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5.3. Forest and carbon mechanisms: Major issues

5.3. Forest and carbon mechanisms: Major issues. Bruno Locatelli, CIRAD-CIFOR. Objectives. To present important issues related to forest and carbon mechanisms Common to the CDM, REDD, voluntary markets… Addressed in different ways by the different mechanisms. Outline.

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5.3. Forest and carbon mechanisms: Major issues

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  1. 5.3. Forest and carbon mechanisms:Major issues Bruno Locatelli, CIRAD-CIFOR

  2. Objectives • To present important issues related to forest and carbon mechanisms • Common to the CDM, REDD, voluntary markets… • Addressed in different ways by the different mechanisms

  3. Outline • Baseline and additionality • Leakage • Permanence and temporary crediting • Sustainable development and standards • Certification and verification

  4. 1. Baseline and additionality • Additionality is a fundamental concept in carbon mechanisms • GhG reduction (energy) or removals (forests) must be additional to any that would occur in the absence of the project • Clearly stated in the Kyoto Protocol for the CDM (art. 12.5c) • At the heart of the debate on REDD • Not always addressed in voluntary markets

  5. Why is additionality important? • In a cap-and-trade system (e.g., Kyoto): • An entity has a commitment to reduce emissions • It can use credits from a project to achieve its goal • If it buys one tCO2 from a project, it can emit one tCO2 more • The project must reduce one tCO2 • If not (if the project is “business as usual): • There is one tCO2 emitted to the atmosphere • Problem of environmental integrity • In a voluntary market • An actor buys credits from a project to offset her emissions • If the project is not additional • There is not offsetting

  6. Two interpretations of additionality • Project additionality • The project would not be implemented without the carbon mechanism, i.e. the project is not part of the baseline • Carbon additionality • Quantity of CO2 (reductions or removals) in the project minus the quantity of CO2 in the baseline scenario tCO2 in the vegetation Project Carbon additionality Baseline time

  7. How to demonstrate additionality? Two main options: • Financial: • The project is not financially feasible without carbon credits • Barriers: • Without carbon mechanisms, the project is not feasible because of barriers

  8. Minimum acceptable Profitability (IRR, NPV, pay-back, LEV, etc.) - + Baseline activities (e.g. agriculture) Forestry project without carbon trading • The project is additional: • It will not be implemented without carbon trading • It can be with carbon trading Forestry project with carbon trading Financial demonstration of additionality

  9. Profitability (IRR, NPV, pay-back, LEV, etc.) - + Baseline activities Project without financial additionality Forestry project without carbon trading Financial demonstration of additionality

  10. Example of barriers (1/2) • Investment barriers (other than insufficient financial returns) • Similar activities have only been implemented with grants or other non-commercial finance terms, No private capital (risks), Lack of access to credit. • Institutional barriers • Risk related to changes in government policies or laws; Lack of enforcement of land-use-related legislation. • Technological barriers • Lack of access to necessary materials (planting materials), Lack of infrastructure for implementation of the technology. • Barriers related to local tradition • Traditional knowledge or lack thereof, laws and customs, market conditions and practices… • Barriers due to prevailing practice • The project is the “first of its kind”: No activity of this type is currently operational in the area Source: UNFCCC, CDM Additionality Tool

  11. Example of barriers (2/2) • Barriers due to local ecological conditions • Degraded soil; Unfavorable meteorological conditions (e.g. early/late frost, drought)… • Barriers due to social conditions • Demographic pressure on the land, Social conflict among interest groups; Widespread illegal practices, Lack of skilled labor force; Lack of organization of local communities. • Barriers relating to land tenure, ownership, inheritance, and property rights • Lack of suitable land tenure legislation and regulation to support the security of tenure; Absence of clearly defined and regulated property rights… • Barriers relating to markets, transport and storage; • Unregulated and informal markets; Remoteness of land area and undeveloped road and infrastructure, Possibilities of large price risk; Absence of facilities to convert, store and add value to products… Source: UNFCCC, CDM Additionality Tool

  12. Project Leakage 2. Leakage • A project can induce emissions beyond the boundary of the project • Negative leakage • E.g. displaced deforestation • A project can induce carbon removal beyond the boundary of the project • Positive leakage • E.g. a reforestation project encouraging people outside the project are to plant trees • Leakage can belocal, regional or international

  13. Example of leakages • Without project:3% deforestation • With a conservation project Inside: Conservation Outside: 6% deforestation

  14. Types of leakages (1/2) • Activity shifting: a project displaces an activity or change the likelihood of an activity outside the project’s boundariesExample: • a plantation project displaces farmers and leads them to clear adjacent forests • Market effects: a project can modify the supply and demand of a goods, causing changes in price and activities elsewhereExamples: • a large plantation project produce a significant quantity of wood for the regional markets, causing a decrease in price and a decrease in plantation activity in the region • a large conservation project reduces the quantity of wood and increases prices, leading in an increase wood harvesting elsewhere From Schwarze et al. 2002 (TNC and USAID)

  15. Types of leakages (2/2) • Lifecycle emissions shiftingExample: • Changes in emissions in upstream or downstream activities (e.g. transportation emissions by visitors to the projects, machinery • Ecological leakageExample: • Changes in emissions caused ecological changes (e.g. a conservation project increase the resilience of other ecosystems by increasing connectivity, a project introduce invasive species) From Schwarze et al. 2002 (TNC and USAID)

  16. What to do with leakage? • During the project design • Assess • Design a prevention plan • Estimate • Discount from the estimation of carbon credits • During the project implementation • Prevent • With specific actions • Monitor • Discount from the sale of carbon credits

  17. 3. Permanence and temporary crediting • A project can not guarantee that the carbon will be stored forever • Natural or human factors can causethe disappearance or degradationof the vegetation

  18. Consequence of non-permanence • How to compare: • A plantation that removes one tCO2 from the atmosphere? • A factory that emit one tCO2 to the atmosphere? • Idea: • If we assume that the ton of CO2 emitted by the factory stays 100 years in the atmosphere • The plantation must store one tCO2 during 100 years for offsetting the emission • Conclusion: • Carbon storage must be described in terms of: • Quantity and Duration

  19. Why is non-permanence important? • If we were sure that the carbon is stored for a long time: • We could issue a carbon credit each time a tCO2 is stored • What would happen if the forest disappeared? • A country or a company would use the carbon credit to offset its emission • But the storage would not exist • Problem of environmental integrity

  20. How to address non-permanence • CDM • Temporary crediting • REDD • Not decided yet • Voluntary markets • In most markets, it is assumed that carbon storage is permanent

  21. The case of the CDM • Forestry projects under the CDM will produce non-permanent credits • They expire after a give period of time • The expiration of the credit (its non-permanence) is similar to the non-permanence of carbon • The buyer of the credit have to find another credit when it expires • Two types of credits • tCERs • Temporary Certified Emission Reduction (5 years) • lCERs • Long-term Certified Emission Reductiom (valid until the end of the project)

  22. 4. Sustainable development and standards • Many concerns about the impacts of carbon projects on biodiversity and local development • In the case of CDM • National Authorities can determine whether a project is in line with their sustainable development policies • Few international safeguards • In voluntary markets • Role of standards • Important role of NGOs • Watchdogs • Standards

  23. 5. Certification and verification • Certification: • Verification: • In CDM • Well-defined rules (see presentations on the CDM) • Voluntary markets • Generally weak rules, if any • Role of standards

  24. Standards • Gold Standard (2003) • WWF, South South North and Helio International • Voluntary Carbon Standard, VCS (2006) • The Climate Group (TCG), International Emission Trading Association (IETA), World Economic Forum Global Greenhouse Register (WEF) • Climate, Community, Biodiversity (2005) • TNC, Conservation International, corporations

  25. CCB Standards New version released in Dec 2008 http://www.climate-standards.org

  26. Thank you for your attention

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