Carbon Project Cycle
A step-by-step guide for WASH organizations developing drinking water carbon credit projects with Virridy — from initial eligibility assessment through credit issuance and sales.
Adapted from Millennium Water Alliance’s Learning Paper: Carbon Credits for Water, Sanitation, and Hygiene (WASH) Interventions (2024).
1. Introduction
1.1 Carbon Credits and the Voluntary Carbon Market
Climate finance encompasses a variety of mechanisms aimed at both adaptation efforts aimed at preventing or minimizing potential damage from climate change and mitigation efforts to lessen the severity of climate change impacts by reducing or preventing GHG emissions into the atmosphere.
A carbon credit is quantified as one metric ton of carbon dioxide equivalent (tCO2e) emissions that have been reduced, removed, or avoided.
Carbon markets are categorized into compliance (mandatory) and voluntary segments. The type of carbon standard under which a credit is issued can influence its market price and the ease with which it is sold. Most WASH-related activities generating carbon credits currently participate under voluntary carbon standards like the Gold Standard and Verified Carbon Standard (VCS)/Verra, although some compliance markets do accept credits generated under voluntary standards.
1.2 Generation of Carbon Credits and Registries
Carbon credits are issued through a structured process overseen by carbon standards—entities that establish the rules and procedures for creating carbon credits from climate mitigation projects. These standards maintain a registry to track issued carbon credits, ensuring each is used only once by issuing notices for “retired” credits.
Market Context
The Gold Standard and VCS/Verra are notable in the voluntary carbon market due to their widespread recognition and usage by buyers. Specifically, VCS has issued 68.5% of credits, and the Gold Standard has issued 20.1%, highlighting their significant role in carbon credit issuance and buyer trust.
This process includes the development and adherence to specific “methodologies” that detail the calculation of emission reductions or removals for various projects, emphasizing the necessity of sustainable development goals and the mitigation of social and environmental impacts. The process spans from project documentation and stakeholder consultation, through validation and registration, to monitoring, reporting, verification, issuance, and eventually, the sale of carbon credits. Each step involves detailed considerations, costs, and associated risks, underscoring the complexity and rigor of certifying carbon credits in efforts to ensure integrity and accountability in climate mitigation projects.
While several methodologies might apply to WASH interventions, this guidance document particularly focuses on the Gold Standard methodology for emission reductions from safe drinking water supply due to its specific relevance to low or emission-free water treatment technologies.
1.3 Players in a Carbon Project
Project Implementer (Owner)
At the core of any carbon project are the project implementers, also known as project owners. These entities, which may include government agencies, non-governmental organizations (NGOs), private sector firms, or community-based groups, play a pivotal role in overseeing and managing the project’s implementation. They are tasked with ensuring that all end users and project participants (stakeholders), such as water users or landowners, are fully informed about the project’s activities. This responsibility encompasses facilitating stakeholder consultations during the design phase and establishing mechanisms for ongoing feedback and grievances to ensure inclusive participation throughout the project. Additionally, it is crucial to establish clear contracts with project participants that specify the ownership of carbon credits.
Project Developer
In many cases, the project implementer collaborates with a carbon project developer, an entity specialized in developing and registering carbon projects. This can be either a for-profit or non-profit organization. Some developers may also act directly as project implementers, while a project implementer may build their own capacity for carbon project registration internally. The relationship between the project implementer and the carbon project developer is formalized through a contract that outlines, among other things, the ownership of the carbon credits. These are commonly referred to as Emission Reductions Payment Agreements (ERPAs). In this document, Virridy assumes the role of project developer.
Third-Party Auditor (VVB)
The selection of an appropriate carbon standard and methodology for the project is a collaborative effort between the carbon project developer and the project implementer. The chosen carbon standard defines the rules, principles, and procedures for generating carbon credits, while the methodology specifies the technical approach.
Retailers (Traders) & Buyers
After carbon credits are issued, they must be sold. Carbon credit retailers or traders purchase credits from projects and sell them to buyers. Notably, carbon project developers often function as retailers themselves. Traders may hold credits in their registries to resell later. Buyers typically retire the credits to substantiate environmental claims.
2. Does My Project Qualify?
2.1 What WASH Projects Can Generate Carbon Credits?
Below we describe various interventions aimed at reducing carbon emissions within the WASH sector, highlighting their applicability in sub-Saharan Africa and their potential to facilitate carbon credits. These interventions are categorized into five groups, three of which are directly related to WASH activities and two of which are indirectly related.
Safe Water Supply
Facilitating access to safe drinking water can significantly reduce the need to boil water, thereby reducing the carbon emissions associated with this practice.
Sanitation Emissions
Addressing and mitigating methane emissions from sanitation systems is critical to reducing the sector’s carbon footprint.
Energy Efficiency
Transitioning from non-renewable to renewable energy sources to power WASH infrastructure, as well as improving the operational efficiency of water and sanitation systems, is a critical avenue for reducing emissions.
Clean Cooking
Promoting clean cooking solutions is consistent with reducing reliance on solid fuels, thereby indirectly supporting emissions reductions within the WASH sector.
Nature-Based Solutions
Engaging in reforestation efforts related to water resources and disaster risk management not only improves environmental health, but also contributes to carbon sequestration, providing a reciprocal relationship with WASH initiatives.
2.2 Critical Concepts in Generating Carbon Credits
In the context of carbon finance for WASH interventions, key concepts such as suppressed demand and additionality are critical for understanding eligibility and ensuring projects contribute to genuine emission reductions.
This section emphasizes the importance of a meticulous approach to integrating carbon finance with WASH projects, highlighting the unique challenges and considerations, such as water recontamination risks, that accompany efforts to replace boiling practices, aiming to maximize benefits while navigating complexities, and avoiding potential pitfalls like greenwashing.
Suppressed Demand
Suppressed demand in the context of carbon credits for water security initiatives is a construct that presumes a theoretical demand for non-renewable biomass burning (such as wood fuel) associated with treating water by boiling. This assumption is made even though only a minority of households in some regions actually boil their water for purification, with the majority consuming untreated water. This concept facilitates the generation of carbon credits by projecting a reduction in greenhouse gas emissions that would have occurred due to boiling, thereby supporting climate reparative water infrastructure through economic incentives.
To better understand the concept of suppressed demand, consider an example from Ethiopia. Suppressed demand is a critical consideration for projects that focus on “replacing boiling for drinking water.” While the reduction in GHG emissions comes from replacing boiling with alternative safe water treatment methods, less than 5 percent of households in Ethiopia use boiling as a household water treatment method (EDHS 2016). According to the current version of the Gold Standard methodology, suppressed demand principles can be applied by assuming that households currently using unsafe water would have boiled their drinking water in the absence of the WASH intervention. Approximately 80 percent of households in Ethiopia, and possibly more, lack safe drinking water at the household level (ESS WQ 2017). If this statistic is credibly presented in a project baseline report, emission reductions can be claimed for 80 percent of households without safe water, rather than the less than 5 percent that currently boil their drinking water.
Finally, to provide a more justifiable method of accounting for suppressed demand, some project developers may take the approach of claiming carbon credits only for the percentage of households without safe water that would likely select boiling as the treatment method, based on the practices observed in the baseline survey (fractional method — e.g., if 80 percent have unsafe water and 20 percent report treating their drinking water, of which 5 percent by boiling, this would result in a fraction of 20 percent of households eligible for carbon credits). See Annex 1 below for calculation examples.
Additionality
Particularly in Least Developed Countries (LDCs) and Landlocked Developing Countries (LLDCs), additionality affirms that projects would not proceed without carbon finance. Carbon projects must demonstrate that they would not have taken place without the additional revenue from carbon credits to be considered “additional.” According to the current version of the Gold Standard’s requirements for community benefit activities (Gold Standard 2019), projects implemented in LDCs and LLDCs are not required to demonstrate financial additionality, recognizing that community-based projects in these countries are generally underfunded.
In countries that are not classified as LDCs or LLDCs, demonstrating additionality could be a challenge for projects involving “multi-village water schemes providing chlorinated water.” The provision of safe drinking water may be mandated by national regulations and expected to be implemented within existing budgets. Therefore, it may be less straightforward to demonstrate that the establishment of multi-village water schemes would not have occurred without the additional carbon revenue.
Replacement of Boiling Water (Borehole Construction/Rehabilitation)
Relevant to “borehole construction/rehabilitation” projects. In the past, it was assumed that providing safe water at a borehole would eliminate the need for boiling. However, recontamination of water during transport and storage is common. Claiming carbon credits based on suppressed demand when households may still not be consuming safe water poses significant reputational risks for project implementers (see section 4.1.5).
The latest version of the Gold Standard methodology addresses this inconsistency. While the methodology still allows carbon credits to be generated through the installation and rehabilitation of hand pumps and solar-powered pumps, monitoring data must document the microbiological quality of the water in the containers when it reaches the end user. If the proportion of contaminated samples (i.e., the presence of E. coli in 100 ml) exceeds 90 percent, no emission reductions can be claimed for the corresponding monitoring period. In practice, water supply projects without water treatment are unlikely to meet this threshold. Even with water treatment at the point of collection (e.g., chlorination), meeting the 90 percent threshold is challenging and poses a risk to this type of project, as no carbon credits may be issued in certain years.
This is where Virridy’s digital MRV with continuous water quality sensing provides critical assurance — documenting treatment effectiveness throughout the crediting period, not just at periodic audits.
3. Project Documentation
3.1 Project Documentation and Stakeholder Consultation
The project implementer working with Virridy will further specify the project type, scope, location, and duration. Planning needs to be supported by a stakeholder consultation process to engage with all relevant stakeholders, such as the local community and local government. The team needs to address stakeholder feedback, concerns, and suggestions and demonstrate how the project meets the safeguards principles and requirements of the carbon standard. The team must also establish the baseline scenario (which may require a baseline survey), develop a monitoring plan, and demonstrate additionality in accordance with the selected methodology. All of this is then summarized in a Project Design Document and possibly additional supporting documents (e.g., a report on local stakeholder consultation, and a spreadsheet for calculating emission reductions).
Framing for WASH Practitioners
In carbon projects, tracking emission reductions serves as the primary performance indicator, while other project benefits may be reported as co-benefits. The Project Design Document (PDD) for a WASH project is always structured as a project that primarily aims to reduce, remove, or avoid greenhouse gas emissions, with access to safe drinking water and improved health as co-benefits. This may feel strange to many WASH practitioners, but it is inevitably the narrative used in the PDD. However, the actual project design should focus on providing adequate WASH services, and optimizing emissions reductions should never come at the expense of the WASH project basics.
In many cases, carbon certification will be added to an existing intervention, and not all activities may be covered in a PDD. The registered PDD (or PDDs) may only address certain components of the overall intervention. It is advisable to establish robust monitoring and support systems from which information can be drawn for specific reporting at the PDD level, including an overarching input and complaint mechanism (e.g., a customer hotline).
| Key Tasks | Lead |
|---|---|
| Provide templates for project documentation | Virridy |
| Document preparation, translation, and sending out of invitations for local stakeholder consultation (LSC) | Project implementer |
| Hosting LSC and follow-up | Project implementer |
| LSC Report: Provide template / Report writing / Review and submission | Virridy / Project implementer / Virridy |
4. Validation & Registration
The project team submits the draft PDD to the Carbon Standard for preliminary review and/or listing. In addition, an independent third-party verifier (referred to as a Validation and Verification Body, or VVB) validates the project eligibility, baseline scenario, and monitoring plan against the rules and principles of the Carbon Standard and methodology. Validation may require a site visit by the VVB. Upon receipt of a final validation report, the Carbon Standard conducts a final review of the PDD before formally confirming the project’s registration.
Timeline & Cost
Duration: 6–12 months
External costs: $20,000–$40,000 USD
Registration validity: 5 years (also called the “certification period”), after which the PDD must be updated and the registration renewed.
| Key Tasks | Lead |
|---|---|
| Baseline data collection: Data collection / Provide tools and systems for data collection / Train on tools and systems for data collection | Project implementer / Virridy / Virridy |
| (Validation Report) | Auditor |
| Site Visit: Communication with independent third-party verifier / Logistics for site visit / Follow up on validation and review process | Virridy / Project implementer / Virridy |
5. Monitoring & Reporting
The project team collects monitoring data as specified in the monitoring plan in the PDD, including indicators related to safeguards issues (if applicable). At the same time, stakeholder input and complaints must be collected and addressed. After a certain period (i.e., the “monitoring period”), the project team prepares a monitoring report and an emission reduction calculation table that document the actual emission reductions achieved. There is some flexibility in the length of the monitoring period (although certain rules in the standard and methodology must be followed).
For safe drinking water projects, a monitoring report would typically be prepared every one to two years.
Virridy’s Role in Monitoring
Virridy’s digital MRV platform with continuous water quality sensors provides the monitoring data needed for carbon standard compliance — automated, tamper-evident, and audit-ready. This dramatically reduces the cost and risk of monitoring compared to manual data collection.
Cost
External costs: ~$10,000 USD per monitoring report (carbon project developer involvement in report preparation and emission reduction calculations)
| Key Tasks | Lead |
|---|---|
| Monitoring data collection: Data collection / Provide ongoing support for data collection tools and systems / Quality control (QC) and quality assurance (QA) / Data synthesis for report | Project implementer / Virridy / Virridy / Project implementer & Virridy |
| Monitoring Report: Provide template / Report writing / Emission reduction calculation table / Review and submission | Virridy / Project implementer / Virridy / Virridy |
6. Verification & Issuance
The project team submits the monitoring report, emission reduction calculation table, and supporting documentation to an independent third-party verifier (VVB) to verify the carbon credit claims against the registered monitoring plan and the rules and principles of the carbon standard and methodology. The verification may require a site visit by the verifier (VVB). Upon receipt of a final verification report, the Carbon Standard conducts a final review of the monitoring report before formally issuing carbon credits.
Timeline & Cost
Duration: 6–12 months
External costs: $15,000–$30,000 USD
Total time from project initiation to first credit issuance: 2–3 years minimum
| Key Tasks | Lead |
|---|---|
| Submit monitoring report and other documentation | Virridy |
| Audit: Communication with independent third-party verifier / Logistics for site visit / Follow up on verification and review process | Virridy / Project implementer / Virridy |
| Phase | Duration | External Cost |
|---|---|---|
| Documentation & Stakeholder Consultation | 3–6 months | Included in developer fee |
| Validation & Registration | 6–12 months | $20,000–$40,000 |
| Monitoring & Reporting (per period) | 1–2 years | ~$10,000 |
| Verification & Issuance | 6–12 months | $15,000–$30,000 |
| Total to First Issuance | 2–3 years | $45,000–$80,000 |
7. Selling Carbon Credits
Once carbon credits are issued, they can be sold to interested buyers. Depending on the type of project, the capacity of the carbon credit trader, the demand for carbon credits, and price expectations, it may take several years to sell (and thus monetize) all the carbon credits.
Pricing & Margins
The sales margin for carbon credit trading depends on the investment and risks taken by the carbon credit retailer and is typically between 10% and 50% of the total revenue from the sale of carbon credits, but could be higher if, for example, an investor covers the full costs of project implementation and carbon certification.
In recent years, prices for carbon credits from water projects have typically been in the range of $5–$10 USD/tCO2e, if they can be sold. There is no guarantee that carbon credits will be sold, and older carbon credits typically sell at a lower price.
The project developer will lead this according to the terms specified in the contract.
| Key Tasks | Lead |
|---|---|
| Sale of carbon credits | Virridy* |
8. Important Considerations
Risks Associated with Carbon Credits
In addition to reputational risks, there are other risks that need to be considered when deciding whether to pursue carbon registration. These risks, which are interrelated in many ways, affect the financing models for generating carbon credits. Project implementers need to carefully manage and mitigate these risks and have a clear understanding with other project stakeholders about who will pay for what and who will bear what risks.
Under-Delivery
Fewer carbon credits are issued than originally expected. Certain parameters are extremely sensitive and it is quite possible that a project can only issue a quarter of the amount of carbon credits originally expected. This also includes registration risks, where the project may be rejected for registration by the carbon standard and not issued any carbon credits, and implementation risks, where a project may not deliver the results initially expected.
Monitoring Risk
Field data must pass third-party verification. If monitoring data does not meet the quality standards required to pass an audit, carbon credits may not be issued. In some cases, it may be possible to make more conservative assumptions to fill gaps in monitoring data, resulting in underperformance. Finally, monitoring costs may be higher than originally anticipated, for example, if certain surveys need to be repeated or a project database needs to be rebuilt.
Price Volatility
Carbon credit prices are volatile and may not be sold at the expected price. In recent years, prices for carbon credits from water projects have typically been in the range of $5–$10 USD/tCO2e, if they can be sold. There is no guarantee that carbon credits will be sold, and older carbon credits typically sell at a lower price.
Regulatory Risk
Governments may ban the generation and trading of carbon credits or decide that all carbon credit benefits belong to the government, both of which have an enormous impact on revenues.
Reputational Risk
Since its inception, there has been debate about the pros and cons of carbon credits. A common criticism is that carbon credits enable greenwashing. However, recent research suggests that companies participating in the voluntary carbon market outperform their peers in accelerating climate action (Forest Trends 2023). Still, it is recommended that organizations consider the pros and cons and make an informed decision at the organizational level about whether to engage in the voluntary carbon market.
Scrutiny & Integrity
There have been reports that carbon credits do not deliver what they promise. A 2023 study claimed that only 6% of credits from forest conservation were linked to additional reductions (West 2023), while a 2024 study claimed cookstove projects were over-credited by a factor of 10 (Gill-Wiehl 2024). Carbon credits from WASH interventions have also received attention and are likely to receive more scrutiny. It is the role of project implementers to ensure a compelling case can be made to justify claimed emission reductions.
How Virridy Mitigates These Risks
Virridy’s continuous water quality sensing and digital MRV platform directly addresses the two highest-impact risks: monitoring failure and water quality compliance. Automated, tamper-evident data collection eliminates gaps that cause credit non-issuance, while real-time water quality alerts enable rapid intervention before contamination thresholds are breached.
Annexes
Annex 1: How to Account for Suppressed Demand
Based on a feasibility study, two main baseline scenarios can be established for suppressed demand accounting. Consider a survey of 135 households, of which 32 reported treating their drinking water at home — one of them by boiling and the others through alternative methods.
Scenario 1: Full Suppressed Demand
The first scenario assumes that the proportion of households that boil water would remain constant if all households treated unsafe water. According to the household survey, 76.4 percent of households (103 out of 135) do not use any water treatment method and therefore consume unsafe water. Based on the current Gold Standard methodology and applying the principle of suppressed demand, the proportion of households using boiling as a treatment method would include those actually using it and those assumed to use it in the absence of the project:
1 / 32 = 3.1%
103 / 135 = 76.3%
Scenario 2: Fractional Method
If the fractional method is used to account for suppressed demand, the calculation would be as follows:
1 / 135 = 0.7%
32 / 135 = 23.7%
103 / 135 = 76.3%
The overview above is based on the simplified assumption that households treating their water have access to safe water while others consume unsafe water. The full suppressed demand scenario yields a much higher eligibility rate (79.4%) compared to the more conservative fractional method (3.1%), illustrating the significant impact of methodology choice on projected credit volumes.
Annex 2: Carbon Methodologies Relevant to Water
| Project Activity | Methodology |
|---|---|
| Provision of low or emission free water treatment technologies | Gold Standard. Methodology for emission reductions from safe drinking water supply — version 1.0, 03/05/2021 |
| CDM. AMS-III.AV.: Low greenhouse gas emitting safe drinking water production systems — Version 8.0 | |
| CDM. AM0086: Distribution of low greenhouse gas emitting water purification systems for safe drinking water — Version 5.0 | |
| Energy sourcing and operational efficiency of water utilities | CDM. AMS-I.B.: Mechanical energy for the user with or without electrical energy — Version 13.0 |
| CDM. AMS-I.F.: Renewable electricity generation for captive use and mini-grid — Version 5.0 | |
| CDM. AM0020: Baseline methodology for water pumping efficiency improvements — Version 2.0 | |
| Mitigating methane emissions from sanitation systems (CBSA 2023) | CDM. ACM0022: Alternative waste treatment processes — Version 3.0 |
| CDM. AMS-III.H.: Methane recovery in wastewater treatment — Version 19.0 | |
| CDM. AMS-III.D.: Methane recovery in animal manure management systems — Version 21.0 | |
| CDM. AMS-I.C.: Thermal energy production with or without electricity — Version 22.0 | |
| CDM. AMS-I.E.: Switch from non-renewable biomass for thermal applications by the user — Version 13.0 | |
| CDM. AMS-III.F.: Avoidance of methane emissions through composting — Version 12.0 | |
| CDM. AMS-III.E.: Avoidance of methane production from decay of biomass through controlled combustion, gasification or mechanical/thermal treatment — Version 17.0 | |
| Tree planting and natural regeneration to restore degraded watersheds | Gold Standard. Methodology for afforestation/reforestation (A/R) GHG emission reduction & sequestration, version 2.0, 26.10.2022 |
| CDM. AR-ACM0003: Afforestation and reforestation of lands except wetlands — Version 2.0 |
Annex 3: GHG Mitigation Potential in the WASH Sector
| Intervention Type | Emission Reduction Potential | Relevance for WASH in Sub-Saharan Africa | Relevance of Carbon Credits |
|---|---|---|---|
| Energy sourcing and operational efficiency | High. Water and wastewater extraction, distribution, and treatment account for about 4% of global electricity consumption. Global energy-related emissions for water are estimated at 400–550 million tCO2e (GWI 2022, Thomas 2024), or about 1% of annual global GHG emissions. | Low, but growing. Countries in sub-Saharan Africa contribute little to these emissions (GWI 2022). However, emissions are expected to rise as services expand. | Low to medium. Low relevance in context of replacing diesel-powered pumps with solar: burning 377 liters of diesel emits one tCO2. Carbon credits sell for $5–$10/tCO2e, while 377 liters of diesel costs $250–$500. |
| Note: The adoption of renewable energy to power WASH infrastructure is imperative. This transition should be coupled with efforts to reduce water losses and improve pumping efficiency. Given the reduction in operating costs achieved by replacing fossil fuels with renewable energy, financing models based on cost savings appear more promising than relying on the relatively modest additional revenue generated by carbon credits. | |||
| Direct emissions from sanitation | High, but not well understood. Global methane and nitrous oxide emissions from wastewater and on-site sanitation are estimated at 400–550 million tCO2 (GWI 2022; Thomas 2024). Methane from non-sewered systems estimated at 377 (22–1,003) million tCO2e/year, or 4.7% of anthropogenic methane emissions (Cheng 2022). | High, but to be confirmed. In Ethiopia alone, methane emissions from on-site sanitation have been estimated at more than 7 million tCO2e/year (Evans 2023). | Currently medium, potentially high. Methane capture from wastewater treatment is common for carbon credits, but no projects yet generate credits for improved management of on-site sanitation. The CBSA is actively exploring this. |
| Note: The WASH sector needs to improve its understanding of methane emissions from non-sewered sanitation and identify specific measures to mitigate and monitor these emissions. Safely managed sanitation systems are not inherently climate-smart, and global monitoring efforts will need to incorporate climate considerations. | |||
| Replacing the boiling of drinking water | Low. Approximately 600 million people in LMICs report boiling their drinking water (Rosa, 2010). Based on 0.5–1 tCO2e per household/year, maximum annual emissions are 60–120 million tCO2e but likely much lower due to electric kettle use. | Medium. In sub-Saharan Africa, 76% of households access water from contaminated sources (WHO 2022). Household water treatment, including boiling, is recommended as an interim measure. | High, but could decrease if suppressed demand rules change. Estimated potential: more than 218 million tCO2e/year from avoided fuel use (Thomas 2024). |
| Note: Despite comparatively modest emissions reduction potential, this intervention type has accounted for a considerable proportion of carbon credits issued to date. The Gold Standard has published a methodology specifically tailored to safe drinking water. | |||
| Eliminating solid fuels for cooking | High. Worldwide, 2.4 billion people rely on polluting fires or inefficient stoves. Burning wood fuels produces about 1,000 million tCO2e/year, or about 2% of global emissions (CCA 2022). | High. Firewood and charcoal are widely used in sub-Saharan Africa. Promoting clean cooking solutions is an environmental health intervention with many parallels to market-based WASH approaches. | High. Common carbon credit project type, though some projects may have been over-credited (Gill-Wiehl 2024). Biodigesters producing biogas combine sanitation and clean cooking. |
| Note: Currently, there is a shift from promoting fuel-efficient stoves that use less firewood or charcoal to advocating for clean cooking solutions such as electricity, biogas, ethanol, or LPG. Eliminating solid fuels has significant potential for both climate mitigation and public health. | |||
| Nature-based carbon sequestration | Very high. By 2030, nature-based solutions can deliver 5,000–11,700 million tCO2e/year in emission reductions and removals (UNEP 2021). | High. Implementing nature-based solutions is relevant on all continents. | High. Common carbon credit project type, though some projects may have over-credited (West 2023). |
| Note: Reforestation efforts linked to water resources and disaster risk management are not the primary drivers, but the WASH sector can play a supporting role. Nature-based solutions require adherence to strict social and environmental safeguards. | |||
Annex 4: Go/No-Go Decision Tree
Use this four-step decision framework to determine whether a carbon credit project is appropriate for your organization and context.
- Reaches a minimum of 30,000 to 50,000 households. Smaller projects are unlikely to generate enough carbon credits to make the project financially viable. Note: Carbon credits are generally generated for interventions that take place in the future. Retroactive registration of water systems installed in the past may be possible under certain circumstances, but it is best to assume that this will not be possible.
- Can demonstrate that prior to project implementation, most target end-users were using unsafe water for drinking and solid fuels on inefficient stoves for boiling/cooking.
- Can demonstrate from similar existing (pilot) projects that E. coli is not detectable in a 100 mL sample of drinking water when it reaches the end-users. If more than 10 percent of water samples exceed this threshold, no credits can be issued. Note: Untreated water supplies are unlikely to meet the water quality threshold due to contamination during transport and storage.
- Includes decentralized household and community systems, piped or non-piped, where a single system does not serve more than 50,000 households. Larger systems may not be subject to simplified procedures for demonstrating additionality and allowing for curbed demand.
- All systems can be tracked using unique IDs, i.e., an accurate database must be created from which any unit can be randomly selected and visited for monitoring.
- For household water treatment technologies: Can demonstrate that the technology achieves a 3-star or 2-star performance level according to the WHO International Scheme to Evaluate Household Water Treatment Technologies.
Carefully consider whether and how suppressed demand can be justified — and whether your organization is prepared to defend the justification in a public debate (see Annex 1). Without a strong justification, the organization is exposed to reputational risks. Gold Standard rules tend to be adjusted if carbon credits are issued based on unreasonable assumptions.
- Low risk. Most households actually boil their drinking water to make it safe (check with DHS STATcompiler). In this case, carbon credits can be generated even without considering suppressed demand.
- Medium risk. Boiling is generally the most common household treatment method (e.g., 20–30% of households report boiling), and richer households are more likely to boil. It can be argued that as economic development progresses, more households would start boiling in the absence of alternative safe water sources.
- High risk. Few households actually boil, and other treatment methods (such as chlorination) are more commonly used. Nevertheless, in line with Thomas (2023), it can be argued that “the concept of suppressed demand was not created to reduce emissions in low-income countries, but instead to recognize that energy use and associated health and economic livelihoods in low-income communities are suppressed — arguably oppressed — by poverty, climate change and extractive capitalism. With per capita emissions in high-income countries still more than 23 times those of a least-developed country, there is a strong equity argument for mitigating this disproportionate cause and effect of climate change.”
Re-evaluate the pros and cons of receiving carbon credits from the project. Note the risks and prepare a risk mitigation and response plan.
Pros
- Additional funding: Carbon credits provide additional unrestricted revenue. Use the Financial Model Spreadsheet (Appendix 6) to develop a more detailed estimate of potential revenue. The annual revenue per household should range from $2.5 to $15.
- Good quality monitoring data: Generating carbon credits requires solid monitoring data that can withstand third-party verification. Monitoring data is also valuable for managing project implementation.
- Safeguards framework and feedback mechanism: The Gold Standard requires a safeguards assessment and ongoing feedback and grievance mechanism. This helps ensure the project does not cause harm and that end-users can be more actively involved.
Cons
- Uncertainty about timing and amount of revenue: Project registration and carbon credit issuance can be delayed one to two years. Volumes can vary by a factor of two to three, and prices by a similar factor (together by almost a factor of 10).
- Significant effort and cost: Expect a full-time carbon manager on your side and significant management involvement — especially until the first issuance. Budget for local stakeholder consultation, project database development, baseline surveys, annual monitoring surveys, and ad hoc data requests.
- Reputational risks: Projects that generate carbon credits may attract additional media attention. Implementers need to be prepared to justify their carbon credit claims.
Contact several carbon project developers and request a quote for their services. They will likely ask for some basic information about the project, calculate the emission reductions, and get back to you with a commercial offer.
The following points will need to be discussed and agreed upon with a carbon project developer, usually in an Emission Reduction Purchase Agreement (ERPA):
- Ownership of generated carbon credits. Will the credits be issued to a registry owned by your organization or to a registry owned by the carbon project developer? Will ownership change after the initial crediting period?
- Sale of generated carbon credits. Does the developer sell the credits or just support their generation? If they sell on your behalf, what is the sales margin? Do they buy all credits at a pre-agreed price?
- Exclusivity. Will you grant the developer exclusive rights to sell the VERs? Consider limiting exclusivity to one or two years after issuance.
- Roles and responsibilities. Who pays for field data collection and who pays for verifier and carbon standard fees? Who prepares and conducts the data collection surveys? Who responds to auditor or carbon standard findings?
- Revenue sharing. What percentage goes to your organization vs. the developer? Consider setting a minimum sales price (e.g., the developer needs your approval to sell GS VERs below this price).
- Termination of the ERPA. What if the developer fails to register your project or issue carbon credits? At what point can you terminate, and under what conditions? What if your organization is unable to provide the required primary data?