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Verified Emission Reductions (VERs) Explained

Demand for Verified Emission Reductions, also know as Voluntary Emission Reductions (VERs) has rapidly gained momentum this year and this has been facilitated greatly by the development of credible intermediaries, such as the Bank Of New York, which created a registry for VERs.

Also, there has been widespread acceptance of the minimum quality standard embodied by the Voluntary Carbon Standard (VCS), designed by the International Emissions Trading Association (IETA), and non-profit organisations such as The Climate Group and WWF.

traffic and pollution increasing C02 levelsThere are three main market drivers for demand in the voluntary market.  Firstly, as a key component of a company's marketing strategy linked to corporate social responsibility.  Secondly, as a profit-making enterprise where financial participants build portfolios of VERs in order to obtain returns on capital employed.  And thirdly, as a valuable learning exercise for forward looking companies and investors who anticipate future participation in the compliance regime.

Verified Emission Reductions are derived from project-based emissions reductions from a wide range of technologies and project types.

Generally there are three sources of VERs; pre-registration CDM, Special Situations and Small-Scale Projects.

The first refers to CDM projects which have already been operational for a period of time, but due to, for example, political uncertainty, changes in CDM-level or host country regulations have not yet been registered with the CDM Executive Board. As the crediting period for Certified Emission Reduction (CERs) may only commence after successful registration, projects which have been operational prior to this do not have the opportunity to commercialise their emissions reductions, despite real and verifiable reductions. These may, however, be sold in the voluntary market.

The second type; Special Situations, refers to technologies or methodologies for emissions reductions, which have not yet been approved in the compliance regime. Typically in the sectors of land use change, forestry, carbon capture storage and transport including biofuels.

Lastly, there is a variety of small-scale, community driven projects which simply have insufficient resources to satisfy the stringent requirements and specialised consultancy services required for the CDM project cycle.  These projects invariably opt for the lower cost option VERs.