Special Focus

GOLD STANDARD SHARE OF PROCEEDS FEE STRUCTURE: Q & As

What specific changes does the Gold Standard plan to make with the funding?

The SoP will facilitate the strengthening of the Foundation’s institutions by e.g. further expanding the Technical Advisory Committee and establishing both a Roster of Review Experts and Appeals Body. The Foundation will also increase its efforts to build capacity for buyers and intermediaries, explaining why Gold Standard carbon credits are the premium choice in the voluntary market today.

How does the SoP work?

The essential change is that in place of a cash per credit fee, the Gold Standard will charge a percentage of the credits from successful projects. The model mimics the financing mechanism used by the UNFCCC for the adaptation fund. The share of credits are pre-sold to Sindicatum, thus stabilizing the Gold Standard’s income stream and financial autonomy.

Which projects fall under the SoP?

From August 1, 2009, new projects will no longer be subject to the fee-for-credit system. The projects currently in the Gold Standard pipeline will have the option to immediately switch to the SoP fee structure. In more specific terms, projects that fall under the following two categories will automatically be subject to the new SoP model:

• All projects applying under the regular project cycle and which have not submitted the complete LSC report (see Gold Standard Toolkit, sections 2.6 & 2.9) by August 1 2009 will fall under the SoP model.
• All projects applying under the retroactive project cycle and which have not submitted the complete documentation required for a pre-feasibility assessment (see Gold Standard Toolkit, Table 2.9) and paid the pre-feasibility assessment fee by August 1 2009 will fall under the SoP model.

All other projects will remain under the fee model but can voluntarily upgrade to SoP.

How are credits paid to the Gold Standard?

In terms of VERs, the registry will be adapted to automatically divert 2% of credits to a Gold Standard account. Regarding CERs, a Gold Standard registry account will be opened in Switzerland to which CERs must be delivered following issuance by the CDM EB. Only after this is effected, will the remaining 98.5% of CERs be labeled by the Gold Standard in its Project Database.

Notable exceptions are:

• Where a project cannot forward credits to the Gold Standard (for contractual reasons, export restrictions, etc.), the amount of credits due can be replaced with an equal amount of Gold Standard credits. CERs must be replaced with CERs; VERs with VERs.
• Where a project that falls under the fee-per-credit model as of August 1 2009, but chooses to upgrade to the SoP model.

The exact procedures will be clearly defined in the detailed rules.

When will the detailed rules be announced?

Detailed rules will be announced in connection with the launch of GSv2.1 toward the end of June, 2009.

How was Sindicatum chosen? What exactly is Sindicatum’s role?

The Gold Standard concluded a consultation with all major project developers and buyers on its funding structure over the past two years. After the Gold Standard Foundation board concluded that an SoP structure would be the least invasive and most stable means of achieving financial autonomy, over thirty market actors were contacted for a partnership. Of these, Sindicatum was selected because it offered the most favourable terms commercially.

Sindicatum’s investment will have no influence on their working relationship with the Gold Standard as a project developer. Sindicatum will receive no preferential treatment. This is made clear in the Declaration of Non-Interference readily available on the website. This declaration also stipulates that Sindicatum will receive no preferential information on the Gold Standard pipeline, meaning that all confidentiality agreements between the Gold Standard Foundation and project developers remain fully valid and are not violated.

Public Declaration of Independence and Non-Interference

Is there a conflict of interest?

A shift to the SoP model from fee-per-credit has no impact on conflict of interest.  Either structure involves working with commercial developers and the Gold Standard has long-standing systems in place to ensure that this does not compromise its integrity

The SoP structure keeps the Gold Standard at arm’s length of the market and echoes the funding structure of the CDM. It devolves the risk of market development away from the Gold Standard to a market participant acting as an enabler for all other market participants – allowing for a considerable scale-up of activities. Finally, the Gold Standard has set up and will further strengthen its institutions, notably the TAC, to keep any conflict of interest between certification of projects and need for funding, separate.

How does the SoP benefit project developers?

1. The SoP does not constitute a cash cost, unlike the registration and issuance fees under the old fee-for-credit structure. Projects that struggle with meeting early costs will benefit from the elimination of upfront registration fees.
2. The SoP is a cost that is offset by the inaccuracy of projected versus real issuance success: There is always an insecurity as to how many credits will be issued to a project – the SoP credits play a minor role in the general insecurity of issuance success. E.g. if a CDM project expects issuance of credits as per PDD to be 50,000 t p.a., and the issuance success is 60-80% then the project may get 30,000 to 40,000 t effectively – this contrasts with a ‘loss’ of 750 credits through the SoP.
3. The SoP transfers some price risk to the investor in the agreement. In the case that prices of credits fall, the value of the share of proceeds will fall too. This is in stark contrast to the previous fixed fee, where a price fall would lead to a relative increase.

The introduction of the SoP model provides the market with the certainty that the Gold Standard is equipped with the resources to effectively process submitted projects while ensuring premium quality. This ultimately leads to a better investment framework for activities in the Gold Standard market.