environmental sustainability such as renewable energy, and those from large scale, industrial, typically pre-CDM registration projects. The former typically commands twice the price or more than the latter.

Verifiability:

An independent third party is required to verify the emissions reductions.  This may be carried out by entities accredited by the UNFCCC to conduct similar activities for CER projects, or by professional environmental consultancies.

Reliability:

Linked to the issue of verification, buyers are wary of purchasing VERs which may have already been sold to another party. Without a central registry, as maintained by the UNFCCC for compliance CERs, there is always the danger of double selling.  To counter this, the Bank Of New York opened a VER registry where buyers may set up accounts  to track VER transactions.