How can FMUs be used?
Owing to their forward-looking nature, FMUs are not to be used like conventional offset credits. While the program and approved methodologies are designed to take into careful consideration the risk that forecasted climate benefits may not come to fruition, Climate Forward does not offer a crystal ball with perfect clarity of the future. Quantification of FMUs takes this into consideration, as should the use of FMUs by any buyers. While a project’s FMUs provide an indication of what can reasonably be expected in the future, they represent something different from conventional ex-post verified offset credits.
As future emission reductions, FMUs have limited use and are intended to be paired with projections of future emissions by an entity to signal mitigation that will similarly be occurring in the future. FMUs are meant to serve a highly specific purpose, such as compliance with regulations that require demonstrable efforts to mitigate anticipated future emissions outcomes (e.g., California Environmental Quality Act (CEQA) mitigation). Project proponents that wish to implement a Solar PV or Improved Cookstove project must seek traditional carbon credits (“offsets”) under another program if they do not have an FMU buyer intending to use the credits to meet CEQA (or similar program) mitigation requirements.
FMUs can also provide an avenue for buyers to secure, in advance, a stream of conventional offset credits. To do this, the Climate Forward forecast methodology must have a companion protocol in the Reserve’s offset program recognizing the same project activities and providing a means to conduct monitoring, reporting, and verification of the emissions reductions and/or removals after they have been achieved. In this instance, FMUs can be viewed as a “futures” contract for conversion to conventional offset credits at some point in the future.
FMUs can also be used by buyers to meet a non-quantifiable voluntary target where the buyer is interested in demonstrating a commitment to address an environmental problem without needing to quantify the specific emissions addressed. For example, a buyer might want to invest in a local reforestation project as part of a general strategy to invest in the local community. In this instance there is no intent to apply a quantity of FMUs to a specific obligation, only the objective to help address a local problem. There are a myriad of examples that could fall under this category. FMUs should never be used to mitigate emissions that have recently occurred (e.g., FMUs should not be used to mitigate last year’s emissions). As a result, they are not appropriate for mitigating historical Scope 1 and 2 emissions to claim carbon neutrality.
FMUs are also not appropriate for addressing emission reduction obligations in a compliance offset credit program (e.g., cap-and-trade).
Prior to listing a project or submitting methodology parameters to the Reserve, the project proponent must disclose the intended use of the FMUs, which is subject to Reserve review and approval based on consistency with those uses for FMUs identified in the Climate Forward Program Manual.
Can Climate Forward projects transition into the Reserve’s offsets program?
Yes, if there is a corresponding Reserve offset protocol. We are developing a project transition mechanism for projects to transition from Climate Forward into the Reserve’s offsets program. Only those projects meeting the eligibility requirements of the offset protocol that is the companion to the forecast methodology under which the project is registered under Climate Forward will be able to transition. Stay tuned for forthcoming guidance for project and credit transition!
What is the mechanism to transfer an existing offsets project into a Climate Forward project?
Existing projects that have been listed with other carbon crediting programs may be transferred to Climate Forward if they meet the Reserve’s Climate Forward program and relevant forecast methodology requirements and if they meet the project start date requirements detailed in Section 3.1.2 of the Climate Forward Program Manual. Any project that has been registered and/or issued carbon credits with another program may not transfer into Climate Forward. Transfer projects must submit a Registry Project Transfer Form, available for download at http://www.climateactionreserve.org/how/program/documents/. The Registry Project Transfer Form requires additional information and documentation to determine the status of the project and any offset credits issued for it under other programs. However, before any transfer, the rationale for not pursuing traditional carbon credits should be discussed with the project proponent to identify any issues that may call the transfer into question.
Can capped entities under compliance cap-and-trade programs participate in Climate Forward?
Capped entities can participate in Climate Forward to undertake voluntary offsite mitigation activities. However, FMUs cannot be used for compliance obligations and the retirement of FMUs will not affect any compliance obligations under the cap-and-trade program. If capped entities are interested in participating in Climate Forward, we advise companies to reach out to us directly.
When are FMUs issued to a project, given the ex-ante nature of the GHG accounting framework of Climate Forward?
FMUs for a project’s entire crediting period are issued to a project following a successful, one-time confirmation of project installation by a Reserve-approved Confirmation Body. While the timing of confirmation will vary by methodology, the program is designed to leverage the upfront crediting framework to unlock financing for Climate Forward projects as early as possible. As such, the timing of confirmation activities will occur at the nexus of 1) ensuring the project has ample time to demonstrate it is operating as expected, and 2) enabling projects to unlock financing as early as possible. Typically, a project will undergo confirmation after at least a year of operation or the completion of project activity implementation.
Are FMUs assigned a vintage? If so, what determines the vintage?
Under the Reserve’s offset program, a “vintage” is the year a greenhouse gas reduction/removal has occurred. Since FMUs are issued ex-ante (before the GHG reduction/removal has occurred), all FMUs serial numbers are tagged with a project’s start date year instead of a vintage.
How long is the ex-ante crediting period?
Crediting periods will vary depending on project type and will be specified at the methodology level. At the program level, the standard for assessing appropriate crediting periods depends on the validity of baseline assumptions, relevant components of the additionality screen, the expected useful life (EUL) of the project activity, and whether it is the installation of new technology or improvements in resource management.
What is the geographic range under which emissions reduction projects can be developed?
Projects can be located anywhere globally as long as the Reserve has accurate values for greenhouse gas reduction estimation. The specific forecast methodology and/or accompanying methodology parameters documents will specify the country/region where these values are applicable. Project proponents may propose values for incorporation into the methodology parameters if the location of a potential project is not currently represented. Refer to Section 3.1.11 of the Climate Forward Program Manual for additional information.
Does the 100-year permanence requirement apply to Climate Forward projects?
Yes. Although sequestered carbon is not monitored and compensated for in the same manner as under the Reserve’s offset program, a 100-year permanence standard is nevertheless applied to Climate Forward projects. For further information, please refer to the FAQ: What is the MRV/permanence requirement for projects?
What is the MRV/permanence requirement for projects?
While all Climate Forward projects are required to conduct initial monitoring and reporting that undergoes confirmation to ensure the project has been implemented and credits quantified in accordance with the relevant forecast methodology, no ongoing monitoring, reporting, and verification (MRV) is required of projects. However, project proponents may choose to voluntarily continue monitoring a project to demonstrate a project’s ongoing effectiveness. Also, certain project types may have the option to conduct ex-post verification in the future to have additional FMUs issued, while projects registered under other forecast methodologies may have the option of transferring to the Reserve’s voluntary offset program and committing to the MRV obligations specified by the relevant offset protocol.
Permanence obligations that projects must meet are specified in any forecast methodology for which there is no inherent permanence to the GHG benefits attributable to a project (e.g., projects sequestering carbon in vegetation). Since there is no obligatory ongoing MRV for Climate Forward projects, permanence is addressed via careful forecast methodology design to account for the risk of the impermanence of FMUs associated with any project registered under Climate Foward. This includes mechanisms that act as a proxy for direct ongoing MRV (e.g., requirement for conservation easement on project area), adjustments for how credits are quantified to directly account for the potential impermanence of a project’s FMUs (e.g., tonne-year accounting), and reduced credit issuance to very conservatively account for the risk of project failure.