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5.4b. The Clean Development Mechanism: In depth

5.4b. The Clean Development Mechanism: In depth. Rodel D. Lasco, World Agroforestry Centre (ICRAF). Outline. CDM basics Project development cycle Forestry projects in CDM. 1. CDM Basics. Article 12 of the Kyoto Protocol under the UNFCCC

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5.4b. The Clean Development Mechanism: In depth

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  1. 5.4b. The Clean Development Mechanism: In depth Rodel D. Lasco, World Agroforestry Centre (ICRAF)

  2. Outline • CDM basics • Project development cycle • Forestry projects in CDM

  3. 1. CDM Basics • Article 12 of the Kyoto Protocol under the UNFCCC • The purpose of the CDM shall be to assist non-Annex I Parties in achieving sustainable development and in contributing to the ultimate objective of the Convention, and to assist Annex I Parties in achieving compliance with their commitments. • It is the host Party’s prerogative to confirm whether a CDM project activity assists it in achieving sustainable development. • A CDM project activity isadditional if GHG emissions are reduced below those that would have occurred in the absence of the registered CDM project activity

  4. Rules for the CDM • Annex I Parties are to refrain from using CERs generated from nuclear facilities to meet their quantified GHG emissions reduction targets • The eligibility of land use, land-use change and forestry project activities under the CDM is limited to afforestation and reforestation (A/R); • Public funding for CDM projects from Annex I Parties is not to result in the diversion of official development assistance (ODA) and is to be separate from and not counted towards the financial obligations of Annex I Parties.

  5. Division of parties by Annex Annex I Annex II Australia / Austria / Belgium / Canada / Denmark / EC / Finland / France / Germany / Greece /Iceland / Ireland / Italy / Japan / Luxembourg / Netherlands / New Zealand / Norway / Portugal / Spain / Sweden / Switzerland / Turkey / United Kingdom / USA Belarus / Bulgaria / Croatia / Czech Republic / Estonia / Hungary / Latvia / Liechtenstein / Lithuania / Monaco / Poland / Romania / Russian Federation / Slovakia / Slovenia / Ukraine Non-Annex I Countries = All the Rest of Ratifying Countries

  6. Selected quantified emission limitation (%) Industrialized Countries • Australia 108 • Canada 94 • EC bubble 92 • (Germany 75) • (Portugal 140) • Japan 94 • Norway 101 • New Zealand 100 • USA (not a KP party) Economies in Transition • Bulgaria 92 • Baltics 92 • Croatia 95 • Czech Republic 92 • Hungary 94 • Poland 94 • Romania 92 • Russia 100 • Ukraine 100

  7. Kyoto Protocol: Flexibility mechanisms(Source: Yap. 2004) Annex I GHG Emissions Clean Development Mechanism Emission Trading 1990 level Joint Implementation - 5% Domestic Actions Assigned Amounts Present day 2012 (BaU) 2012 with KP

  8. The CDM market Source: UNEP/EcoSecurities 2007

  9. UNEP/EcoSecurities, 2007

  10. 2. The CDM Project Cycle (1/2)

  11. 2. The CDM Project Cycle (2/2)

  12. (1) Planning a CDM activity • Identify a project activity and to examine whether or not it is eligible for the CDM. • Collect information on the DNA’s requirements and procedures for project approval. • List of sustainable development criteria • List of the CDM priority project types, if any • Many project developers also begin searching for potential buyers for CERs. • In order to facilitate discussions, they produce a summary of the project description, known either as project idea note (PIN) or project concept note (PCN)

  13. (2) Preparing the Project Design Document (PDD)

  14. General contents of the PDD: • A general description of the project activity • A baseline methodology • The duration of the project activity/crediting period • Justification for additionality • Monitoring methodology and plan • Calculation of GHG emission by sources • Environmental impacts • Stakeholder comments

  15. The baseline scenario for forestry projects…

  16. (3) Getting host country approval • CDM project proponents need to obtain written approval from the DNA of the participating country in order to have their project registered under with the CDM EB • “participating countries” means both Annex I and non-Annex I countries • The approval letter should contain the following: • The country has ratified the Kyoto Protocol. • The DNA confirms that the proposed CDM project activity is a result of voluntary participation. • (For the hosting country only.) The proposed CDM project activity contributes to sustainable development.

  17. (4) Validation and (5) Registration (1/2) • Validation refers to the independent evaluation of the PDD against the UNFCCC’s requirements • The CDM Executive Board authorizes third-party agencies, known as designated operational entities (DOEs) to validate PDDs

  18. (4) Validation and (5) Registration (2/2) • Validation includes checking the following points: • The requirements of participation are satisfied (i.e., being a voluntary participation, having a DNA already established, and being a Party to the Kyoto Protocol). • Stakeholder comments have been invited, summarized, and taken into account. • Environmental impact analysis or assessment has been conducted according to the requirements of the host country. • The GHG emissions reduction is additional. • Approved baseline and monitoring methodologies have been used or a new methodology has been submitted. • The proposed project activity is in accordance with all other requirements and decisions by the COP/MOP and the CDM EB.

  19. Registration fees for CDM projects

  20. (6) Monitoring CDM project activities • Project proponents are required to monitor the actual emissions reductions or sequestration that take place when implementing the project. • Monitoring includes “collection and archiving of all relevant data necessary for determining the baseline, measuring anthropogenic emissions by sources of greenhouse gases (GHG) within the project boundary of a CDM project activity and leakage, as applicable” • the monitoring plan needs to be approved by the CDM EB prior to registration. • Just like baseline methodologies, there are approved monitoring methodologies

  21. (7) Verification and certification DOE conducts the following activities under verification: • Checks if the monitoring report satisfies the requirements of the registered PDD. • Checks whether monitoring methodologies have been correctly applied. • Has an on-site inspection conducted or requests any additional information from the project proponent, if necessary. • Makes recommendations to the project proponents for any revisions related to the monitoring methodology for the future crediting period. • Determines the actual GHG emission reductions by the CDM project activity.

  22. (8) Issuance of CERs • Once the CDM EB receives a request to issue CERs, the CDM EB issues the certified amount of CERs within 15 days, unless a party involved in the project activity or at least three members of the CDM EB request a review. • The net amount of CERs, after deducting the “share of proceeds” for adaptation [to climate change] and administrative expenses, are placed under the appropriate account of the CDM registry under the supervision of the CDM EB.

  23. 3. CDM Forestry Projects

  24. Marrakech Accord • CDM Forestry is limited to: • Afforestation – land unforested 50 years ago • Reforestation – land unforested before 1990 • First commitment period (2008-2012) • Allowed at a maximum level of 1% from the assigned amount (cap) – 140 Mt CO2

  25. Afforestation • Direct human-induced conversion of land that has not been forested for a period of at least 50 years to forested land through planting, seeding and/or the human-induced promotion of natural seed sources 50 years

  26. 1990 Reforestation • Direct human-induced conversion of land that has not been forested for a period of at least 50 years to forested land through planting, seeding and/or the human-induced promotion of natural seed sources

  27. 0 10 Canopy Cover 30 100 What is a forest? (1/3) • Host country must define a forest within the following guidelines: • Minimum tree crown cover between 10 and 30% • Minimum tree height between 2 and 5 m • Minimum land area between 0.05 and 1.0 hectare • Values once chosen must remain fixed

  28. What is a forest? (2/3) • Forest = trees with crown cover ≥10% and height ≥2 meters • ELIGIBLE: • Simple agroforest system (e.g. coffee-based agroforest etc.) • NON-ELIGIBLE: • Enrichment planting of degraded humid forests that will likely have a crown cover >10%. • This will reduce available “Kyoto lands”.

  29. What is a forest? (3/3) • Forest = trees with crown cover ≥30% and height ≥5 meter • ELIGIBLE: • Enrichment planting of highly degraded forest • Agroforests—e.g. multi-purpose species with added complexity, rubber-based agroforests • Reforestation that uses trees that can grow and meet the forest definition • NON-ELIGIBLE: • Simple agroforest system’ that cannot grow and meet the forest definition • E.g. to meet 30% crown cover would need about 75 trees to be planted in 0.5 ha

  30. How long can a CDM project last?(creditingperiod) • Two options: • Fixed –30 years with no renewal • Renewable—may be a maximum of 20 years and may be renewed twice for a total maximum of 60 years • Need to determine if baseline is same or will be updated

  31. Non-permanence • Land-based systems subject to reversal by human and natural disturbances • Addressed by concept of “rental” of the service • Includes two options—temporary and long-term certified emission reduction units (tCER and lCER)

  32. Forest carbon is “rental” service • TCER expiring at the end of the commitment period following the one in which it was issued • Practically means lasts for 5 years at most • LCER expiring at the end of the crediting period following the one for which it was issued • Practically means it can last for 20-30 years and used in one commitment period in which they were issued • Annex 1 countries using the TCER or LCER must replace or retire them before they expire

  33. Additionality C • Fixed – 30 years with no renewal • Renewable - may be a maximum of 20 years and may be renewed twice for a total maximum of 60 years • Lock-up? Non-permanence? c AB = Baseline AC = Additionality AD = Leakage d Carbon stocks B b a abcd = gain abef = loss abcd-abef = net gain A D f e t1 t2 Time

  34. Annex 1 demand Without forest-C With forest-C Price ($/tC) Lowered price Quantity (million tons) Market contraction (1)

  35. Lowered price Market contraction (2) Annex 1 demand with the US Non-Annex 1 supply Annex 1 demand without the US Price ($/tC) Quantity (million tons)

  36. Lessons learned from AIJ-Pilot Phase • 11 forestry projects approved by UNFCCC secretariat • 8 projects located in Latin America • 2 projects are already trading emission reduction • Transaction costs are unavoidably high(6-45% of project cost; $ 0.57-2.96/tC) • Too high – will kill the CDM project • Long term investment – high opportunity cost Milne (2001)

  37. Transaction costs for forestry projects • Project preparation (usually by a consultancy company): USD 60,000-180,000. • Validation (by a DOE): estimated at USD 15,000-25,000. • Registration fee (by the EB): For the first 15,000 CERs projects are charged US$0.10/CER, for anything above 15,000 they are charged US$0.20/CER. • Monitoring costs: depending on project size and sample size needed, as well as on monitoring methods and intensity. • On-going verification (by DOE): USD 15-25,000 per audit. • Issuance fee (by the EB): The issuance fee is as above US$0.10/CER for the first 15,000 CERs, it is US$0.20/CER for anything above 15,000 CERs. • Adaptation levy (by the EB): 2% of the CERs generated • Taxes (by the host country): Some countries claim a share of a project’s CERs in exchange for issuing a Letter of Approval that is prerequisite to registration

  38. Example: 5,000 ha in the Philippines (1/3)

  39. Example: 5,000 ha in the Philippines (2/3)

  40. Example: 5,000 ha in the Philippines (3/3) Cost Can be made profitable by Including harvest from products like wood and fruits!

  41. Tropical forests and the carbon market • There are still very few takers of forestry carbon projects under the so-called Kyoto market. • It has been estimate that up to 13.6 million carbon credits may be available by 2012 based on projects on the pipeline

  42. CDM projects by scope as of 31 March 2009 0.16% from A/R

  43. WB carbon funds • Prototype Carbon Fund PCF • all sectors • with loan component • Community Development Carbon Fund CDCF • for small scale project • sector: energy, urban, waste, agroforestry • prioritizes the LDC • Contract price US$ 26-28/tC • BioCarbon Fund BCF • LULUCF sector • to improve people livelihoods • to avoid erosion and desertification • Contract price US$ 12-16/tC

  44. Sustainable development objectives • Enhanced environmental services • Improved soil fertility • Biodiversity conservation • Maintained hydrological/watershed functions • Improved livelihoods • Create job opportunities • Increased income and financial benefits • Secured social capital • Ascertained land titles and tenure systems • Reduced conflicts over property • Strengthened institution

  45. Thank you for your attention

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