verification - eco canada rotherham.pdf · 2 icf proprietary and confidential – do not copy,...

ICF Proprietary and Confidential – Do Not Copy, Distribute, or Disclose

Verification

November, 2009Toronto, ON

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Overview

Who is ICF? Regulatory Context The Terminology The Market – supply and demand The ICF Approach The Challenges

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ICF History Founded in 1969 – Forty years of experience. Publicly traded ICFI: NASDAQ (IPO 2006) Global presence with over 30 offices

throughout the world. Working throughout the energy and

environment space:• Fuel and emission markets, environmental

assessment and compliance, policy analysis.• Air, water, waste.

More than 3,500 employees

Highlights of Climate Experience Over 230 professionals with climate-related

expertise Provided climate policy advice to > 60

governments Providing climate strategy advice to > 65

companies in the FT Global 500

Climate Service Offerings Carbon market pricing analysis Compliance analysis—how will

legislation/regulation affect a company’s operations/business

Energy efficiency—portfolio assessment Voluntary strategy support—companies not

likely to face compliance constraints Value-at-stake—how will various lines of

business be affected by action on climate? Financial industry—investment portfolios,

carbon offset businesses, etc. they are/have been developing

Carbon offset projects—project feasibility, project support (PDDs), due diligence, market analysis

Carbon footprinting—initial entrée leading to broader environmental/sustainability strategy

ICF History, Experience, and Climate Services

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Award-Winning Performance

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ICF Assurance Services ICF’s audit work started in 1977 when we developed the first corporate EHS

audit program To date, we have conducted more than 5,000 audits in more than 30

countries and trained more than 6,000 EHS professionals in auditing skills and techniques

GHG Verification Carried out first global GHG emissions audit for bp – all operations/countries Audit/Technical Lead on annual audit of GHG emissions Petrobras Since 1999 ICF has verified DuPont’s emission reduction assertion

associated with high GWP (N2O and HFC23) abatement projects Verified Anadarko’s EOR emission reduction assertion associated with

projects in Wyoming Alberta SGER: Leading verifier of offsets and facility emissions Active in Voluntary and Pre-compliance assurance

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Overview

Who is ICF? Regulatory Context The Terminology The Market The ICF Approach The Challenges

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Compliance and The Market Based Mechanism

Cap and Trade is an “indulgence” provided by the regulator to minimize cost of conformance to emitters

• The regulator should also recognize cost savings vs. command and control

In return for the “indulgence” the emitter must provide evidence of conformance and provide the regulator with “a level of comfort” that:

• Reported emissions are calculated according to regulation, complete, and represent actual emissions

• Purchased offsets are in conformance with offset eligibility criteria and are calculated according to methodology

• Allowance is purchased for emissions not offset

To meet “level of comfort” on conformance the regulator must carry out due diligence OR third parties must provide via Verification(another “indulgence”) .

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Overview


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Verification

external party evaluate a subject matter express a conclusion concerning the relevance and

reliability of the information provide user(s) of information with a high, but not

absolute, level of comfort

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Terminology – Project Cycle Validation

• Evaluation of project information (baseline, monitoring, quantification and verification plan) vs. relevant program criteria

• Ex-ante, typically pre project implementation Registration –

• Formal acceptance of the project/documentation as conformant • Typically provided by program authority

Verification• Ex-post evaluation of project information (GHG assertion, baseline,

monitoring, quantification) vs. relevant program criteria Certification/Registration –

• Formal declaration claiming emissions reductions have been achieved in conformance with criteria

• Typically provided by program authority Accreditation –

• credentials provided by authoritative body, indication of qualification• provided to verifiers (individuals and/or firms)

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Terminology – GHG Information

Relevance – refers to the appropriateness of the information being collected and reported Completeness – refers to the recording, disclosure, and

classification of all GHG sources in accordance with applicable reporting guidelines Consistency – refers to that quality of GHG information

that allows users to compare data year on year Transparency – refers to factual and coherent manner of

GHG information presented Accuracy – refers to the likely range of deviation of a

reported figure (precision needed for intended use)

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Terminology

Materiality: the extent to which GHG information may be omitted or misstated before it has the potential to change or influence the opinions or decisions made by the users of the verified information.

• Omissions or misstatement can result from either an error or inherent uncertainty.

• Users of GHG information can include management, shareholders, analysts, government, NGOs etc...

Evidence• Sufficient and appropriate – quantity/quality• Reliability - source and nature

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Overview


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Canadian Reporting Facilities

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ICF Proprietary and Confidential – Do Not Copy, Distribute, or Disclose15

US Facility Level Reporting

Source: EPA

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Waxman/Markey Cap and Offsets

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Supply CDM : EU audit firms Large accountancies Engineering firms Advisors

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Overview


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Our Principles Efficient and Effective

• prepared• process oriented

Add Value• contribute to Continual Improvement

Technically Proficient / Not cocky• we don’t expect client to hold our hand• we don’t understand we ask

Staffing Audit Teams• worldwide network of auditing professionals with technical expertise • extensive field auditing experience, formal training in audit skills and techniques • familiarity with a broad range of industries

Providing Audit Team Leaders• audit team leaders who set the tone, make key decisions about staffing and roles • confirm the appropriateness, rigor, and accuracy of the teams’ work

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ICF Approach

ICF proprietary approach / evolving philosophy based on audit history and GHG precedent and learnings

EMS: 14000 and Responsible Care

ISO 14064-3 and 14065

CDM: Procedural guidelines for accrediting operational entities by the executive board of the clean development mechanism (CDM)

Compliance requirements

International Standards on Assurance Engagements (ISAE) 3000 –Assurance Engagements Other Than Audits or Reviews of Historical Financial Information

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ICF Approach - OffsetsPlanning Execution Completion

1. Agree on level of assurance, objectives, criteria, scope and materiality

2. Conduct preliminary review of Project Report

3. Conduct preliminary review of the Supporting Data

4. Conduct preliminary review of the Information System Controls

5. Develop audit strategy 6. Develop preliminary

audit task/sampling plan

7. Review Offset Project Plan

8. Review Offset Assertion 9. Conduct Site Visit

(when applicable) 10. Finalize audit

task/sampling plan 11. Collect further evidence 12. Assess internal controls 13. Conduct substantive

testing

14. Develop Audit File 15. Confirm work done 16. Prepare Verification

Report 17. Prepare Risk

Assessment Report 18. Close engagement

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ICF Approach – Facility Emissions Planning Execution Completion

1. Agree on level of assurance, objectives, criteria, scope and materiality

2. Conduct preliminary review of Baseline/Compliance Applications

3. Conduct preliminary review of the Supporting Data

4. Conduct preliminary review of the Information System Controls

5. Develop audit strategy 6. Develop preliminary

audit task/sampling plan

7. Review Baseline/Compliance Application

8. Independently develop emissions intensity from ground up

9. Compare BEI approach to similar reported facilities

10. Conduct Site Visit 11. Finalize audit

task/sampling plan 12. Collect further evidence 13. Assess internal controls 14. Conduct substantive

testing

15. Develop Audit File 16. Confirm work done 17. Prepare Verification

Report 18. Prepare Risk

Assessment Report 19. Close engagement

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DocumentationProcess • Evidence of the planning process, including details of the anticipated

and actual objectives, scope, criteria and activities to be undertaken within the validation or verification programme;

Sampling • Details of the GHG information sampling plan, including explanations and justifications for the approach taken during the validation or verification and the methodologies used;

Information • Details of the reported GHG information that was validated, including any relevant supporting information that may be required to verify consistency in future validations or verifications;

Team • Records relating to validation or verification team personnel, including validator/verifier competence and performance evaluation, team selection and improvement of competence;

Risk • Results of the risk assessment and materiality analysis including evidence of inherent and control risk assessments;

Activities • A record of the nature, timing and extent of activities performed and the results of such activities, including the analytical testing undertaken and significant validation;

Judgement • Verifier’s reasoning and rationale on all significant matters that require the exercise of professional judgement;

Changes • Any changes made to the validation or verification plan and associated activities and analytical testing as a result of evidence obtained;

Results • The results and findings of the validation or verification; Conclusions • Conclusions reached by the verifiers concerning significant aspects of

the verification, including how exceptions and unusual matters, if any, were resolved or treated.

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Keys to success

Technically competent Prepared Process oriented Trained Fresh eyes vs. fresh approach Credibility/Brand Service Size Cost

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Overview


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Issues/Challenges Immature space

• Confused terminology/expectations• Confused regulator, clients and verifiers

Limited “GHG” precedent • CDM• EU• AB• Voluntary

Existing standards and guidelines slow to evolve• ISO/UNFCCC/ISAE docs are not revised frequently

No “Precise” Accreditation• Define requirements for assurance providers

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Issues/Challenges Early market mayhem

• No price disclosure -> lowest common denominator (commoditization) -> flight to quality

Cap and Trade and Compliance Risk• Buyers / sellers determining how to price risk (allowance – risk = offset). Risk

quantification difficult without precedent.

Liability• What does the regulator wear? Facility wear? Verifier wear? Offset-er wear?

• What CAN they wear?

Work Load• RAMP UP TIME – massive volume of work looming, looming, looming…

• Cyclical / 11th hour nature of work

• Market is NOT owned by CAs or PEngs or Advisors

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Issues/Challenges Regulators: understand issues – define

• Understand risk and third parties and verification as a tool to mitigate risk• Clearly define regulation, requirements, criteria, guidance for reporting and

verification• Allow early policy transparency• Start with good – move toward perfect• “Reasonable” definition of “Reasonable”• Hard-cap vs. Intensity-based (numerator/denominator)

Level of assurance may change with more stringent targets;• Targets: FUN/INTERESTING -> INTERESTING/CHALLENGING ->

CHALLENGING/LIFE CHANGING

• U.S. no third party verification: regulator will wear burden

We – at ICF – are here to help

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Duncan RotherhamVP and Managing Director - CanadaTel : 416.341.0389 Mobile : [email protected]

ICF INTERNATIONAL277 Wellington St. West, Suite 808Toronto ON Canada, M5V 3E4www.icfi.com

verification - eco canada rotherham.pdf · 2 icf proprietary and confidential – do not copy,...

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