Technical Guidance Handbook Setting up and implementing result-based carbon farming mechanisms in the EU Technical Guidance Handbook - setting up and implementing result-based carbon farming mechanisms in the EU This report should be cited as: COWI, Ecologic Institute and IEEP (2021) Technical Guidance Handbook - setting up and implementing result-based carbon farming mechanisms in the EU Report to the European Commission, DG Climate Action, under Contract No. CLIMA/C.3/ETU/2018/007. COWI, Kongens Lyngby. Authors: Geoff Radley (IEEP), Clunie Keenleyside (IEEP), Ana Frelih-Larsen (Ecologic Institute), Hugh McDonald (Ecologic Institute) Sarah Pyndt Andersen (COWI), Helle Qwist-Hoffmann (COWI), Asger Strange Olesen (COWI), Catherine Bowyer (IEEP), Daniela Russi (IEEP) The information and views set out in this study are those of the authors and do not necessarily reflect the official opinion of the Commission. The Commission does not guarantee the accuracy of the data included in this study. Neither the Commission nor any person acting on the Commission’s behalf may be held responsible for the use which may be made of the information contained therein. January 2021 2 Technical Guidance Handbook - setting up and implementing result-based carbon farming mechanisms in the EU Table of Contents List of figures ...................................................................................................................................... 6 List of tables ........................................................................................................................................ 6 List of boxes ........................................................................................................................................ 7 Abbreviations ...................................................................................................................................... 9 Glossary ............................................................................................................................................... 11 1. Introduction for the reader ................................................................................................ 13 1.1. Who is this Technical Guidance Handbook for? ............................................................. 13 1.2. How to use the Technical Guidance Handbook .............................................................. 14 2. The context for result-based carbon farming in the EU ....................................... 15 2.1. What is carbon farming? ........................................................................................................ 15 2.2. Why is carbon farming so important in the EU? ........................................................... 15 2.3. What are result-based schemes for carbon farming? ................................................. 16 3. Initial feasibility assessment ............................................................................................ 18 3.1. Assessing the potential to deliver climate impacts with co-benefits ..................... 18 3.2. Assessing the feasibility of a result-based scheme ..................................................... 19 3.3. Identify potential carbon farming schemes relevant to the land and farming systems in the target area ................................................................................................................ 21 3.3.1. Climate mitigation benefits ........................................................................................... 21 3.3.2. Assessing co-benefits ...................................................................................................... 22 3.3.3. Assessing suitability for a result-based scheme ................................................... 23 3.3.4. Assessing cost effectiveness of monitoring, reporting and verification (MRV) 24 3.3.5. Likelihood of swift progress (scalability) .................................................................. 24 3.3.6. Applying the initial feasibility assessment to the case studies ........................ 26 4. Next steps - planning scheme development .............................................................. 30 4.1.1. Essential components of the result-based scheme .............................................. 32 4.1.2. Skills and expertise .......................................................................................................... 36 4.1.3. Expected attitude of the target farming community ........................................... 37 4.1.4. Potential sources of funding ......................................................................................... 37 4.1.5. Availability of independent carbon auditors ........................................................... 39 4.2. Resources and time required ............................................................................................... 39 4.2.1. Expertise and knowledge ............................................................................................... 40 4.2.2. Partnerships ........................................................................................................................ 41 January 2021 3 Technical Guidance Handbook - setting up and implementing result-based carbon farming mechanisms in the EU 4.2.3. Costs of MRV and audit .................................................................................................. 42 4.2.4. Other set-up costs ............................................................................................................ 42 4.2.5. Other running costs ......................................................................................................... 43 4.2.6. Timescale ............................................................................................................................. 43 4.3. The relationship between the funding scheme and MRV ........................................... 45 4.4. Scale of implementation ......................................................................................................... 47 4.5. Scheme governance................................................................................................................. 48 4.5.1. Governance lessons learned from existing schemes ........................................... 48 4.5.2. When should governance be formalised? ................................................................ 52 4.5.3. Next steps for newly established governing bodies............................................. 52 5. Key design elements of a result-based carbon farming scheme ..................... 53 5.1. Potential sources of funding ................................................................................................. 54 5.1.1. Opportunities from EU financing ................................................................................. 54 5.1.2. The role of carbon markets/private actors .............................................................. 59 5.1.3. Supply chain financing or value chain financing ................................................... 61 5.1.4. Combining different sources of financing ................................................................ 62 5.2. Objective setting and eligibility ........................................................................................... 64 5.2.1. Defining clear objectives ................................................................................................ 64 5.2.2. Eligibility for participation .............................................................................................. 70 5.3. Choosing result indicators ..................................................................................................... 73 5.3.1. Climate mitigation indicators ........................................................................................ 73 5.3.2. Broader co-benefit indicators ....................................................................................... 77 5.4. Monitoring, Reporting and Verification (MRV) ............................................................... 79 5.4.1. Monitoring ............................................................................................................................ 79 5.4.2. National carbon inventories and carbon credits .................................................... 86 5.5. Establishing the payment ...................................................................................................... 88 5.5.1. Determining levels of reward ....................................................................................... 88 5.5.2. Co-benefits and wider sustainability.......................................................................... 93 5.6. Ensuring permanence .............................................................................................................. 96 5.7. Approaches to non-compliance and fraud ....................................................................... 99 5.8. Evaluation of result-based carbon farming schemes ................................................ 102 5.8.1. Scope and timing of scheme evaluation ................................................................ 103 5.8.2. Data needs for scheme evaluation ........................................................................... 105 5.8.3. Consultation .....................................................................................................................