What You Need to Know About the Measurement, Reporting, and Verification (MRV) of Carbon Credits

A wide array of programs and markets around the world offer to deliver, buy, and sell  emissions reduction credits (ERCs) —commonly known as carbon credits—with mixed reactions and results. How can buyers know that the carbon credits they purchase are real? And how does the World Bank ensure that its emission reductions programs are fully inclusive and benefit the people and communities participating in them? We asked Andres Espejo, Senior Carbon Finance Specialist in the World Bank’s Climate Change Fund Management Unit, to explain the role of Measurement, Reporting and Verification (MRV) in calculating carbon credits.

What is MRV and why is MRV important to mitigation efforts?Climate-Explainer-Series-banner-with-WBG-COP27-branding

Measurement, Reporting, and Verification (MRV) refers to the multi-step process to measure the amount of greenhouse gas (GHG) emissions reduced by a specific mitigation activity, such as reducing emissions from deforestation and forest degradation, over a period of time and report these findings to an accredited third party. The third party then verifies the report so that the results can be certified and carbon credits can be issued.

MRV seeks to prove that an activity has actually avoided or removed harmful GHG emissions so that actions can be converted into credits with monetary value. One credit equals one ton of reduced GHG emissions expressed in tons of CO2 equivalent (tCO2eq). These credits are the results that the World Bank pays for through specific results-based climate finance arrangements, like Emissions Reduction Payment Agreements (ERPAs). They are also the basic units traded in international carbon markets and used to fulfill countries’ Nationally Determined Contributions (NDCs) under the Paris Agreement. MRV is the key to unlocking climate finance and showing progress on climate goals.

Paying for carbon credits can stimulate climate action and ambition – and through the World Bank’s inclusive ERPA programs, benefit sharing plans ensure the funds get to the local communities who need them most. But MRV requires careful measurement, reporting, and verification to ensure results are real before payments are made. MRV systems are complex and require multiple steps to get from emissions reduced on the ground to payments received in hand.

Paying for carbon credits can stimulate climate action and ambition – and through the World Bank’s inclusive ERPA programs, benefit sharing plans ensure the funds get to the local communities who need them most.

While the carbon marketplace continues to mature, the World Bank is helping developing countries increase their experience with carbon credit transactions built on high environmental integrity and accounting standards, through inclusive programs and projects with fully integrated community participation from inception to completion. Other organizations offer similar services using other methodologies. The World Bank provides results-based climate finance to help countries generate high-quality carbon credits and maximize their value.

Can you walk us through the MRV process?

To start, every emission reductions program must determine a “baseline” or “reference level” against which performance is measured periodically. The assumptions upon which these baselines are established and the accounting methodologies used to calculate emission reductions vary by sector and program scale. Standard-setters, such as the World Bank, define the requirements that these baselines and MRV activities must meet to ensure the highest accounting standards for the most trustworthy results.

For example, within the forestry and land-use sector, the  Forest Carbon Partnership Facility (FCPF) administered by the World Bank has developed a standard for measuring forest-related emission reductions at the jurisdictional scale, covering entire provinces, regions, or states within countries. It was developed with broad partnership and community participation and is gaining traction among key carbon market players.  Similarly, the Partnership for Market Implementation (PMI) program administered by the World Bank, developed an open source MRV system that supports capturing emissions, emission reductions and finance received by each mitigation activity and tracks these at individual project, sector and national level. The system is currently deployed in Jordan, Sri Lanka and the State of Palestine.

Once project or program activities are underway, data is collected and processed to calculate emission reductions achieved against the baseline during the monitoring period. Depending on the program, data collection could entail tracking the operation of clean cookstoves, reading electricity meters on home solar power units, or surveying changes in tree cover, among other activities. Local communities can also help monitor implementation of mitigation activities, especially in hard-to-reach locations. Their involvement can help pinpoint high-performing program areas and participants to support the eventual distribution of results-based payments based on benefit-sharing plans.

Emission reductions results are then compiled into a report that is subject to third-party verification by an entity accredited per the requirements of the standard being used. Verifiers often need to sift through large volumes of data, so well-documented results that thoroughly demonstrate accuracy, transparency, and compliance with the standard can help smooth the process.

Once emission reductions are verified, the standard-setter certifies them, signaling the applicable emission reduction transaction registry to issue ERCs. In the case of the World Bank-led standards, these credits are issued and transferred to the Bank’s transaction registry so buyers, including World Bank trust funds like the FCPF, can pay the country for the proven results. The Bank may also retransfer some or all of the ERCs to the country for NDC fulfillment and credit retirement. The entire MRV cycle can take a year or more to complete.

 
 
 

It sounds quite technical. What are some of the challenges to implementing MRV?

It is, and many low-income countries new to emissions reduction transactions lack the capacity to do MRV themselves. Many rely on international firms, which can be costly and undermine sustainability and country ownership. MRV capacity building figures heavily into the grants that trust funds like the FCPF provide to countries to prepare emissions reduction programs. This up-front investment in readiness precedes ERPAs and helps to ensure their success.

For example, the World Bank and the FCPF helped Mozambique set up a robust MRV team prior to entering into an ERPA. The team is able to monitor forest cover on a regular basis and report to different fora thanks to greater funding and better staff training, remuneration, and retention assured by World Bank investment operations. It has since led Mozambique through the entire MRV process to earn its first results-based payment under its ERPA with the FCPF: US$6.4 million for 1.3 million ERCs over a 12-month period. This model will be taken forward in the new Climate Emission Reductions Facility (CERF), a new umbrella trust fund managed by the World Bank that offers results-based climate finance for emission reductions programs across the forestry, landscapes and the Blue Economy, infrastructure, fiscal and financial sectors.

Innovations in MRV can help expand climate action worldwide and unleash the potential of climate finance and the carbon marketplace to combat climate change.

How is technology innovating MRV?

Digital MRV will be a game changer! Current methods to measure, report, and verify emission reductions can be costly and time-consuming, often relying on manual operations. Digital technologies can streamline data collection, processing, and quality control in MRV processes, helping to reduce the cost and time to ERC issuance. The World Bank is helping to expand the use of smart sensors, satellites and drones, cloud computing, artificial intelligence, and blockchain encryption.

For example, the World Bank is piloting an electronic database and information management system in Uganda to support the implementation of a rural electrification program. The system will use a mobile application, pre-paid electricity meters, and a web-based application to track customer data and power consumption on over 1 million connections nationwide and automatically generate emissions reduction reports for verification.

Digital MRV systems are still complex and expensive to implement, but long-term, they will reduce the cost of generating carbon credits while increasing transparency and security. They will enable more efficient verification and the move toward real-time generation of carbon credits. Innovations in MRV can help expand climate action worldwide and unleash the potential of climate finance and the carbon marketplace to combat climate change.