Method of Evaluating Afforestation/Reforestation CDM Project - An Indonesia Case Study -

1. Method of Evaluating Afforestation/Reforestation CDM Project- An Indonesia Case Study - Sumitomo Forestry Co., Ltd., Tokyo, Japan June 5, 2003 Bonn

2. Objectives of the study • Feasibility of CDM Afforestation/Reforestation Projects • CDM Eligibility and Methods of Evaluation • Estimation of the Volume of CO2 Removals by the sink project • Economic Effects to the Project • Issues to Be Discussed

3. CDM Sink Projects are Possible. • Conformity with Host Countries’ Policy • Available Ecologically, Technologically • Diversified Destinations -Environmental Projects -Industrial Projects -Community Forestry Projects • Economic Incentives are necessary.

4. Introduction of the Case Study (1) Name：East Java CDM Reforestation Project Location：East Java Province, the Republic of Indonesia Period：June 2002～March 2003 Scheme: CDM Feasibility Study by the Ministry of the Environment of Japan Surveyor：Sumitomo Forestry Co., Ltd, Tokyo, Japan Local Partner：Local Plywood Manufacturer K Company

5. Outline of the Project • Boundary：more than 10 sites, 3,000ha ,measured by land survey • Type：A Reforestation Project using fast growing and medium&long term growing species under sustainable forest management • Project Period:2006-2026 ( 21 years ) • Crediting Period:2006-2026 ( 21 years ) • Basic year: end of 1989 - difficult to confirm end of 1999 - more certain to confirm ( documents, photo, land register )

6. Comparison of a Sink Project with an Emission Reduction Project • Gross removalBaselineNet removalEmission reductionLeakageLeakage • BaselineEmission Sink ProjectEmission Reduction Project

7. Volume of CO2 Gross Removal • Definition：Measurement of trees → Carbon volume → CO2 Removal volume • Methodology：Measurement of the same species on the same conditions as the project • Species and Harvest years：Falcata（7-8years）、Mahogany（50years）、Agathis(30years）　　　　　　　→ Option of longer period advisable • Technology：Sustainable Forest Management

8. Baseline（１） ・Survey Method：Estimation of growth volume of the same species on the same conditions ・Baseline Scenario (1)Estimation of the growth based on the present situation (2)Difficult to estimate future land use change ・Results of the project baseline：0.15CO2-ton/ha,year 2,987ha(99%) covers no trees - Baseline 0- 13ha(1%) 1.17CO2-ton/ha,year → -Baseline 0.15CO2-ton/h,y ・Additionality： Additional CO2 removals, Emviromnetal and Economic additionality

9. Baseline (3)a study on baseline setting • 5 Carbon pools ( above-ground biomass, below-ground biomass, litter, dead wood and soil organic carbon ) are expected. • Some pools - if confirmed → possible to be excluded • Litter, dead wood, and soil organic carbon • Similar natural vegetation → Baseline → Simple and practical → Advisable option

10. LeakageSocio-economic ImpactsEnvironmental ImpactsRisk Evaluation Leakage ・Survey: Question-and-hearing survey to the local residents ・Volume of leakage (399CO2-ton/year) ・Described on PDD, Monitoring item, Pre-set check list is not necessary. Socio-Economic Impacts 　・Survey:Question-and-hearing survey to the local residents ・Described on PDD, Monitoring item, Pre-set check list is not necessary. Environmental Impacts: To be implemented, Monitoring item Risk Evaluation: 　・finding: Little risk of pest&insects disease, some probability of forest fires - adjusting from gross removals 　・Monitoring item

11. CDM Eligibility

12. Monitoring Plan

13. Feasibility Analysis on CDM Sink Projects(1) • Project Planning - Planting, tending, harvesting and management - Direct cost & management cost - Income by timber sales - 30 years • Depreciation, Capital, Industrial plantation a/c, Finance, Interest rate, Dividend, exchange rate • Baseline and leakage • Income = Timber sales + value of CO2 credits

14. Feasibility Analysis on CDM Sink Projects(2) • Analysis items - the first profit year - the last year of accumulated deficit - loan payment period - cost per 1 CO2 removal • Carbon accounting method -Actual Stock Change -Average Storage -Delayed Full -Temporary CER ・　Estimation of CDM Cost ( Validation, Verification Monitoring Expenses ) & Initial CDM Cost ・ The project starts in 2006 and credits are issued or reissued every 5 years from 2011

15. Feasibility Analysis on CDM Sink Projects(3)Economic Viability to the Project by CO2 IncomeUS$0＝Non CDM, Others:by ActualStockChange

16. Feasibility Analysis on CDM Sink Projects(4) Economic Viability to the Project by Accounting Methods (US$10/CO2-ton)

17. Feasibility Analysis on CDM Sink Projects(6) Economic Viability to the Project byTemporary CER (US$/CO2-ton)

18. Feasibility Analysis on CDM Sink Projects(5) This Study shows: • CDM Projects are more profitable than non CDM projects. • Prominent incentive if CO2-ton ≧ US$15 • Accounting methods: Actual Stock Change ≧ Average Storage ≧ Delayed Full • Temporary CER : if LOW PRICE → Economic viability →NG ・ Option of Insured CER → reasonable

19. Messages from potential participants • CDM sink projects are feasible from ecological and technological points. • CDM sink projects are feasible from economic points. • Modalities and procedures in order to promote early implementation ! • Incentives are IMPORTANT for implementation !

20. Sumitomo Forestry Co., Ltd.Tokyo, Japan