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Establish A MRV System to Serve the Carbon Peak and Carbon Neutrality Targets

2021-11-12

Jiao Xiaoping, Li Lei, Wang Qi

(China CDM Fund Management Center)

Abstract: Carbon monitoring, reporting, and verification system (MRV) is a common system used internationally for measuring and verifying product carbon dioxide content and greenhouse gas emission reductions or carbon sinks. It is also an indispensable basic project for China to realize the carbon peak and carbon neutrality targets and carrying out international cooperation in global climate governance. This article introduces the connotation, significance and development status of MRV in China and abroad, and puts forward relevant suggestions for systematically promoting the development of MRV in our country. 

Keywords: Carbon peak, Carbon neutrality, MRV

MRV is an internationally used system for measuring and verifying product carbon dioxide content and greenhouse gas emission reductions or carbon sinks. It is also an indispensable basic project for China to realize the carbon peak and carbon neutrality targets and carrying out international cooperation in global climate governance.

MRV is a basic project for global climate actions

MRV mainly includes three parts: first is the establishment of measurement standards and monitoring and verification methodologies; the second is the measurement of product carbon footprints and the monitoring of greenhouse gas emission reduction activities or carbon sink activities; the third is the verification of product carbon content and emission reductions or carbon sinks generated from emission reduction activities. Its function is similar to accounting in economic activities, and it is a basic measurement and accounting method.

First, MRV is the basic method and means to quantify, decompose and implement China’s carbon peak and carbon neutrality goals. To start with, carbon peak and carbon neutrality goals are long-term goals in controlling and reducing total emissions that will need multi-phase to realize. In this regard, the goals need to be quantified and decomposed by MRV into periodical, executable, and reportable emission reduction tasks. Also, it is necessary to use MRV to quantify and decompose the national total emission reduction indicators to local provinces, cities, and counties, and to consolidate their responsibilities for emission reduction. Then, it is necessary to use MRV to examine the basic information of emissions in various industries, and to coordinate the formulation of priorities in emission reduction targets and implementation paths, based on factors such as the emission reduction potential, technology, cost, external effects, and compliance requirements of each industry. Last but not least, it is necessary to use MRV records to monitor the emission reduction and carbon sink production activities of enterprises (emission subjects), and to determine the final emission reduction and carbon sink volume.

Second, MRV is a fundamental tool for highly-efficient emission reduction mechanisms such as carbon pricing. International carbon emission reduction practices, especially the experiences of developed countries, have proved that carbon pricing mechanisms such as carbon tax and carbon market (also known as carbon emissions trading) are the most economical and effective emission reduction mechanisms and paths, and MRV is the prerequisite for the operation of carbon pricing mechanisms. First of all, MRV is the production standard and quality control system for emission reduction amount (also called carbon credit), which is the basic commodity in the carbon market. In addition, the carbon trading mechanism allows tradable emissions become a valuable asset. With the development of China's carbon market, the auction revenues of emission reduction allowances will become an important source of income for the government to support low-carbon development. Secondly, MRV is a necessary prerequisite for the introduction of a carbon tax. Carbon tax is a tax levied on emissions or product carbon content generated during the consumption of fossil fuels. It is used to limit high-emission behaviors and encourage low-carbon production and lifestyles. The object of carbon tax is carbon emissions amount and product carbon content. The fundamental role of MRV in the carbon tax is more obvious than that of the carbon market.

Third, MRV is an important part of global climate governance. First of all, MRV is an important part of international cooperation in emission reduction compliance. According to the "Paris Agreement", all parties have made emission reduction commitments, and all countries need to establish MRVs to complete their emission reduction tasks. In addition, the international community needs to monitor the performance of countries in fulfilling their commitments, and the progress of establishing an MRV system will be an important part of compliance supervision. Secondly, MRV is an important part of carbon border adjustment mechanism. The carbon border adjustment mechanism is a mechanism for re-adjusting carbon pricing among economies, with the purpose of preventing carbon leakage and maintaining fair competition among enterprises. As part of the carbon pricing mechanism of various countries, MRV will naturally become the focus of carbon border adjustment mechanism.

The practice and development process of MRV in China and other countries

At present, MRV implementation situation in the world is imbalanced and inadequate, with the EU, the US State of California and other regions going far ahead, development of MRV in China is at the initial stage.

1. MRV development situation in developed countries. First, a relatively comprehensive and complete regulatory system has been established. Generally, there is specialized legislation, which provides a legal basis for carrying out measurement verification work. The EU has issued unified trading instruction, which clearly incorporates the MRV system into the EU carbon emission trading system, and has issued supporting technical regulations, industrial accounting methods and other regulatory documents. The US State of California has formulated a state-level bill and trading rules to clarify MRV implementation details. The second is a "four-in-one" comprehensive implementation mechanism has been established. Government departments are responsible for rule making and supervision. National certified agencies are responsible for evaluating the qualifications of third-party verification agencies. Enterprises (emission entities) carry out emission reduction activities in accordance with laws and regulations, and third-party verification agencies are responsible for verifying corporate emission reduction activities and data. The third is established more systematic operation instructions. For example, the monitoring of energy consumption or emission compliance is mainly based on energy consumption value and greenhouse gas emission coefficient, measuring emission reduction and carbon content, and monitoring through sample measurement, dynamic tracking, online system and other means. Third-party organizations also need to carry out independent online and offline verification.

2. MRV development situation in developing countries. The development process of MRV in developing countries can be divided into two stages. The first stage is adopting the standards of developed countries. To help developing countries establish a market emission reduction mechanism, the Clean Development Mechanism (CDM) was established under the "Kyoto Protocol". Under this mechanism, developed countries can purchase certified emission reductions (CER) of developing countries to partially offset its own mandatory emission reduction obligations, the certification standard basically comes from the EU MRV standard. Up to now, the global greenhouse gas emission reduction from CDM projects is 5.517 billion tons. The China CDM Fund is the first market-oriented climate fund of developing countries established in 2006 to use the emission reduction revenues obtained from the CDM mechanism. The second stage is establishing country’s own standards. Developing countries such as India and Brazil have carried out MRV development work in light of national conditions based on the practical experiences from the international MRV. The development of MRV in China also started from the basis of learning from the CDM mechanism.

3. Development of MRV in China. China's MRV development work is mainly carried out at three levels including project emission reduction, regional market, and national market. The first is to learn from the MRV standards of developed countries to measure and verify the emission reductions of projects, mainly to offset the carbon emissions generated by production and operating activities or large-scale activities. For example, the 2010 Shanghai World Expo carried out carbon neutrality activities. The second is local governments independently issued MRV standards to serve the development of regional carbon markets. In 2011, China carried out carbon emission trading pilot projects in seven provinces and cities including Beijing, Tianjin, Shanghai, Chongqing, Guangdong, Hubei, and Shenzhen. The local governments established regional MRV standards, mainly covering power, steel, chemical, petrochemical and other industries. By 2020, the cumulative transaction volume of the carbon markets in pilot provinces and cities is 445 million tons, and the transaction volume is 10.431 billion yuan. The third is to establish a unified national standard to serve the establishment of a unified national carbon market. In 2017, the construction work of the national carbon market was officially launched, and 24 industrial carbon emission accounting reporting guidelines and 13 national carbon emission accounting standards were successively released. In particular, in July 2021, China’s national carbon market which covers the power industry started trading, signifying the acceleration of formulating China’s unified MRV standard.

Suggestions for systematically developing China’s MRV

First, speed up the design of the top-layer regulatory system. The first is to establish national laws and regulations to improve the legal restraint of MRV. The second is to speed up developing national unified standards and solve the diversified and diverse problem originated from the pilot phase of carbon market. The third is to expand the coverage of industrial technical specifications and formulate operational rules.

Second, strengthen institutional capacity building. The first is to make full use of the role of the national leadership team on addressing climate change, energy conservation and emission reduction. The responsible department needs to do the overall design, the industrial department needs to work out the operating standards and regulations, and the regulatory department needs to strengthen supervision. The second is to increase the awareness of emission subjects in complying with the policies, comprehensively improve the monitoring methods of the whole process, strengthen openness and transparency, and increase penalties for violations. The third is to strictly manage third-party institutions, establish a unified national verification standard and dynamic supervision mechanism, improve the professionalism and capabilities of employees, and comprehensively improve the quality of measurement and verification.

Third, focusing on key works. The first is to accelerate the development of MRV in key industries such as steel and chemical industry to lay a solid foundation for the in-depth promotion of actions related to carbon peak, carbon tax, and carbon market. The second is to build a unified national carbon emission information disclosure platform, establish a large database, regularly disclose carbon emission data, and accept supervision from all parties. It is also necessary to accelerate the use of blockchain, artificial intelligence, big data and other technologies, and improve the digitalization ability of the information disclosure platform in streamlining administration, delegating powers, improving regulation and improving services capability.

Forth, deepen international cooperation. The first is to actively carry out technical cooperation, learn from each other, and collaborate to address the difficulties and problems in industrial standards. The second is to promote the mutual recognition of different standards. The third is to participate in the formulation of relevant international rules.

 


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