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Forest and carbon mechanisms: Major issues

Topic 5, Section C. Forest and carbon mechanisms: Major issues. Learning outcomes.

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Forest and carbon mechanisms: Major issues

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  1. Topic 5, Section C Forest and carbon mechanisms:Major issues

  2. Learning outcomes In this presentation you will learn about important issues related to forest and carbon mechanisms that are common to the Clean Development Mechanism (CDM), Reducing Emissions from Deforestation and Degradation (REDD), and voluntary markets. Topic 5, Section C, slide 2 of 24

  3. Outline • Baseline and additionality • Leakage • Permanence and temporary crediting • Sustainable development and standards • Certification and verification Topic 5, Section C, slide 3 of 24

  4. 1. Baseline and additionality • Additionality is a fundamental concept in carbon mechanisms • Greenhouse gas 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 Topic 5, Section C, slide 4 of 24

  5. 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 Topic 5, Section C, slide 5 of 24

  6. 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 Topic 5, Section C, slide 6 of 24

  7. Minimum acceptable Profitability (IRR, NPV, pay-back, LEV, etc.) - + Financial demonstration of additionality • The project is additional: • It will not be implemented without carbon trading • It can be with carbon trading Baseline activities (e.g. agriculture) Forestry project without carbon trading Forestry project with carbon trading Topic 5, Section C, slide 7 of 24

  8. Profitability (IRR, NPV, pay-back, LEV, etc.) - + Financial demonstration of additionality Baseline activities Project without financial additionality Forestry project without carbon trading Topic 5, Section C, slide 8 of 24

  9. 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 Topic 5, Section C, slide 9 of 24

  10. Example of barriers (2/2) • Barriers due to local ecological conditions • degraded soil • unfavorable meteorological conditions, such as early or late frost or drought • Barriers due to social conditions • demographic pressure on the land • social conflict among interest groups • widespread illegal practices • lack of skilled labor force and 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 • probability of large price risks • absence of facilities to convert, store and add value to products Source: UNFCCC, CDM Additionality Tool Topic 5, Section C, slide 10 of 24

  11. Project Leakage 2. Leakage • A project can induce emissions beyond the boundary of the project • negative leakage • displaced deforestation • A project can induce carbon removal beyond the boundary of the project • positive leakage • a reforestation project encouraging people outside the project to plant trees • Leakage can be local, regional or international Topic 5, Section C, slide 11 of 24

  12. Example of leakages Without project3% deforestation With a conservation project Inside: Conservation Outside: 6% deforestation Topic 5, Section C, slide 12 of 24

  13. Main types of leakage • Activity shifting: a project displaces an activity or changes 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 to an increase wood harvesting elsewhere Source: Schwarze et al. 2002 (TNC and USAID) Topic 5, Section C, slide 13 of 24

  14. How can leakage be addressed? • 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 Topic 5, Section C, slide 14 of 24

  15. 3. Permanence and temporary crediting • A project cannot guarantee that the carbon will be stored forever • natural or human factors can cause the disappearance or degradation of vegetation Topic 5, Section C, slide 15 of 24

  16. Consequences of non-permanence • How to compare: • a plantation that removes one tonne of CO2 from the atmosphere? • a factory that emits one tonne of CO2 to the atmosphere? • Idea: • if we assume that the tonne of CO2 emitted by the factory stays 100 years in the atmosphere • the plantation must store one tonne of CO2 during 100 years for offsetting the emission • Conclusion: • carbon storage must be described in terms of: • quantity and duration Topic 5, Section C, slide 16 of 24

  17. 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 tonne of CO2 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 Topic 5, Section C, slide 17 of 24

  18. How can non-permanence be addressed? • CDM • temporary crediting • REDD • not decided yet • Voluntary markets • in most markets, it is assumed that carbon storage is permanent Topic 5, Section C, slide 18 of 24

  19. Credits under the CDM • Forestry projects under the CDM will produce non-permanent credits • they expire after a given period of time • the expiration of the credit (its non-permanence) is similar to the non-permanence of carbon • the buyer of the credit has to find another credit when it expires • Two types of credits • tCERs • Temporary Certified Emission Reduction (5 years) • lCERs • Long-term Certified Emission Reduction (valid until the end of the project) Topic 5, Section C, slide 19 of 24

  20. 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 Topic 5, Section C, slide 20 of 24

  21. 5. Certification and verification • Verification: an independent periodical review of the progress of project • Certification: an independent entity certifies the net emission reductions or removals • In CDM • well-defined rules (see presentations on the CDM) • Voluntary markets • generally weak rules, if any • role of standards Topic 5, Section C, slide 21 of 24

  22. Existing standards • Gold Standard (2003) • Gold Standard Foundation – sponsored by WWF, German Government • http://www.cdmgoldstandard.org/ • Voluntary Carbon Standard (2006) • The Climate Group (TCG), International Emission Trading Association (IETA), World Economic Forum Global Greenhouse Register (WEF) • http://www.v-c-s.org/ • Climate, Community, Biodiversity Standard (2005) • TNC, Conservation International, corporations • http://www.climate-standards.org/ Topic 5, Section C, slide 22 of 24

  23. Example: CCB Standard Source: http://www.climate-standards.org Topic 5, Section C, slide 23 of 24

  24. Thank you for your attention

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