The Clean Development Mechanism: Overview

1. Topic 5, Section D The Clean Development Mechanism: Overview

2. Learning outcomes In this presentation you will learn about the basics of the Clean Development Mechanism (CDM), the project development cycle, and forestry projects within the CDM. Topic 5, Section D, slide 2 of 31

3. Outline • CDM basics • Project development cycle • The role of forestry projects in CDM Topic 5, Section D, slide 3 of 31

4. 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 is additional if greenhouse gas emissions are reduced below those that would have occurred in the absence of the registered CDM project activity Topic 5, Section D, slide 4 of 31

5. Rules for the CDM • Annex I Parties are to refrain from using Certified Emissions Reductions (CERs) generated from nuclear facilities to meet their quantified greenhouse gas emissions reduction targets • The eligibility of land use, land-use change and forestry project activities under the CDM is limited to afforestation and reforestation • 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 • ODA can be, and is being, used to help prepare CDM projects • For example, the Danish government has used its ODA in select countries to help develop CDM projects. Then other non-ODA funds have been used by the Danish government and the private sector to actually buy the carbon credits generated by the CDM project Topic 5, Section D, slide 5 of 31

6. The CDM market UNEP/EcoSecurities, 2007 Topic 5, Section D, slide 6 of 31

7. CDM projects by sector CERs issued by sector Source: UNEP/EcoSecurities 2007 Topic 5, Section D, slide 7 of 31

8. 2. The CDM project cycle (1/2) Topic 5, Section D, slide 8 of 31

9. 2. The CDM project cycle (2/2) Topic 5, Section D, slide 9 of 31

10. 3. The role of forestry projects in the CDM Topic 5, Section D, slide 10 of 31

11. Marrakech Accord • CDM forestry is limited to: • afforestation – land unforested 50 years ago • reforestation – land unforested before 1990 • First commitment period is 2008-2012 when Annex 1 parties must meet their reduction obligation • Allowed at a maximum level of 1% from the assigned amount, or cap: 140 megatonnes of CO2 Topic 5, Section D, slide 11 of 31

12. Afforestation • Afforestation is different from reforestation. It is the process of establishing a forest on land that is not a forest, or has not been a forest for a long time by planting trees or their seeds. • The Marrakesh Accord requires that to qualify as an afforestation project, the land to be planted has not been forested for at least 50 years. 50 years Topic 5, Section D, slide 12 of 31

13. 1990 Reforestation • Direct human-induced conversion of non-forested land to forested land through planting, seeding and/or the human-induced promotion of natural seed sources, on land that was forested but that has been converted to non-forested land • For the first commitment period, reforestation activities will be limited to reforestation occurring on those lands that did not contain forest on 31 December 1989 Topic 5, Section D, slide 13 of 31

14. 0 10 Canopy Cover 30 100 What is a forest? • 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 metres • minimum land area between 0.05 and 1.0 hectare • Once chosen, values must remain fixed Topic 5, Section D, slide 14 of 31

15. 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 reductions (tCER and lCER) Topic 5, Section D, slide 15 of 31

16. How long can a CDM project last? (crediting period) • 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 Topic 5, Section D, slide 16 of 31

17. Forest carbon is a rental service • tCER expiring at the end of the commitment period following the one in which it was issued • in practice it lasts for 5 years at most • lCER expiring at the end of the crediting period following the one for which it was issued • in practice it can last for 20-30 years and is used in one commitment period in which it was issued • Annex 1 countries using the tCER or lCER must replace or retire them before they expire Topic 5, Section D, slide 17 of 31

18. Additionality AB = Baseline AC = Additionality AD = Leakage C c Carbon stocks d abcd = gain abef = loss abcd-abef = net gain B b a A D f e t1 t2 Time • 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 Topic 5, Section D, slide 18 of 31

19. Transaction costs for forestry projects • Project preparation usually by a consultancy company: US$60,000 to US$180,000 • Validation by a Designated Operational Entity: Estimated at US$15,000 to US$25,000 • Registration fee by the Executive Board: 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: Depends on project size and sample size needed, as well as on monitoring methods and intensity • On-going verification by the Designated Operational Entity: US$15 to US$25,000 per audit • Issuance fee by the Executive Board: The issuance fee is as above US$0.10/CER for the first 15,000 CERs, and US$0.20/CER for anything above 15,000 CERs • Adaptation levy by the Executive Board: 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 Topic 5, Section D, slide 19 of 31

20. 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 in the pipeline Topic 5, Section D, slide 20 of 31

21. CDM Projects by scope as of 1 April 2009 Topic 5, Section D, slide 21 of 31

22. World Bank carbon funds • Prototype Carbon Fund (PCF) • all sectors • with loan component • Community Development Carbon Fund • for small-scale projects • sector: energy, urban, waste, agroforestry • prioritises the LDC • contract price US$26 per 28 tonnes of carbon • BioCarbon Fund (BCF) • especially for the forestry and land-use projects • to improve people livelihoods • to avoid erosion and desertification • contract price US$12 per 16 tonnes of carbon Topic 5, Section D, slide 22 of 31

23. Sustainable development objectives • Enhanced environmental services • improve soil fertility • conserve biodiversity • maintain hydrological/watershed functions • Improved livelihoods • create job opportunities • increase income and financial benefits • Secured social capital • ascertain land titles and tenure systems • reduce conflicts over property • strengthen institutions Topic 5, Section D, slide 23 of 31

24. Barriers to CDM projects • A lack of financing for tree planting • High transaction cost (more than US$200,000) • Carbon credits not sufficient to cover total cost of project Topic 5, Section D, slide 24 of 31

25. Strategies for overcoming barriers • For host countries, finding a partner from an Annex 1 party or financing institutions • Making carbon credits a supplemental source of income Topic 5, Section D, slide 25 of 31

26. Programmatic CDM • Programmes of Activities (PoAs) increase the efficiency of the CDM • To complement traditional stand-alone CDM • PoA is a programme coordinated by a private or public entity  • No approved forestry programmatic CDM • But has good potential for forestry projects Topic 5, Section D, slide 26 of 31

27. First CDM project:Facilitating Reforestation for Guangxi Watershed Management in Pearl River Basin, China • The project activity aims to reduce threats to local forests and generate income for poor farmers by enabling the carbon sequestered by plantations to act like a ‘virtual’ cash crop for project participants • The overall objective is to explore and demonstrate the technical and methodological approaches related to credible carbon sequestration. The project will also enhance the livelihoods of people and native biodiversity Topic 5, Section D, slide 27 of 31

28. Specific objectives • To sequester CO2 through forest restoration in small watershed areas and to test and pilot how reforestation activities generate high-quality emission reductions in greenhouse gases that can be measured, monitored and certified • To enhance biodiversity conservation by increasing the connectivity of forests adjacent to nature reserves • To improve soil and water erosion control • To generate income for local communities Topic 5, Section D, slide 28 of 31

29. Project activities • Establishing 2,000 hectares of multiple-use forests in Huanjiang County, Guangxi • Establishing 2,000 hectares of multiple-use forests on sites with severe soil and water erosion in Cangwu County, Guangxi • Establishing legal structures to aid the sale of Certified Emission Reductions (CERs) • Monitoring and assessing the project’s environmental and social-economic impacts • Developing and testing local financing mechanisms • Developing, testing and disseminating the best practice in watershed management Topic 5, Section D, slide 29 of 31

30. Estimated carbon benefits Topic 5, Section D, slide 30 of 31

31. Thank you for your attention