PES Contract Clauses > Monitoring Reporting and Verification
Monitoring, reporting, and verification (MRV) is a major issue for forest carbon and other types of PES projects. The driving impetus behind, monitoring, validation and verification requirements is to ensure that promised services are provided or that transacted PES credits are real, additional, and so forth. Even in voluntary transactions, rigorous third party validation and verification is likely to be extremely important to buyers. Where third party validation and verification is used, the agreement will specify the standard and/or methodology to be used or may instead describe the process by which a standard and/or methodology will be selected.
Generally, validation is an evaluation of the project plan and associated documents to determine whether the project is likely to be successful. Monitoring refers to periodic assessments of whether the project is accomplishing its goals. Verification refers to an ex-post evaluation of whether emission reductions were generated as planned or promised services were performed. In the context of the voluntary carbon market, once Verified Emissions Reductions (VERs) are validated and verified to a certain standard, they are issued by the standards organization and entered into a carbon credit registry that tracks the issuance and ownership of VERs.
Who will bear the costs of validation, monitoring, verification, issuance, and registration is likely to be a major issue in a PES agreement. Assumption these costs by a credit buyer may provide a major incentive for sellers to use a forward purchase agreement – rather than selling for a higher price on the spot market at a later time.
To account for changing circumstances, a purchase agreement may contain a process for changing the chosen standard and methodology in order to allow the parties to adapt. For example, new national law or international treaty may require or prefer a different standard for regulatory compliance purposes, making the initial standard unattractive to buyers. A common provision allows the buyer to change the standard if it pays for re-accreditation to the new standard as well as any “downside” for the seller(s). The downside would include things like the cost of unsold emission reductions if the new standard required that more emission reductions be held aside as a buffer.
Monitoring, Reporting, and Verification Clause Examples
Example 1 (private carbon emissions reduction purchase agreement)
Example 2 (purchase agreement in a government REDD+ program)
These Clauses are:
Highly customizable
Moderately controversial
Disclaimer: Materials on this site are meant to highlight issues that should be considered in PES transactions, not to provide a substitute for experienced legal counsel. It will be essential to engage legal counsel in conjunction with any PES transaction to ensure that any agreements reflect the latest developments in the field and comply with current local and national legislation.
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