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1. INTRODUCTION

1.1 Introduction to the Kyoto Protocol

Human activities related to the burning of fossil fuels and biomass, and deforestation, etc. have largely contributed to the increased emissions of carbon (C) and other greenhouse gases (GHGs) in the atmosphere. The average annual emissions of carbon were estimated to be 7.1 thousand million tons C per year during the 1980s. Global carbon emissions from fossil fuel alone are estimated to be 5.5 thousand million tons per year and are likely to increase by 61% by 2015 compared to the base case of 1990 (IPCC, 1996). Changes in the concentration of various GHG in the atmosphere, including carbon, are expected to alter the atmospheric balance and lead to a rise in the global temperature. Recent research findings suggest that the global temperature is increasing and the year starting from December 1, 1997 to December 1, 1998 was the warmest year on record (NASA, 1999). Although the global temperature is expected to increase by only about 2 degree Celsius by 2100, the impacts of this on `global climate change' is likely to be very serious. The potential impacts of climate change on human health, sea level rise, agriculture production, forest fires, etc. are some issues of major concern.

The Montreal Protocol (1987) was considered to be a landmark international agreement designed to protect the stratospheric ozone layer. However, it was nearly a decade after that binding targets for GHG emission reductions were formally adopted by the Third Conference of Parties (COP3) in December 1997 in Kyoto, Japan. The protocol, known as the "Kyoto Protocol (KP)", adopted several mechanisms and preliminary guidelines for the control of GHG emissions. The KP also included six other GHGs not previously covered by the conventions on climate change. The notable achievement of the KP was to specify quantitative limits for the reduction of GHG emissions for the industrialised countries. These countries referred as "Annex 1" countries have to meet the set target of 5.2% reductions in GHG emissions between year 2008 and 2012. The target set for individual or group of countries included 8% for the USA, 6% for the Japan and Canada, and 7% for the Europe below the base year 1990 level. The KP also suggested three cooperative implementation mechanisms for achieving the set out targets. These include: i) emission trading among countries with domestic emission trading systems, ii) trading among countries without domestic trading systems, and iii) trading between countries with and without domestic trading systems.

1.2 Clean Development Mechanism: Market Size and the Role of the Agriculture Sector

Article (12) of the KP defines the Clean Development Mechanism (CDM), which was designed for extending the cooperation between the developing and the developed countries for reducing GHG emissions. Although operational measures for the implementation of CDM are yet to be established and approved, this mechanism has evolved as an additional element for promoting sustainable development in Third World countries. Articles (3.3 and 3.4) of the KP clearly recognises the role of land use change, forestry and agriculture soils for the reduction of GHG emissions by source, and removals by sinks1. The market demand for the CDM in the non-Annex 1 countries is estimated in the range of 265 Mt C under 50% reduction from business-as-usual emissions to 575 Mt C under no limits scenario by 2010 (Haites, 1998, cited in Zhang, 1999). The next study carried out by Austin et al. (1998; cited in Zhang, 1999) indicates the size of CDM flows to be in the range of US$ 5-17 000 million per year by 2010, implying a range of US$ 25-85 000 million for the full budget period of 2008-2012. These estimates are mainly based on the considerations of transaction costs and abatement costs of potential energy use reductions or increase in energy use efficiency in both the Annex-1 and non-Annex 1 countries. The first issue to be considered in the implementation of the CDM in the agriculture sector, thus is the extent to which the sector could help to reach the emission reduction targets.

Recent studies have shown that improved agriculture practices can significantly help in reducing the emissions of the carbon dioxide by increasing carbon sequestration (Lal et al., 1998). Batjes and Sombroek (1997) estimated the global stock of soil organic carbon (SOC) mass in the upper 1 m layer to be 1220 000 million tons. The historic loss of soil carbon is estimated somewhere between 50-100 000 million tons. If only 75% of this loss could be captured, it would be about 40-70 000 million tons or 3 000 million t C/yr., which would be equivalent to 12 to 25 years of atmospheric increase in carbon (Lal, 1999). The agriculture sector could also be cost effective and more attractive as the cost of carbon sequestration in the agricultural sector is estimated between $ 10-25 per ton. The estimated cost in other sectors such as in forestry and industrial sectors varies from $13-26.0 per ton and from $ 200-250 per ton respectively (McCarl et al., 1999). This indicates the important role of the agricultural sector for carbon reduction if implemented under the CDM and could thus be considered as a significant part of the wider climate change mitigation strategy.

Improved agriculture practices aimed at enhancing carbon sequestration such as conservation tillage, crop rotations, management of fallow lands, soil conservation and rehabilitation of degraded lands, etc., also are the major components of Sustainable Agriculture and Rural Development (SARD) as outlined in the UNCED Agenda 21 Chapter 14. In this context, the implementation of the CDM involving agriculture management practices that also supports the various programmes of action outlined in SARD could be justified on the grounds of sustainability principles and goals, and could be considered as a part of the wider SARD framework. The CDM was designed by the Conference of Parties (COP3) as an innovative mechanism for attracting additional investments on resource conservation practices in developing countries. The flow of additional foreign direct investment (FDI) under the CDM, if implemented in the agriculture sector, could thus help in investing in resource conservation and land management activities, which is also a prerequisite of sustainable agriculture development in developing countries.

1.3 Emerging Issues in the Implementation of the CDM

Participation and progress in the implementation of the CDM in the past two years between Annex 1 and developing countries have been rather slow due to various reasons. First, there is continuing debate over `equity' in sharing the burden of GHG emission reductions. The CDM allows the parties in Annex 1 countries to meet the target at relatively lower abatement costs, and provide financial and technological support to the parties in developing countries to meet the incremental cost of GHG emission reductions. Theoretically, it thus provides a "win-win" opportunity for both of the parties. But this mechanism, which allows the countries in Annex 1 to trade emissions with developing countries and meet the target without significant emission reductions at home, is still considered a way of shifting the burden of high consumption by the developed to developing countries.

Second, both the Joint Implementation (JI) and the CDM aimed at trading emissions and removals of carbon by sinks in the developing countries is only an end-of-pipe, temporary solution. The implementation of the CDM in the LUCF sector therefore should be supported by further commitments in direct reductions of carbon emissions from fossil fuel consumption both in developed and developing countries.

Third, the majority of the studies on the implementation of the CDM carried out in the past have mainly focussed on environmental additionality, accounting, certification and monitoring aspects from the Annex 1 country perspectives. These studies indicate substantial capital flows into the host countries which could provide hard currency reserves necessary to promote the economic growth and solidify the local standard of living. However, neither the CDM framework design nor the ongoing studies have attempted to address the sustainability issues related to the CDM projects from the developing country perspective and even three years after the Kyoto Conference, policy makers in the developing countries are unclear about the benefits of the CDM.

Fourth, past studies have also shown that i) tropical forest areas for plantation under CDM are likely to be available in a far more limited area than initially expected (Smith et al., 1998), and additional plantation area under the CDM projects will have to be drawn from the existing cultivated lands, which could have serious implications for food production and food security concerns, ii) tropical forests under existing conditions have a higher potential for carbon sequestration and conservation of biodiversity than those proposed under new plantations by clearing some of the existing forests (UNU, 1998), and iii) the potential of soil to sequester carbon is many times higher than tropical forest biomass. Thus projects aimed at only implementation of the CDM without consideration of the net welfare effects to the developing countries may not be a feasible option in the long-term. In order to achieve sustainability of the CDM projects in the LUCF sector, these projects need to be designed using an integrated approach relating to other UN Conventions such as SARD, Convention on Desertification (UNCCD) and Convention on Biodiversity (CBD) as well.

The role of the agricultural sector in reducing carbon emissions by source and removals by sinks thus need to be explored further for the implementation of the CDM in developing countries. Despite its significant role in a wider global climate change mitigation strategy, the agricultural sector has largely been neglected due to various complexities involved. Some of the major concerns and issues among others, include:

The recent review on the past activities jointly implemented (AJI) (FCCC/CP/1998/2) also indicated that the reporting processes submitted by the countries lacked clear definition and information on other environmental, social and economic benefits, and costs. The Fourth Conference of Parties (COP4) also emphasised the need for towards carrying out additional evaluations of environmental benefits and costs, transfer of environmentally sound technologies, and development of modalities of assessment and reporting. Further, COP4 also asked for building endogenous capacity to carry out these activities and develop institutional measures (FCCC/CP/1998/2). However, the issue of likely impacts on allocation of land for different use and land management practices is not directly addressed in this paper. Instead, this paper uses land area allocated for different crops under the FAO study "Agriculture AT 2015 and 2030" and assumes land management practices as outlined under various programme areas of SARD.

2. THE KYOTO PROTOCOL, AGRICULTURE SECTOR
AND OTHER UN CONVENTIONS

2.1 The Kyoto Protocol and the Agriculture Sector

The KP recognizes land use change and forestry sectors both as a source of GHG emissions and also a potential source of carbon removals. Sections 3.3, 3.4 and 3.7 of Article (3) of KP, specifically include land use change, forestry and agriculture activities.

2.2 The KP and other UN Conventions

Land use change, agriculture and forestry activities recognised in the KP are also closely linked to other UN Conventions such as; Convention on Biodiversity (CBD) and Convention to Combat Desertification (UNCCD) and SARD. The KP does not explicitly address the relationships with the other UN conventions, but activities outlined under the various Articles of the KP provide a window of opportunity to strengthen measures for working toward addressing objectives and set targets in other UN conventions as well. For example, Article (8) of UNCCD explicitly recognizes the links with the UN Framework on Climate Change (UNFCC) and CBD. And it calls on concerned parties for i) coordination of activities in order to derive maximum benefit from each activity under each agreement while avoiding duplication of efforts, and ii) making collaborative efforts for activities outlined under UNFCC and UNCCD in order to advance the effective implementation of CBD. Some major provisions made under the three UN Conventions and inter-linkages are shown in Figure 2.1.

FIGURE 2.1
Major objectives, mechanisms, issues and links among three major UN Conventions related to land use change and forestry

Some of the programmes of action outlined under UNCCD such as sustainable management of dry land areas, rehabilitation of degraded lands, etc. would also help to enhance soil organic matter, increase aboveground biomass and reduce unsustainable resource use patterns. Likewise, several provisions outlined under CBD such as conservation and sustainable utilisation of biodiversity would also help to increase ecosystem diversity, which could facilitate the microbiological process of building up of soil organic carbon (SOC). Article (22) of the CBD highlights that the Convention (i.e., CBD) shall not affect the rights and obligations of any contracting party deriving from any existing international agreement, except where the exercise of those rights and obligations would cause serious damage and threats to biological diversity. Article (2) of the KP also explicitly asks the COP for the promotion of sustainable forms of agriculture in the light of climate change, and thus, is compatible with the objectives and programme of action outlined under UNCCD and SARD, and CBD as well.

3. CARBON SEQUESTRATION POTENTIAL
IN THE AGRICULTURE SECTOR

3.1 Dynamics of Carbon Pool in the Agriculture Sector

Changes in the area under agriculture, land use and land management practices can lead to changes in aboveground biomass stocks and soil organic matter. While humification of organic materials, deep placement of organic materials, deep rooting, etc. increase soil organic carbon, soil degradation processes such as erosion, compaction, decline in soil structure, mineralisation, or oxidisation of humic substances lead to the decline of soil organic matter and the soil organic carbon. Agriculture practices such as ploughing, burning of biomass, drainage of wetlands, improper grazing practices, and lowering soil fertility by low productivity subsistence agriculture result in the decline of soil fertility and SOC (Lal et al., 1999).

How can the agriculture sector be defined and which carbon pools can be counted under the CDM? These basic issues have to be addressed before exploring the potential of the agriculture sector under CDM. No specific guidelines and definitions have been set out as yet. Usually biotic carbon pools including trees, crops and root biomass, litter, soil and other vegetation need to be accounted for. Further, the size of the pool, the rate of change and the direction of change need to be taken into consideration for each relevant pool and in general, if the change is expected to be additional sequestration, then the pool needs to be measured only if carbon benefits are to be claimed (LeBlanc, 1999). For example, in the case of changes in land use practices, as from cropland to agro-forestry practices, both the trees and roots have to be counted because they are additions to the existing agriculture practices. The soil carbon pool changes under the agro-forestry practices compared to the previous croplands also need to be evaluated and included.

Past studies have shown that some part of the lost carbon from agricultural soils can be recaptured through improvements in land management practices and land use changes, which can also serve as a compensating mechanism for reducing GHG concentrations in the atmosphere. There are indications that practices such as; i) restoration of degraded lands, ii) adoption of conservation tillage, iii) improved slash and burn agriculture, iv) agro-forestry, and v) other combinations of various land management and cropping patterns enhance carbon sequestration in agriculture lands. These thus should be included into the carbon pool for accounting purposes. This section briefly summarizes available information on past estimates of carbon sequestration related to management options in the developing countries and also summarizes available estimates in the case of developed countries. The estimated amount of carbon sequestration under different conditions is presented in million tons of carbon (Mt C) wherever possible. However, in some cases, estimates have been carried out for a longer period under different conditions, and are difficult to express in similar units.

3.2 Available Estimates and Evidence from Developing Country Agriculture Sector

Conservation tillage practice and carbon sequestration

Conservation tillage (CT) is increasingly practised in some developing countries. Conservation tillage system is defined as having at least 30% or more crop residues covering the soil at planting (Lal et al., 1998). The reduced tillage practices can protect soil organic matter from decomposition by minimising the chances of soil erosion. In Latin American countries, such as in Brazil, Argentina and Mexico, areas under CT practices are increasing and currently are estimated at about 12 million hectares (Derpsch, 1999). Developing countries in Africa have not been able to adopt CT practices even though the technology exist in some countries like Angola, Benin, Ghana, Ivory Coast, Kenya, Mozambique, Niger, South Africa, Tanzania, Zimbabwe and Zambia. In Asia, the practice of CT is limited to about 250,000 ha in countries like Malaysia, Japan and Sri Lanka.

Lal (1997) estimated the global carbon sequestration potential of CT by assuming that 25% of the total agricultural land in developing countries, 75% in the US and 50% in other developed countries could be brought under conservation tillage practices by 2020. The estimation of carbon sequestration potential from the change in tillage practices ranged from a low of 1.5 Mt C to a high of 4.9 Mt C by 2020.

Improvements in slash and burn agriculture systems

Slash and burn agriculture is practised by some 300-500 million people in the Tropics, covering about 240 million ha of closed forest and 170 million ha of open forests. This practice is considered to be a major cause of terrestrial GHG emissions. However, various field level studies have also shown that, if managed properly, some of the carbon lost from such activities can be regained by leaving the land fallow for longer periods. Tinker et al. (1996) estimated that during the period of forest succession following abandonment, about 2 ton of SOC/ha/yr., and 2 to 3.5 tons of C/ha/yr. (aboveground) could be sequestered in the tropical closed forest landscape of Costa Rica. Kotto-same et al. (1997) provided similar estimates for the humid forest zones of Cameroon. The average above ground carbon stock in the original forest was estimated to 300 t C/ha of which about 204 t C/ha was found in the aboveground tree biomass. These figures, however, only indicate the loss of carbon in agricultural soils, some of which could be restored by improving the existing slash and burn agriculture practices.

Agro-forestry practices

Agro-forestry has long been considered an ecologically sound farming practice and offers some potential for regaining some of the carbon lost through changes in land use patterns. Turnquist et al. (1999), examined the per unit carbon stock in soils under agro-forestry systems in Costa Rica. Their estimates varied from 42 g C/kg to 31 g C /Kg at 0-5 cm and 5-15 cm soil layers. They also estimated the carbon content in pasture fields at the same soil layers. The results showed about 45 g C/Kg to 31 g C/kg respectively, and did not show much difference in the carbon content in soils under different land use conditions. A study carried out in Cameroon also indicated that if 425 trees per ha grow at the same rate as natural fallow, and soil organic matter is stabilised, then such an agro-forestry system could sequester about 176 t C/ha after a period of ten years (Kotto-same et al., 1997). Likewise, Makundia and Ati (1995) estimated carbon sequestration potential from degraded lands in Tanzania at 422 Mt C by allocating total degraded lands under different land use and management practices such as forest plantations, re-covering woodlands and community woodlands.

Improvements in land management practices

Improvements in land management practices such as the protection of trees on the farm, contour felling and mound-based soil fertility management, etc. can help regain about 20-30% of the lost carbon stock (Turnquist et al., 1999). Estimated per unit potential increase in carbon stock ranged from 44 t C/ha to 46 t C/ha, with several combinations of these practices. Zhong et al. (1998) provided estimates of the carbon sequestration potential of agriculture lands in China under different crop and land management combinations such as increased crop residue use in croplands and reduced tillage. The potential increase in biomass from increased agriculture production was estimated to 3.4 thousand million t C. Likewise, the total carbon sequestration potential from agriculture soils including from reclamation of wastelands of 3.6 M ha, out of total 48.5 M ha, was estimated to 1.9 Mt C per year ( Zhong and Qi-Guo, 1998).

Effects of changes in land use patterns

Conversion of forestlands into agriculture fields and pastures reduces the terrestrial carbon sequestration capacity. But some field measurements have shown that carbon sequestration potential in the soils under changed land use conditions may not decrease significantly, even if soil management practices are adopted after conversion into agriculture and pastures. Case studies carried out by Fujisaka et al. (1998) in Brazil (Box 3.1), and de Jong et al. (1998) in Mexico (Box 3.2), provide some examples of the estimates of carbon sequestered in the soil after some years of deforestation.

Box 3.1: Changes in carbon flux due to changes in land use practices in Brazil

The Brazilian Amazon is a well-known stretch of tropical forest in Latin America and is undergoing some changes due to increased population pressures. Fujisaka et al. (1998) measured the changes in carbon flux associated with changes in land use pattern in the Amazon Colony from forests to pasture and agriculture. The area covered about 2165 square kilometres of land. By 1993, about 43% of the forestland was deforested for slash and burn agriculture and cattle production.

The carbon flux was measured for: i) aboveground biomass from standing and falling trees, ii) roots below the ground, and iii) in soil amples from two soil layers at depth between 0-20cm and 20-40 cm. The results indicated the carbon stock in forests were 2-25 times higher than that in pasture fields. The aboveground biomass in forest areas, cultivated lands and pasture fields were measured at 158.9 t/ha, 37, 68 and 7.6 t/ha and below ground biomass at 8.5 t/ha, 5.1, 24.1 and 15.0 t/ha respectively. Likewise, total SOC in forests, cultivated, fallow and pastureland were measured to be 32.4, 34.0, 10.2, and 4.5 t/ha respectively. The results indicated that although the change in aboveground biomass was significantly higher from land use changes, the SOC, however, did not change with the change of land use from forests to crop area.

Box 3.2: Carbon density changes under different types of land use practices in Mexico

De Jong et al. (1999) provided a more detailed study of changes in carbon flux in several land use systems over a 20 yearperiod in the Chiapas region of Mexico. They applied field measured carbon density values obtained from 39 locations under different land use systems and at different soil strata with maximum depth of one metre. The aboveground biomass from forest and other land use systems such as agriculture and pasture lands, were also measured. The study area covered about 620,162 ha of land area with 8% of land under agriculture, 30% under pasture, 56% under degraded forests, and the rest under other different types of forests. The mean total carbon densities at the field level was measured at 503.7, 340.7, 318.3, 222.2, 159.9 and 146.7 Mg C/ha for different land use practices consisting of Oak and evergreen cloud forests, pine-oak forests, degraded and fragmented forests, cultivated land and pasture respectively. The study also indicated that while changes in land use patterns had a major effect on the aboveground carbon density, the effect was much lower in the case of root biomass and soil carbon. The proportion of roots in the total carbon pool below the ground also decreased in the range of 13 to 15% in different types of forests at 0.4% to 5.0% in the modified land use types (agriculture and pasture). Cumulatively, it was estimated that 19.99 million tons C was released into the atmosphere due to the changes in land use patterns over a period of 20 years from 1970-90 (De Jong et al., 1999).

3.3 Carbon Sequestration Potential in Developed Country Agriculture

Carbon sequestration potential in the US agriculture

Field experiment results, and estimates of carbon sequestration potential in the agriculture soils in the United States have been reported widely. Lal et al. (1998) provided detailed estimates of carbon sequestration potential in the US soils and also existing losses from the present agriculture practices. The simulation exercise carried out for estimating the changes in total SOC from 1907 to 1990, indicated that while the conversion to agriculture lands continuously contributed to the lowering of SOC, it was found to be almost stagnant during the 1950-1972 period. It was found to have increased again after 1972 with the increased adoption of reduced tillage practices (Donigian et al., cited in Lal, et al., 1998). The total carbon sequestration potential of US agriculture lands was estimated to be in the range of 78 Mt C/yr (low estimates) to 208 Mt C/yr (high estimates). The authors assumed different combination of land use and management practices for estimation of the total carbon sequestration potential for the next 25 years (Lal et al., 1998). This amount corresponds to 2.6 to 7% of the estimated total annual global carbon emissions (3.0 thousand million t C/yr).

Carbon sequestration potential in Canadian agriculture

Dumanski et al. (1998) estimated the impacts of improved land management on future carbon sequestration in Canada. Their estimates showed that approximately 10 Mt C could be sequestered in the surface soil layers (0-20 cm) and about 20 Mt C in the whole soil profile estimated by assuming 15 years under continuous cereals and 25 years under forage. This amount corresponds to about 10% carbon emission equivalent to fossil fuel consumption in the agriculture sector in Canada. Likewise, if the additional summer fallow land is converted to hay, and all areas are properly fertilised, then approximately 92 Mt C could be sequestered. This corresponds to about 50% of the carbon equivalent of fossil fuel consumption from the agriculture sector in Canada (Dumanski et al., 1998).

Carbon sequestration potential in European soils

The existing stock of SOC in the European Union countries (EUR15 with total land area of 324.02 million ha) was estimated to be 23 000 million t C (Smith et al. 1997). The estimation was based on a total area of the EUR15. In addition, various land and soil fertility management practices, such as changing arable soils with animal manure and sewage sludge, incorporation of crop residues in soil, and afforestation of surplus arable land through natural woodland regeneration, etc. could contribute significantly to the carbon sequestration of European soils. The average increase in C-sequestration under these various assumptions was estimated to be 30 Mt C/yr.

3.4 Global Estimates of Carbon Sequestration from Restoration of Degraded Lands

Restoration of degraded lands through re-establishment of vegetation cover and conversion to more perennial vegetation, such as agro-forestry practices and tree plantations, could enhance both soil fertility and land productivity. Using available estimates on land suitability and availability for restoration mainly by converting degraded lands to woodlands and grasslands, Keller and Goldstein (1998) estimated global carbon sequestration potential at 80 Mt C per year from the improved biomass. Lal (1997) showed that if about 2.0 thousand million ha of degraded lands could be restored worldwide, it could sequester about 3.0 Mt C per year, which roughly corresponds to 3% of the annual carbon emissions in the atmosphere (estimated at 3.0 thousand million tons per year). Dixon et al. (1994) estimated that establishment of extensive agro-forests and alternative land-use systems on marginal or degraded lands globally could sequester 0.82 to 2.2 Mt C/ year over a 50 year period. These both estimates vary widely and also provide lower range of the potential carbon sequestration from the restoration of degraded lands.

3.5 Implications of Available Information for Estimation of Carbon Sequestration

Available information presented in sections 3.2 to 3.5 has a wide range of implications for implementation of CDM in the agriculture sector. First, a wide range of values estimated under different land use and management practices in different regions and has several implications for exploring the potential of agriculture sector in the wider carbon reduction strategy. Second, the values provided, however, are difficult to aggregate and conclude in terms of their policy implications due to differences in the methodology used, including the time period involved and units of measurement. Third, these estimates also provide the existing scenario in most of cases, and do not ensure the additionality condition as envisaged under the CDM. Nevertheless, available unit values and technical coefficient obtained from field experiments and past studies provide a basis for estimation of the future potential of carbon sequestration in the agriculture sector. For example, environmental additionality in terms of carbon sequestration could be gained through improved agriculture practices and technological options such as conservation tillage practices, crop residues and integrated plant nutrition management. The use of these unit values could still be widely debated and it may underestimate, or overestimate the carbon sequestration. However, they are still useful for estimating the future potential at the regional level and derive some policy implications for promoting carbon sequestration and implementation of CDM in the agriculture sector.

4. CARBON SEQUESTRATION POTENTIAL OF AGRICULTURE LANDS UNDER 2015 AND 2030 CROP PROJECTIONS SCENARIO

Review of available estimates of soil organic carbon and above ground carbon stock in agricultural lands indicates the potential of the agriculture sector to recapture some lost carbon stock. The implementation of CDM in the agriculture sector of developing countries, however, requires fulfilment of the environmental "additionality" condition. The additionality condition as defined under the KP refers to the reduction in carbon emissions, or an enhancement of carbon removals (or through carbon sequestration) that are additional to any that would occur in the absence of the CDM project (Mulgony et al. 1998). This indicates that the potential for increasing carbon sequestration rather than the existing stocks determine the feasibility of agriculture sector CDM projects. In this context, this section attempts to provide preliminary estimates of the carbon sequestration potential of the agriculture sector in the developing countries under different land use practices and management conditions. The provisional data on crop yield and areas projected for "Agriculture: Towards 2015/30" study are used for the estimation of the additional carbon sequestration by 2015 and 2030 compared to the base year 19962. It is noteworthy that the additional carbon sequestration may or may not result without CDM projects. However, it is assumed that adoption of CDM may help to bring additional investments in the developing country agricultural sector, which will also help to meet the target as set under "Agriculture: Towards 2015/30" with improved land use practices and changes to sustainable farming systems. The additional carbon sequestration as a result of the changes in the agriculture sector could then be considered as CERs for trading between the Annex 1 and non-Annex 1 countries.

FIGURE 4.1
Conceptual framework for estimation of carbon sequestration potential in developing countries under Agriculture AT 2015/30 Scenario

4.1 Methodological Framework and Assumptions

FAO Study "Agriculture: Towards 2015 and 2030" (forthcoming) projects crop area, yield and cropping intensity by region and by agro- ecological zones for rainfed crop and irrigated areas by 2015 and 2030. The projected crop area is likely to increase in the LAC region by 19% and 34% by 2015 and 2030 compared to the base year 1996. The cropping intensity is also expected to increase significantly by 2015 and 2030. Significant change towards the adoption of improved land management practices however, may not be expected within the next 15 years without additional investments and economic incentives, such as under CDM or other mechanisms, to farmers. Thus estimates of additional carbon sequestration have to be based on several assumptions regarding the adoption of various land management practices.

Figure 4.1 shows conceptual methodological framework adopted for estimation of carbon sequestration potential in agriculture under 2015/30 scenario. The major assumptions and procedural framework involves three major steps:

The estimation procedures under different land management alternatives, carbon sequestration coefficient values adopted, area of degraded lands assumed under rehabilitation, and likely conversion of forestlands into agriculture are presented in the following sections. The estimation framework is based on the production approach, which refers to the change in carbon stock both in the soil and biomass due to changes in agriculture productivity as a result of the changes in land use management practices.

4.2 Estimation of Additional Carbon Sequestration by 2015 and 2030 in Latin America and the Caribbean (LAC) Region

Increase in crop biomass/residues from increased crop yields

Increased residue production is usually associated with the increased grain yields (Lal et al., 1998). The functional relationship between the crop yield and crop biomass provide a basis for estimating additional biomass and carbon sequestration resulting from the projected increase in crop yields by 2015 and 2030. When the projected crop yield (Yp) is known, the net biomass (Bn) can be estimated using the functional relationship:

The FAO/IIASA study on Global Agro-ecological Zone (1998) provides the value of harvest index for different crops with different adaptability conditions input use, agro-climatic conditions and seasons. The harvest index values are adopted for medium and low input conditions in the case of rainfed areas and high and medium input use conditions in case of irrigated agriculture. The various index values adopted range from 0.02 to 0.7 for different crops. The carbon stock is estimated as 50% of the crop biomass. The crop biomass for each crop under the projected scenario is estimated using the relation (4.1) under these medium and low input conditions (Appendix 4.1).

The estimated values show additional carbon sequestration through increase in crop biomass due to increased crop yields, and is estimated in the range of 76.67 Mt C/yr. to 93.87 Mt C/yr.for 2015 under high (or medium) and medium (or low) input use conditions, and 131.40 Mt C/yr to 161.03 Mt C/yr under high (or medium) to medium (or low) input conditions for the year 2030 in addition to the base year 1996 . The details are provided in the Appendix 4.1.

Carbon sequestration through adoption of conservation tillage

It is difficult to project the additional area that would be brought under CT in the region by 2015 and 2030, on the basis of available information. The development and adoption of CT systems depends on many factors such as availability of technology suitable to different agro-ecological systems, variety of efficient and low cost herbicides, appropriate machines at adequate prices, and the practice of adequate crop rotations including green manure cover crops (Derpsch, 1999). It could take 10 to 15 years for adoption of this technology in a large percentage of cultivated lands. Preliminary estimates are based on the adoption and likely impacts on the carbon sequestration by years 2015 and 2030. It can be assumed that LAC countries could bring an additional 63% of the area under CT within the next 30 years with an annual additional of 2% until 2015, and by 2.5% thereafter until 2030. The values provided by Lal (1999; Appendix 4.2) are used for the estimation of the carbon sequestration potential in different agro-ecological zones of LAC. The estimated values are given in Appendix 4.3.

The additional carbon sequestration through the adoption of conservation tillage by the year 2015 and 2030 is thus estimated to 8.51 M t C/yr and 34.83 Mt C/yr by assuming about 25% and 38% of the additional area under conservation tillage respectively (Appendix 4.3).

Projected increase in irrigated areas

Increased irrigation facilities, efficient use of irrigation water in the existing irrigated lands and conversion of dry lands into irrigated plots help increase above and below ground biomass production. Provision of irrigation facility could increase crop biomass from 5 to 13 Mg C/ha to 23 to 32 Mg C/ha (Mayland, 1961; cited in Lal, 1999). Increased biomass from irrigated fields could also be retained in the fields which would help increase SOC. Lal (1999) suggested direct carbon sequestration values per unit of area increased under irrigated lands in the range of 0.05-0.3 in different agro-climatic zones. The values, provided by Lal (1999, Appendix 4.2), provide a basis for the estimation of additional C-sequestration from the projected areas under irrigation.

The estimated incremental carbon sequestration from the projected increase in the irrigation areas by the year 2015 and 2030 were estimated to 6.12 Mt C/yr and 13.84 Mt C/yr (Appendix 4.3).

Improved land management practices

Various crop and land management practices can also add carbon stock in the soil and above ground biomass. These include, i) mulch farming practices, ii) use of green compost manures, iii) elimination of bare fallow lands, iv) integrated nutrition management, and v) agriculture intensification. Although these crop and land management activities are inter-linked and would not result in additional carbon sequestration independently, it is also true that all activities would not be adopted by farmers at once, the applicability of all practices are also specific to agro-ecological conditions. For these reasons, some best guesses are made to provide tentative estimates of additional carbon sequestration through the adoption of various practices.

The additional carbon sequestration estimated assuming some percentage of projected agriculture lands under these different land management practices are shown in Appendix 4.3 which range from about 33.32 MT by 2015 and 95.80 Mt by 2030. Among the different land management practices considered, intensification of agriculture was considered the best alternative. However, agriculture intensification itself is considered as combination of other various land management practices such as integrated nutrition management, mixed cropping practices and efficient use of external inputs. For this reason, results summarised in Table 4.1 should be interpreted with caution and combining the possible management options together.

Restoration of degraded lands

Several studies (UNEP, 1991; Dregene et al., 1991; ECOSOC, 1997; Bot and Nachtergaele, 1998) provide estimates of total land area under different types of degraded land from moderate to very severe. Although methodologies adopted in these studies vary widely, comparison of the available estimates for 1984, 1991, and 1998 indicates an increasing trend in land degradation. The total area estimated under moderate to severe land degradation increased from 3,475 M ha in 1984 to 3,592 M ha between 1984 and 1991 (ECOSOC, 1997). Two of the past studies - Global Land Assessment of Degradation (GLASOD) mapping exercise (Odelman et al., 1990) and Global Agro-ecological Zones (GAEZ) assessment (Bot and Nachtergaele, 1998) - provide the most comprehensive global assessment of land degradation.

The GLASOD study (Odelman et al., 1990) estimated about 1.9 thousand million ha of cultivated land affected by soil degradation worldwide. Asia and Pacific had the highest area (850 million ha) of soil degradation. In Africa, about 500 million ha of land were estimated to be under moderate to severely degraded conditions, which corresponds to one-third of the region's total croplands and pasture. In Central and South America, about 306 million ha or 72.7% of agriculturally used drylands suffered from moderate to extreme degradation and some 47% of soil in grazing lands had lost fertility. Recent updates of global agro-ecological zone analysis by FAO/IIASA (Bot et al., 1998) estimated about 26.11 percent of land worldwide to be under severe to very severe human-induced degradation.

Although it would be difficult to estimate additional cultivated land under moderate to severe degradation by 2015 and 2030, existing scenario suggests that the global community needs to give serious attention to prevent further land degradation and also invest more on rehabilitation of already degraded lands. Majority of areas classified under severe to very severe conditions have very steep slopes, poor soil nutrient conditions, and poor drainage in the case of lowlands. These agro-ecological conditions offer very little economic incentives to invest on land rehabilitation for agriculture purposes. The cost of restoration of such degraded lands has been estimated from as low as US$5.0/ha to about US$1000/ha depending on the level of degradation and location. While economic reasons alone may not induce local people in resource conservation and rehabilitation activities in such areas, government intervention for rehabilitation of such areas would also be a highly costly option. The UN Action Plan to Combat Desertification prepared in 1977, which called for a yearly investment of US$ 5-8 000 million over 20 years for full implementation of the plan, could hardly meet more than 10% of the target, and was almost a failure (Glenn et al., 1998). In this context, the implementation of CDM offers an "win-win" situation for both rehabilitation and recapturing of the lost carbon through adoption of land use practices such as agro-forestry or forest plantations in such areas.

In the LAC region, where about 72.7% of drylands used for agriculture suffer from moderate to very severe land degradation and about 16% of the total land is estimated to be under severe to very severe conditions, adoption of agro-forestry offers the best potential for investing under CDM. About 65 to 380 M ha of this land is estimated to be technically suitable for establishment of agro-forestry systems (Dixon et al. 1994). Farmers' adoption of agro-forestry practices in the degraded or marginal lands, specially in the Amazon basin has also been more popular in the recent years among the smallholder farmers with landholding size of 10-100 ha (Smith et al., 1995). In Central Honduras farmers use vegetation success stages as indicators of soil status to identify the level of degradation or rehabilitation and this indicate that farmers are also aware of the improvements in the soil fertility conditions during the land rehabilitation process (Paniagua et al., 1999). In other countries, such as Mexico, Argentina and Chile, carbon management strategies through agro-forestry practices offer the best potential for rehabilitation of degraded lands (Fearnside, 1997). Based on this available information, the following assumptions are made for the estimation of future carbon sequestration potential through rehabilitation of degraded lands in the LAC region:

The estimation of carbon sequestration through the rehabilitation of the degraded lands indicated that about 248.42 Mt C/yr and 108.87 Mt C/yr (high area, low unit value estimates); and 42.51Mt C/yr. and 53.15 Mt C/yr (low area, low unit value estimates) can be restored through rehabilitation of degraded lands in the LAC region by 2015 and 2030. The conservative low estimated values are considered for estimating the net additional carbon sequestration in the region (Table 4.1).

4.3 Potential Release of Carbon due to Conversion of Forests to Agriculture Lands and net Carbon Sequestration by 2015 and 2030

Available information suggests that deforestation in the Latin American and Caribbean countries is continuing at an annual rate that is somewhere between 0.6% (Brazil) and 2.9% (Costa Rica) during 1981-1990, and between 0.1% (Peru) to 3.3% (El Salvador). Likewise, in Mexico, the deforestation rate was estimated to be 1.29% per year during the 1980s (Masera et al. 1995).

Although much of the cleared forestlands have gone to rice or other food crop cultivation after some years of deforestation, it is difficult to estimate how much of the projected crop area in the region will come from existing forest lands by the year 2015 and 2030. Several other factors have also influenced the cause of deforestation in the past; and all of the forestlands that will be cleared in the future may not be entirely assigned to the expansion of crop area. Available figures on deforestation also shows the decreasing trends in global deforestation, during the past 15 years period (1980-1995) (FAO, 1999). Likewise, the rate of deforestation is expected to be lower as the population growth, which is considered to be major factor leading to deforestation, is also slowing down at a faster rate in the region. Third, forest fires also may be attributed to one of the major cause of deforestation in the LAC region. About 2.8 million ha of forests were affected by forest fire during 1997-1998 in different countries of the LAC region (FAO, 1999). Finally, some degraded forest lands may also be subject to the period rehabilitation e.g. through introduction of agroforestry practices and forest plantations as outlined in the earlier section.

All these indicate that agriculture expansion alone may not be the major cause of deforestation or the production of more carbon in the years to come. However, if the same trend continued, some forests areas will come from the existing forestlands in the region and this will have major impacts on the net carbon sequestration by 2015 and 2030. Past studies have shown that the deforestation alone was considered responsible for emitting about 419 million tons of carbon in the year 1991 in six countries of LAC (Brazil, Colombia, Costa-Rica, Mexico, Peru and Venezuela) (Jannsen and Mohr, 1997). The average carbon release per ha of deforested lands in the region was estimated in the range of 23 t/ha (Mexico) to 94 t/ha (Peru) with an average rate of 74.71 t /ha.

The total additional agriculture area to be brought under cultivation, as projected under the 2015 and 2030 scenario for Latin America and Caribbean countries, is about 24.59 M ha by 2015, and 44.51 M ha by 2030. If about two-third of this additional area is to be generated through forest clearance, about 16.39 Mha and 29.67 Mha will be deforested by 2015 and 2030 for agriculture purposes. This will lead to about 0.11 percent deforestation per annum in the region compared to about 0.64% deforestation per annum during 1980-95 period. The amount of potential release of carbon is estimated to about 1172 MT and 2121 MT in total, and about 61.70 MT to 62.40 MT on per annum basis by 2015 and by 2030.

4.4 Summary and Conclusions

This section provided tentative estimates of additional carbon sequestration under the projected agriculture area and yield by 2015 and 2030 in the LAC region. Several assumptions were made for estimating the area under different land use management practices. The unit values applied were mostly taken from Lal (1998) and other available estimates as reported in recent literature. Although both the assumptions made and the unit values considered may not be free from controversy as the subject itself presently is, the tentative estimates of the C-sequestration under the 2015 and 2030 scenario nevertheless could have some useful implications for land management strategies and potential implementation of the CDM in the developing agriculture sector. The net carbon sequestration under the "2015 and 2030" crop projections scenario could be both positive and negative depending on the likely deforestation due to expansion in agriculture. The net carbon sequestration in this case can be derived as:

(additional above ground carbon sequestration due to increased biomass associated with increased crop yield) + (additional carbon sequestration under different land use practices) + (additional carbon sequestration through water conservation and management measures) + (additional carbon sequestration from rehabilitation of degraded lands) - (potential loss in carbon sequestration due to likely deforestation for agriculture purposes)

Table 4.1 shows estimates of net carbon sequestration potential under the 2015 and 2030 crop projection scenario and under several other assumptions related to land use change and forestry. The result however, should be interpreted cautiously as all the land management practices may not be adapted at a time, or the additional carbon sequestration benefits generated may overlap and overestimated at the same time. Table 4.1 also shows only the high potential scenario computed under 2015 and 2030 crop and area projections in which case the net additional carbon sequestration by 2105 and 2030 is positive even when the potential loss due to deforestation is considered. However, the net carbon sequestration appears to be negative when the total carbon release from deforestation by the year 2015 and 2030 is considered instead on per year basis even when maximum estimated values are considered, and the study has thus, several important policy implications:

TABLE 4.1
Summary of results of estimation of additional carbon sequestration under 2015 and 2030 crop projection scenario for LAC countries compared to the base year

SN

Land use alternatives/management practices

2015
(MT/yr)*

2030
(MT/yr)*

1

Increase in biomass and above ground carbon sequestration due to increase in yield**

76.66

131.4

2

Different alternative land management practices

41.84

130.64

3

Water conservation and management

6.12

13.84

4

Loss due to deforestation***

-61.7

-62.4

5

Net carbon sequestration under under 2015 and 2015 scenario

62.92

213.48

6

Rehabilitation of degraded lands

42.51

53.51

7

Total additional C-sequestration

105.43

266.99

* Only conservative lower estimates are shown in the table.
** Quantity on per year basis by 2015 and 2030
*** Estimated pm [er year basis dividing the total carbon release by 19 years (2015-1996) and 34 years (2030-1996) respectively.

The following sections of this paper address the remaining issues raised in section 1.3 on how developing country governments can play a significant role and what kind of policy options would be suitable for the adoption of integrated land management practices and for facilitating the market for CDM.

5. CDM IMPLEMENTATION CRITERIA AND THE ROLE OF NATIONAL GOVERNMENTS IN THE NON-ANNEX 1 COUNTRIES

5.1 Criteria for the Implementation of CDM

The CDM outlined under the KP, is basically designed to meet the emission reduction targets at lower cost by implementing the emission reduction programmes in the non-Annex 1 countries. Article (12) of the KP also provides some basic governing criteria for its implementation, which states:

"The purpose of the CDM shall be to assist Parties not included in Annex 1 in achieving sustainable development and in contributing to the ultimate objective of the Convention, and to assist parties included in the Annex 1 in achieving compliance with their quantified emission limitation and reduction commitments under Article (3)."

The CDM, however, would not provide entirely a new innovative mechanism for achieving sustainable development, but aims at: i) increasing flow of investment to capital intensive projects, ii) stimulating technology cooperation and innovation, iii) helping markets to develop and expand, iv) improving business environment, and v) providing linkage to overall national development3.

The emission trading market under the CDM results from the number of reduction credits known as certified emission reductions (CERs) available for trading emission. As outlined under Article 12 of the KP, Annex 1 countries can obtain "certified emission reductions" from non-Annex 1 developing countries and can apply the reductions to achieve compliance with their own reduction commitments. The concept of CERs in the agriculture sector could be defined as:

"additional reductions in GHG emissions either through direct reduction in the use of fossil fuel energy or through sinks such as carbon sequestration, if no alternative cropping patterns, land use management practices or rehabilitation of degraded lands etc. are undertaken in a non-Annex 1 developing country, then CERs could be generated for above ground C or SOC with the implementation of CDM projects".

The CERs could be considered as a commodity produced either through reducing the equivalent level of emissions, or through removals by sink. It would be in the interest of Annex 1 investors to invest on CDM projects as long as the unit price of CERs obtained through the CDM projects is lower compared to the per unit abatement costs at the investor's home country, and the transaction cost involved is also minimum. In the case of non-Annex 1 countries, they would like to make additional efforts as long as marginal benefit exceeds the marginal cost involved in generating additional one unit of CERs. Thus it would be in the interest of the developing country governments to make additional efforts for bringing down the marginal cost of abatement in order to attract the foreign investors, and help in capacity building such as of the local farmers' community to enter into the competitive CDM markets.

Article (12) of the KP also outlines criteria for voluntary participation, certification of the level of emission reduction achieved, and involvement of private parties under the CDM. These criteria are being developed further in the case of LUCF. In addition, several other factors have to be taken into consideration while implementing the CDM projects. Based on the lessons learned from the past evaluation of AJI projects, Sathaye et al. (1999) outlined several other basic issues. These are:

Most of these criteria are applicable to the CDM projects in the agriculture sector of developing countries. Box (5.1) outlines some criteria related to the implementation of CDM in the developing country agriculture sector.

Box 5.1 Basic criteria for implementation of CDM in the land use change and agriculture sector

acceptable to both the host and recipient country governments;
satisfy the goals of sustainable development at the local and national level in host countries;
potential for increasing resource use efficiency, and reduce or sequester GHG emissions;
simplicity in accounting of emissions and sinks from various agriculture related activities;
less risk of potential leakage of the carbon sequestration from the projects
lower transaction costs and overall project cost-effectiveness;
financial additionality
satisfy, or at least do not conflict with the goals of other UN conventions, especially to CBD, UNCCD, SARD/WFS goals, and WTO rules on agriculture trade liberalisation.

Past works on the CDM mainly attempted to define criteria from the Annex 1-country perspectives so that participation of developing countries in the emission reduction programmes would lead to the cost-effective solutions to meet the emission reduction targets of the KP. For example, Hoel and Schroeder (1998) analysed two different cases for voluntary participation in the GHG emission reductions. The first case was considered without side payments (or transfer of payments such as that under CDM), and taking into account country specific non-environmental costs of not taking part in the emission reduction programmes. The result in this case indicated that the number of developing countries participating in the process was likely to increase. The second case was analysed including the side payments (or transfer of payments) for the participating countries and the results indicated that number of participating countries would decrease. Ellerman et al. (1998) also indicated that if the developed countries were compelled to meet the emission reduction targets without international emission trading mechanisms in place, it would also affect the consumption and production patterns in the developed countries. The net result could be the decrease in the imports of consumption goods from the developing countries, which could have negative impacts on the earnings of the exporting countries. However, the cases analysed do not incorporate the direct impacts of emission reduction programmes in the developing countries and thus, provide only a partial analysis.

Under which conditions can developing countries participate, or is beneficial for them to participate in the CDM, and what role should developing country governments play to facilitate the implementation of CDM and maximise the net benefits from the implementation of the projects that have received a limited focus. The net benefits of developing country participation in the CDM is primarily based on investment flows from the developed countries under the CDM, and the potential negative impacts on the national economy if any, from the implementation of CDM projects. Various provisions that could motivate developing countries participation in the CDM projects could be:

FIGURE 5.1
Responsibilities of national government and private sector under the Kyoto Protocol

These different sets of criteria, constraints and opportunities involved, demand a definite role of the developing country governments in the development and implementation of CDM projects. There is need for well-defined national policies and institutional mechanisms for facilitating CDM and to maximise the net potential benefits, rather than considering CDM projects to be private sector business between farmers in the host country and private investors from Annex 1 countries. Both the criteria and responsibilities for national governments as well as the private sector could be different than that for Annex 1 countries (Figure 5.1). It is also important that technical and financial assistance should be provided by the Annex 1 countries to the developing countries for developing CDM project approval procedures, and establishment of the market value for the GHG credits (Lile et al., 1998). Also the CDM projects cannot be implemented in isolation vis-à-vis other national objectives and programmes. National government will have to play significant roles for facilitating the basic criteria for the implementation of CDM, and for making the use of CDM as an innovative mechanism for achieving the overall goal of SARD and other related UN Conventions.

5.2 The Role of Developing Countries

Article (17) of the KP states that participation under CDM, and in the acquisition of CERs, may involve private and public sector entities. Although several criteria and mechanisms remain to be established, and the IPPC is currently working on developing guidelines for land use change and forestry, a number of policy issues related to the implementation of CDM still remain unclear5.

The basic role of the national governments in facilitating the implementation of CDM are to monitor to what extent the projects contribute to the sustainable development and are compatible with the national goals, and provide a role of coordinator between the international CDM bodies6. In this regard, national governments in developing countries may initiate that process by assessing the potential of agriculture sector for participating in the CDM projects, identifying likely feasible projects, providing information to the farmers' community of the potential benefits and risks associated with CDM projects. The national governments in the developing countries can also set up the right institutions to act as a role of coordinator, lower the transaction costs involved and ensure several other criteria ( see Box 5.1).

Initiating the national process for participating in the CDM projects

Developing countries also have the important responsibility of defining the main provisions made in the Kyoto treaty and CDM, analysing the likely impacts on the economy and environment, and providing information to the public in cooperation with the Annex 1 countries. Box (5.2) outlines some major activities for initiating the national process towards this direction.

Box 5.2 Initiating National Process for Competing in the CERs Market

Provide clear definition of the "carbon stock"-aboveground and underground biomass, and stock of soil organic matter, or soil organic carbon in the national agriculture context.
Measure farmers' perception on the adoption of CDM projects and on the level of maximum and minimum economic incentives desired by the farmers for the adoption of such projects.
Launch education and extension programmes on changes in land use and crop rotation practices those that are beneficial from both the agriculture productivity and carbon sequestration viewpoints and encourage farmers' participation in the CDM projects.
Identify the potential projects for the implementation of CDM at the local/regional level, ranking by using different criteria from high to low potential.
Analyse the potential impacts on farmers in low potential areas and identify measures to reduce potential negative impacts of the CDM projects, if implemented in the vicinity of low potential areas (e.g. on small landholders in resource poor areas where both the potential of increasing carbon sequestration and accounting could be low and complex).
Facilitate market for CERs units purchasing under the CDM.

Accounting, monitoring, verification and certification of CDM project performance

Accounting of existing carbon stocks and reporting including changes in the stocks as a result of the CDM projects is important for developing countries for two reasons. Firstly, under the United Nations Framework Convention on Climate Change (UNFCC), more than 160 countries are required to report their national greenhouse gas inventories. The implementation of the CDM projects would make a change in the total stocks of GHGs, although the changes or additional removals through carbon sequestration are directly accounted under CERs.

Secondly, the institutional base and mechanisms for monitoring project performance in the developing country agriculture sector are rather weak and need to be further strengthened. Evaluation carried out in the past on several agriculture development projects assisted by multinationals, UN and bilateral donor agencies, have indicated that developing countries need to develop project performance indicators and build capability for timely monitoring of project activities. Although, monitoring of CDM projects is the responsibility of the Annex 1 parties, however as demonstrated by the Mexican case of AJI, the technical capability of national governments would help to maximise the net benefits from such projects. The national governments could initiate various measures for developing project accounting and performance indicators, and assist in regular monitoring of such activities (Box 5.3).

Box: 5.3 Development of Project Guidelines for Accounting and Monitoring

Development of accounting framework for measuring the potential changes in the stock of biomass and the SOC under different agro-climatic and cropping pattern conditions, for example, relating yield with biomass for different crops at different growth stages.
Development of accounting and recording system of the farmers' adoption of cropping practices, input use and land management under different agro-climatic zones or by land capability/suitability zones, which could provide a basis for project selection and identification of baseline conditions.
Integration of database management system with national database management system e.g. with national cartographic or GIS-based database management and analysis.
Establishment of institutional structure in order to facilitate monitoring of micro-nutrient flows and balances and identification of soil carbon management technologies.

Establishment of measures to minimize potential risks and uncertainties involved in the carbon credit market

Trading for carbon credits under CDM involves both environmental and financial risks. While environmental risks are associated with the potential negative impacts at the local level, the financial risk is associated with the potential leakage of the carbon stock stored in the soil or crop biomass. Establishment of institutional measures in order to minimise these risks will help to attract private investors and farmers in the carbon credit market. National governments may establish sound networks for monitoring of GHG emission reductions or removals by sinks for different types of agro-industries and land use systems in different agro-ecological zones using the life cycle approach and carbon sequestration potential at each stage. The level of financial risk is also associated with likely fluctuations in the price of carbon credits in both domestic and international markets. The national governments may help to minimize the risks and uncertainties involved in the CERs market by formulating and implementing several precautionary measures (Box 5.4).

Box 5.4 Measures for Promoting the Market for Implementation of CDM

Establishment of domestic emission trading mechanism for trading of carbon emissions among those who prefer to reduce the existing level of emission and sell it in the domestic market and those who could buy and sell it in the international market;
Formulation of rules facilitating investors to purchase the CERs either through direct investments in the agriculture projects and certification of CERs from the projects or purchase of CERs under internationally certified market.
Reducing the associated risks and uncertainties by allowing measures for implementation of insurance, or guarantee schemes in line with internationally established mechanisms.
Limiting of the total CERs available for auction at the national level for a fixed period of time in order to reduce the risk of carbon stock price fluctuations in the market.

6. IN THE DEVELOPING COUNTRIES

The potential contribution of the agricultural sector in the reduction of GHG emissions by sources and removals by sinks in the agriculture soils largely depend on the farmers' adoption of environmentally friendly land use and management practices. Farmers' decision on adoption of these practices that result in additional carbon sequestration in particular ecological settings, are largely influenced by the net returns from the farm, existing agriculture and environmental policies. Although farmers' adoption of these practices also create on-farm benefits such as increased crop yields, adoption of these practices in a wider scale largely depends on to what extent farmers are compensated for the additional global benefits and taxed for the negative externalities they generate from their local activities. Farmers' may need additional knowledge and resources for investing in such practices. The management agreement that could take place between the farmers and the private sector companies of Annex-1 countries under the CDM, may provide direct additional economic incentives to farmers equivalent to the global benefits or per unit of CERs they could generate through the adoption of additional conservation activities. Farmers' decision on land allocation for different uses and adoption of management strategies will also influence the level of benefits to be accrued from the CDM projects. Farmers' decision on land allocation for different purposes and their shift towards adoption of land management practices, on the other hand, are also largely influenced by the existing economy-wide policies, and strategies such as investment in research on soil fertility management, provision of required infrastructures and market facilities etc.

The purpose of this section is to examine the broad range of policy issues and suggest measures for enhancing carbon sequestration in the agriculture sector and promote CDM markets in the developing countries. First, the basic issues involved in the design of policy options for CDM projects in the agriculture sector are highlighted. Second, implications of the past domestic policy reforms on the soil conservation activities are briefly summarised. Third, for agriculture sector to be more competitive and attractive as a part of the wider GHG emission mitigation strategy under the CDM, there is need for reforms in the current agriculture policies. Some additional policy measures directly applicable to carbon reduction by source and removal by sinks are suggested along with other measures outlined in major UN Conventions related to the agriculture sector.

6.1 Basic Issues in the Design of Policies for Implementing the CDM Projects

The design of domestic policies for implementing CDM however, involves several basic issues. First, although the CDM under the KP provides an international tradable permit system, it may not necessarily be compatible with the notion of domestic sovereignty regarding the choice of domestic policy instruments (Kahn and Stavins, 1999). Several other factors may equally influence policies to be adopted by the developing countries such as the types of policies that Annex countries will adopt and size of the hot air permitted for trading with the non Annex 1 countries.

The second issue is linked to the equity concerns involved in the CDM. Studies carried out in the past have shown the cost-effectiveness of the emission reduction programmes under CDM up to US$ 60-70 per ton of carbon emission reductions. This provides relatively large incentives to the parties in the Annex-1 countries to invest for emission reductions in the developing countries7. However, what percentage of the increased gains in cost reductions achieved with the participation of the developing countries will be shared among the parties involved, is still unclear. The CDM, or the KP does not specify any criteria for equitable sharing of the global benefits derived through local activities.

The benefit sharing issue may also arise, because of the complementarity of many policies outlined under different related UN Conventions. Domestic policy reforms aimed at integrating SARD concerns also largely contribute to the carbon sequestration. This could also lower per unit cost of additional carbon sequestration. How to separate the impacts of policy measures and at what basis should the developing country governments or the farmers be compensated for the additional unit of CERs generated in such a case is also unclear. Past evaluation of forestry projects for their carbon sequestration potential in developing countries shows considerable difference in host country (developing country) requests, and the price offered by the private companies per ton of carbon sequestration. The study conducted by the World Resources Institute (WRI) for the Applied Energy Service Inc., USA indicated that a project having the second lowest difference and lowest value per ton of carbon sequestration was selected (Faeth et al., 1994). If the price is always kept low in the emission trading market, because of the reduction in per unit cost due to other complementary policies, this may create distortions in the CDM market benefiting to the recipient countries than to the host countries, or to the farmers.

The third issue is linked to the likely impacts of CDM projects and policies at the economy wide level. Proponents of the CDM consider this mechanism as a vehicle for promoting sustainable development in the developing countries. The additional FDI that will take place under the CDM could help the developing countries to invest more in clean technologies and resource conservation practices thereby promoting sustainable resource management. Despite these assertions, experience with the pilot projects known as AJI has shown only limited flow of additional FDI in the past and the likely impacts on the additional FDI flows are still uncertain. If the size of the projects, and hence the flow of FDI is limited, then it will have no major impact at the economy-wide level and no major adjustments in the macroeconomic policies may be essential. However, if the market size is large, it will have significant impact at the economy-wide level. For example, if more agriculture areas are brought under tree plantations it will have significant impacts on the trade flows and export earnings of the developing countries. If timber production increases as a part of larger investment on commercial plantation, while timber price may fall, agricultural production may go down, benefiting to the recipient countries in several ways. The net benefit to the developing countries may be minimum or even negative.

Fourth, existing policies may also largely influence the input and output markets, which may affect the soil nutrient management practices. For example, as a result of the pricing policy reforms in some developing countries under the structural adjustment programmes, the fertilizer price has gone up forcing farmers to use alternative means of soil nutrient management such as use of organic sources of nutrients. But on the contrary, perverse incentives existing in other sectors of the economy may have negative impacts on soil nutrient management as well. Analysis of the existing gaps are also necessary in the design of policy measures aimed at sequestering carbon and promoting CDM markets in the agriculture sector.

The first two issues concerned with the size of the CDM market and benefit sharing are to be addressed by the Conference of Parties (COP). The latter two issues on the impacts of past policies and the design of appropriate domestic policy measures for implementation of CDM are of major for developing countries. The next section briefly reviews the impact of the past policy measures on soil conservation and management activities in developing country agricultural sector.

6.2 National Agri-environmental Policies and Existing Gaps

Developing countries have initiated some form of regulatory policies, macroeconomic policy reforms and formulation of National Environmental Action Plan (NEAP), which together could have significant impacts on the land use change, soil conservation and management activities. Increased environmental awareness in most of the Latin American countries, for example, in Mexico, Brazil, El Salvador, Cost Rica, etc. have helped to introduce both regulatory and market-based measures in recent years. The level of enforcement in some cases has also been strong such as in the case of wastewater discharge control in El Salvador, and limiting agriculture credit to coffee cultivation in ecologically sensitive areas in Brazil (Motta et al., 1999).

The impacts of macroeconomic policy reforms in the agriculture sector of Latin America and Caribbean countries however, have been mixed. The removal of consumer subsidies and producer's support prices on basic staple foods have shifted the cropping patterns from traditional crops to non-traditional export crops, for example in Honduras. These policy changes have also increased pressure on farmers' income, especially of small holders and have resulted in the negative balance of soil nutrients causing soil mining and unsustainable crop production system (Kammerbeur, 1999). Likewise, in northern Colombia, agriculture productivity such as cassava yields have declined in the recent years, which is particularly associated with the low organic matter and nutrients. Studies on the impacts of macroeconomic policy reforms on agriculture and environment in the region also have indicated displacement of labour due to shifts in agricultural practices that have increased pressure on marginal lands and contributed to the mining of soils in such areas, in the absence of conservation practices (May et al., 1997). The institutional re-orientation that took place in most of the countries of the region, such as Argentina, Paraguay, Chile, Brazil, Uruguay, Mexico, Bolivia, etc. in setting up zero tillage organization, including NGOs, have helped increase the area under the zero tillage systems and increase soil conservation measures (Desperch, 1998).

In Southeast and South Asia, most of countries have introduced Environmental Protection Act (EPA), natural resource conservation laws, and market-based incentives that could have both direct and indirect effects on agriculture practices and soil conservation activities. The impacts of macro-economic policy reforms on soil fertility management, however, are mixed. Some direct impacts on increased soil erosion in Southern Thailand was said to have resulted from the increased price of Cassava after the SAP was initiated in Thailand in mid-1980s (Reed, 1993). On the other hand, Bandara and Coxhead (1995), indicated negative impacts of trade liberalisation on land degradation in Sri Lanka.

Countries in the Africa region initiated the NEAP with an aim of improving environmental concerns. The NEAP, assisted by the World Bank, was prepared in 90 developing countries. In most of the countries, a combination of environmental policies and legal instruments, and institutional reforms were suggested. This process, to some extent, helped countries raise environmental awareness, prioritize environmental concerns and formulate regulations. However, both the past attempts in macroeconomic policy reforms and existing physical conditions present several constraints in implementing soil fertility management strategies, in Sub-Saharan Africa-for example (Box 6.1).

Box 6.1: Problems in improving soil fertility management in sub-Saharan Africa

In sub-Saharan Africa, where more than 60 million smallholder farmers practice agriculture, declining soil fertility is a fundamental impediment to agricultural growth and a major reason for slow growth in food production. Low amounts of soil organic matter (SOM) combined with poor land cover have resulted in poor soil structure, limited rooting depth and susceptibility to accelerated erosion are considered as In the Sub-Saharan Africa. The major problems with the declining soil fertility are associated with:

the existing gaps between the outcomes under research conditions and the lack of knowledge on the soil fertility management requirements;
farmers' inability to bear risk of crop losses from adverse weather, pests and diseases, or failure of technology, or income losses from adverse market developments;
limits on profitability arising from technical factors, for example, fertilizer use may not be financially viable because soils are too poor to use it effectively; there is an inadequate response from lower grade crop varieties or poor seeds; or farmers are unable to apply the comprehensive package of complementary practices needed to get the most out of the fertilizer;
limits on profitability arising from economic factors because of the high costs of getting fertilizer to the fields; inadequate prices or late payments for crops; unavailability of other purchased inputs; or, as in the case of some soil conservation techniques, externalities make only community solutions viable;
impacts of the macroeconomic policy instruments related to the exchange rates, subsidies, liberalization of policies for inputs and outputs, and agricultural research and extension.
Such problems were mainly experienced in the countries of the region like Kenya, Malawi, Mali and Ethiopia.

(Source: Donovan and Casey, 1998)

In general, the impacts of economy-wide policy reforms carried out in developing countries could be towards increased prices of the agriculture products (Valdes and McCalla, 1999). The increased price of the products on the other hand could place farmers in a better position for investing in land improvement activities. However, agriculture price reform alone do not provide right incentives and can have only modest impacts on the soil conservation measures (Barett, 1991, cited in Bulte et al., 1999). The higher prices of agriculture products could increase the soil conservation measures and hence soil thickness only when agriculture producers face a set of perfect markets for their inputs and outputs (Bulte et al., 1999). In the absence of such a market, farmers may not anticipate the continued price increase in the long-run and in some cases, and the technical rate of substitution between the soil nutrient mining and soil conservation may be constant (Barret, 1997).

This brief review of available information on the impacts of macroeconomic policy reforms on soil nutrient depletion and soil conservation measures which are directly applicable to the CDM projects, suggest that:

The remaining portion of this section outlines i) regulatory policies, ii) incentive based policies and iii) emission trading mechanism under the CDM in the light of those suggested measures in other UN Conventions such as SARD, UNCCD, and CBD as well for application in the developing country agricultural sector.

6.3 Regulatory Policies or Land Use Regulations and Management Strategies

Changes in land use patterns and land management practices result in significant changes in the crop biomass and soil organic carbon. Changes in cropping practices from monocropping to rotational cropping, switching from traditional crops to energy crops and agro-forestry practices changes both the SOC and aboveground biomass. In the past, land use planning and agriculture policy reforms were mainly focussed towards increasing agriculture productivity and food security. The challenges in the case of CDM, however, is to design policies and encourage farmers to adopt crop residues and soil carbon management activities and to sustain these practices for a longer period while maintaining agricultural productivity and food security concerns as well. Maintenance of resource productivity, or natural capital stock as a measure of sustainable food production system, also involves soil carbon management including managing soil microbiology, nutrient recycling and crop residue management. Various land use and management practices could help recover about 50% of the lost soil carbon the next 50-100 years (IGBP, 1998). The government can formulate and introduce both regulatory policies and market-based incentives to encourage farmers towards adoption of integrated land use and management practices. The advantage with regulatory measures is that some form of land use regulations already exists in many developing countries. The existing regulatory measures for changing land use and management practices in the agriculture sector could be strengthened in several ways (Box 6.2).

Box 6.2: Regulatory measures for changing land use and land management practices

Regulating land use practices and changes that influence carbon sequestration directly such as shifting from mono-cropping patterns to the mixed cropping systems, agro-forestry and tree crop plantations, especially in degraded lands.
Enforcing land management practices such as: i) changes in the amount and diversity of litter, residues and plant biomass inputs, ii) through conservation tillage and mulching practices, which influences the biological process of decomposition and mineralization, and iii) modification of the timing and placement of organic inputs as well as manipulation of soil fauna that also help in manipulating the soil quality and quantity by changing the soil environment (Swift et al., 1991; cited in Fernandes et al., 1997).
Encouraging water and land management practices, which may help increase carbon sequestration indirectly, such as through efficient water management practices that affect the biological and chemical processes and changes the level of carbon uptake.
Investment on technology development and research aimed at evaluating and improving various soil conservation/land management practices under different agro-ecological zones, especially in degraded land areas.
Monitoring changes in soil quality under each land use/management practices and channeling information to the farmers through on-farm technical assistance and extension education.

The government land use regulations, those based on the classifications of land types by agro-climatic zones, or land capability and suitability, could be extended to cover land management strategies. Use of scientific tools such as satellite imagery and geographic information techniques (GIS) can facilitate database management, further classification in land use patterns and carbon accounting. Land use regulations for the purpose of facilitating the implementation of CDM could be established for various measures outlined in Box 6.3. The advantage of these several regulatory measures are that many developing countries already have some form of land use planning and institutional frameworks that could formulate and adopt these complementary strategies. Regulatory measures could also impose land use restrictions in specific areas for specific crops without additional compensation or subsidies.

Box 6.3 : Land use regulations for promoting sustainable agriculture practices and carbon sequestration

Use of cover crops and crop rotations in the resource rich areas of existing agriculture lands without affecting total agriculture production.
Allocation of areas for planting of fuel substitution crops.
Regulations requiring conservation tillage in suitable agro-climatic locations, and for residue management practices for example, requiring more than 50% of the crop residues to be retained in the field for recycling.
Classification of existing agriculture lands according to soil fertility conditions - e.g., resource rich and enhancement areas and formulation and adoption of guidelines to maintain soil fertility in these areas under different land and crop management practices.
Regulating the land use in already degraded areas and implementing research findings for the purpose of restoring lost carbon either through land rehabilitation practices such as agro-forestry, or from pasture land management and tree plantations.
Monitoring land use changes at certain intervals using different tools and techniques such as aerial photography, satellite imagery, ground measurements, and management and analysis of database using GIS techniques.

6.4 Economic Incentives or Market-based Policy Measures

Although easy to implement, regulatory measures largely neglect farmers' perception and their choices for particular farming practices. Farmers may also need additional economic incentives for the adoption of such practices and regulatory measures alone may not be effective for various reasons:

Provision of economic incentives such as subsidies could encourage farmers to engage in soil conservation and management activities which increase in carbon sequestration and taxes provides disincentives and discourage unsustainable land use and management practices (Antle et al., 1999). Market-based policies may be designed for encouraging farmers towards soil carbon sequestration activities in several ways.

Although the same set of policies may not be applicable or enough to encourage land users to adopt of conservation measures, a rich list of public policy tools could be suggested based on the past experiences of some developed and developing countries. These policies outlined in Table 6.1 for example, could be implemented for:

The relative efficiency of different policy measures suggested in Table 6.1 could widely vary. Design of policy measures for promoting CDM markets also requires accurate measurement or quantification of emission under each policy measure, transparency in reporting and programme operation, accountability, or making the participants accountable for meeting their goals, minimization of transactions costs and the consistency or sustainability of the policy itself (Edmunds et al., 1999). The last column in Table 6.1 also highlights some of these aspects related to each suggested policy measures.

Direct subsidies for soil conservation and management activities

Direct subsidies for soil conservation programmes being practised in many donor-supported projects in developing countries could be a viable option for promoting the carbon sequestration in soil and biomass by encouraging farmers to adopt such practices. As concluded in section 4.6, rehabilitation of degraded lands provides the best alternative option for recapturing the lost carbon sequestration in the soils. Economic incentives such as price supports for agro-forestry products produced from marginal lands in order to promote agro-forestry management practices in such areas are widely considered as the viable option for the rehabilitation of the degraded lands. As the incremental cost per ton of carbon sequestration is likely to vary according to the agro-ecological conditions, the design of subsidy programme could be based both on the flat or differential payment system. Usually, three situations may arise among others, such as:

In general, incremental cost per ton of carbon sequestration from a shift in the land use and land management practices is likely to vary. In such situation, the effective subsidy programme would be that which aims at decreasing the subsidy of the farmers whose incremental cost is high, and increasing the subsidy of the farmer whose incremental cost is lower. Pautsch and Babcock (1999) in a case study of carbon sequestration from conservation tillage in the US showed that the effectiveness of the differential subsidy programmes largely depends on administrative costs involved in administering the subsidy programme and a single subsidy programme could lower these costs. Such a subsidy programme for enhancing soil carbon sequestration could be implemented by reforming present agriculture subsidy programmes by providing subsidies on environmental damaging activities to carbon enhancing activities. While Annex 1 countries could directly obtain the rights to carbon sequestered by such activities (Zilberman et al., 1999), the developing country governments could obtain rights for trading with Annex 1 countries. Such programmes could be implemented with the help of GEF for providing financial support to national governments on the basis of incremental cost or incremental benefit.

TABLE 6.1
Suggested policy measures and issues related to relative efficiency and accountability

 

Policy objectives/categories

Suggested policy measures

Issues related to relative efficiency and accountability of the policy measures

1.

Policies that make further use of degraded lands less profitable

Gradual removal of subsidies on excessive use of chemical inputs and irrigation water, review of existing land tax system and taxing more on unsustainable production methods and practices

Spatial and distributional impacts in the case of resource poor areas where there is need for external input and particularly on the smallholders whose purchasing capacity needs to be enhanced through other means

2.

Policies that make land and soil conservation measures more profitable

Linking subsidies directly to the soil conservation measures; granting of tax credits for investment in a particular type of conservation measure such as conservation tillage with differential rate for areas under severe and very severe land degradation conditions which may also encourage farmers to voluntarily comply with the adoption of conservation measures

High transaction cost and difficult to monitor where well-functioning of market system could still be a major issue

3.

Policies that promote sustainable intensification rather than extensification of agricultural lands

Provision of market facilities and information; extension programmes on integrated plant nutrition management; research on costs and benefits of cover crops and crop rotation investments in rehabilitation of on-farm infrastructures

Extra-budgetary requirements, need for high investment on research and information technologies

4.

Policies which make sustainable forest management more attractive than clearing and converting into agricultural lands

Adoption of land degradation accounting and full cost-pricing system of forest products; removal of credit and subsidies for cultivation in forest cleared lands; promotion of market for non-forest products and natural resource based processing industries

Resistance from mainstream planners for integration into national accounting system; resistance from vested interested groups benefitting from logging and forest conversion activities

5.

Facilitating adoption of innovative financing mechanism for rehabilitation of degraded lands

Introduction of soil conservation and agro-forestry and forest plantation measures which also help in sequestering carbon in soil and biomass and compensate farmers for the incremental costs through GEF funding or by extending the scope for financing under clean development mechanism by private companies where feasible

Lack of institutional mechanism and research facilities, and information system for facilitating the adoption of the new innovative mechanisms like the adoption of CDM as an additional incentive measure especially for the rehabilitation of degraded lands

Differential land taxes and revenue recycling

Differential land tax structure such as tax concessions for sustainable forestry and land management practices, and increased taxes on forestry products equal to the resource rent may discourage farmers to continue unsustainable forestry and land management practices. The differential tax system which has widely been practised such as in the case of leaded and unleaded gasoline for controlling air pollution in the urban areas, could provide right incentives to shift farmers making a shift towards resource conserving practices. While past experience of rural land tax in Brazil designed to stimulate the rural productivity was found having negative impact on the resource conservation, the differential tax regime introduced in Niger Savannah woodland had positive impact on the resource conservation practices (Richards, 1999). The next type of tax called `ecological value added tax' introduced in Brazil, however, had larger positive effects on which restricted land uses was favourable to conservation and water protection (Motta et al., 2000). Both the differential tax and ecological value added tax system are also useful for compensating the farmers by recycling collected revenue for the adoption of land use change and management practices which enhance carbon sequestration in the soils.

The differential tax system could be implemented in different ways as outlined in Table 6.1 depending on agro-ecological characteristics of the lands, land management practices and the use of chemical fertilizers and pesticides. The success of such taxes, however, largely depends on how the collected revenue is recycled. If farmers know in advance that the collected revenue will be utilized while recycling the revenue, there could be several options for recycling the collected revenue such as flat rate wage subsidization for on-farm activities aimed at soil conservation measures, and expanding local government or community expenditures on rehabilitation of degraded lands which could benefit the local community as a whole. If the size of the collected revenue is large enough, it could also be used in direct subsidy for compensating the farmers producing additional tons of carbon sequestration through their on-farm activities.

Transfer payment mechanism under the CDM

Although the inclusion of agriculture sector in the CDM is yet to be addressed, if implemented, the CDM provides an alternative means for compensating the farmers through international transfer payment mechanism, or beneficiary compensates principle (Izac, 1997). In this case, the level of compensation to the farmers may be designed by equating marginal (or average incremental) costs and marginal global and local benefits of the CDM projects. However, in practice, estimation of marginal cost and marginal benefits are not so easy. The economic incentive measures based on the beneficiary compensates principle (e.g., compensation by the Annex 1 parties for the additional CERs, and by national governments for national and local environmental benefits) would have to be designed and implemented at various levels. Such measures are also suggested in the case of joint implementation among the Annex 1 countries, when short-term introduction of national energy tax may not be a possible option for reducing the GHG emissions (Michaelowa, 1995).

Usually not all the farmers' fields can be used equally or can produce the same level of CERs units and in some cases, incremental costs may exceed incremental benefits. In other words, the financial gains to the parties involved could also be zero or even negative in initial years of project life. Selection of areas that are economically viable and design of public policy, which allows some compensation to farmers in economically less viable areas, in addition to the direct compensation provided by the parties, may help encourage both parties to enter into agreement. The developing countries may seek financial assistance from the GEF like in the existing case of biodiversity conservation. It could also be helpful for making transition towards sustainable resource use practices in resource poor areas, if implemented in a wider scale.

6.5 Design of Domestic Carbon Trading Systems under the CDM

The emission trading market under the CDM results from the number of reduction credits known as certified emission reductions (CERs) available for trading emission. As outlined under Article 12 of the KP, and already mentioned in section 5.1, Annex 1 countries can obtain "certified emission reductions" from non-Annex 1 developing countries and can apply the reductions to achieve compliance with their own reduction commitments. Introduction of domestic emission trading systems is necessary for developing a domestic market and limiting the total CERs trading quotas in the domestic market in order to avoid large fluctuations in the market price. Creation of domestic trading market is necessary for cost-effective option of competing in the international green house trading market. Under the tradable emission permits in the domestic market, any farmer who wishes to develop his land and sequester carbon in excess of the amount of existing management practices, could purchase additional rights and sell the additional amount of carbon sequestered in the market. Such practices could be more cost-effective with lower opportunity and transaction costs. However, such lands exist under the CERs but there is also need to monitor and enforce land use change and land management practices.

However, design of successful domestic emission trading programmes also requires additional institutional measures. Clear definition of land rights and allocation of land entitlements to create an environment for long-term decision-making by farmers are necessary because the success of CDM projects also depends on farmers' abilities to enter into long-term contracts. Likewise, extension of agriculture research and extension works to include CDM projects and inform farmers of the likely additional benefits of taking part in CDM projects and making provisions for necessary know-how, such as various carbon management practices could be an additional policy option for consideration.

Besides, four major conditions such as compliance, lower transaction costs, competitive market for emission trading, and sustainability of policy are considered essential for the success of emission trading programmes (Hahn and Stavins, 1993). The US experience on emission trading system also indicates that trading systems work best when all stakeholders believe that transactions involve "excess reductions" between sources to voluntarily lower and redistribute the costs of compliance while guaranteeing that the overarching environmental goal will be met (PCSD, 1996).

These conditionalities are tied to CDM criteria and the same applies in the case of domestic market design and the role of the government is quite important in institutionalizing these processes as outlined in the section 5.

6.6 Implications of Policy Reforms for implementing other UN Conventions

Several UN Conventions such as CBD, UNCCD and Agenda 21 Chapter 14 (SARD) outline measures and programmes of action for conservation and sustainable use of natural resources (Figure 6.1). These include both the regulatory measures such as land use planning and rehabilitation of degraded lands and economic incentive measures such as removal of perverse incentives in agriculture sector and pricing of irrigation water. The provisions, made in various Conventions, if properly implemented, could help in promoting sustainable agriculture and increase carbon sequestration in agriculture soils and biomass. However, many of the policies are yet to be introduced and there exist some gaps as discussed in section 6.2. Policy instruments facilitating CDM would thus involve strengthening of the existing policy measures and designing an integrated policy framework that also address the concerns outlined in other UN Conventions as well.

6.7 Policy Trade-offs and Making Policy Decisions

The introduction of CDM also brings a new era in public policy decision-making processes. Many of the policy prescriptions outlined above could be complementary to the SARD objectives, and no policy trade-offs may be involved at the project or farm level. However, depending upon the scale of agriculture projects under the CDM and changes in cropping patterns, some trade-offs may be involved in relation to the national objectives of food security and environment. For example, if pasture lands and fast growing tree plantation are preferable to existing cultivation practices and management of forestry lands, some trade-offs may be involved in the national objectives such as:

FIGURE 6.1
Major UN Conventions related to the agriculture sector and measure for policy reforms

Although proponents of CDM see it as a mechanism for sustainable development in the non-Annex 1 countries, sustainable development is not defined in the Protocol and there is need for defining sustainability criteria and developing framework for economic analysis for application in the developing country agriculture sector. The next complex task for the developing countries is to define sustainability criteria and evaluate costs and benefits of CDM projects in relation to the different policy options for making optimal policy decisions.

What decision-making tools and approaches are suitable to address policy decisions regarding the CDM projects? The efficiency and cost-effectiveness of various market-based policy instruments usually depend on how correctly associated costs and benefits of the projects can be estimated (Bonnieux et al., 1998). Ekins (1994) pointed out that the costs and benefits involved in any climate change related projects are of major importance for any approach to decision making. Thus economic analysis and making policy decisions form an integral part of the implementation of CDM projects. The next section provides an analytical framework for making policy decisions using extended CBA.

7. CONCLUSIONS AND THE ROLE OF FAO IN IMPLEMENTING CDM
IN DEVELOPING COUNTRIES AGRICULTURAL SECTOR

7.1 Conclusions

Agriculture has been considered as one of major anthropogenic source of GHG emissions. The role of agriculture as a potential source of removals of GHGs by sink, however, has received very little attention in the international and national debates related to the GHG emission reductions. Although Sections 3.3, 3.4 and 3.7 of the Kyoto Protocol includes the land use change, forestry and agriculture activities which Annex 1 countries can include for the purpose of accounting, or emission reduction purposes. The pilot projects known as "activities jointly implemented" carried out in the past however are limited to the forestry sector. The role of the sustainable agriculture practices in both the reducing GHG emissions and enhancing carbon sequestration has been widely neglected.

This paper attempted to identify some of the emerging issues for implementing the CDM in the developing country agricultural sector and highlighted the linkages between the Kyoto Protocol and other related UN Conventions. In general, the objectives, principles and programme of actions outlined in other UN Conventions closely related to the land and agriculture, are compatible to the objectives of the Kyoto Protocol. A review of available field level information and evidences from around the developing world, and the tentative estimates carried out for the Latin American and Caribbean region indicate the significant role of the agriculture sector in additional carbon sequestration.

Although implementation of projects under CDM in the developing countries could be considered as purely a private sector business, however, the role of government is important in facilitating the implementation of CDM in the most cost-effective way and sharing benefits more equitably between the parties involved. The government may also contribute to the establishment of accounting procedures and creating awareness among the farmers on the benefits of CDM projects both in terms of direct additional revenue generation and increase in agriculture productivity.

Reforming policies in the developing country agriculture sector, among others, could thus involve three basic mechanisms - i) formulation and adoption of various land management strategies, ii) development of beneficiary compensates mechanism under the CDM, and iii) reforms in the existing national agriculture policies. Various measures were suggested under (i) and (iii) in the context of developing country agriculture sector. ongoing policy review conducted under other UN Conventions also could promote both sustainable agriculture practices and sequestration of carbon in the agriculture soils and biomass.

The CDM projects by definition should support sustainable development in the developing countries and thus, should satisfy environmental, economic and social sustainability criteria. As in the case of other agriculture development projects, CDM project analysis should also incorporated these various criteria while carrying out the economic analysis. To conclude, this paper has attempted to provide an over view of the concept of CDM in the context of developing country agriculture sector, and some key issues in how this could be implemented if developing countries are interested in taking part in the GHG emission reduction activities e.g. under the CDM.

7.2 The Role of FAO in Facilitating the Implementation of CDM in the Developing Country Agriculture Sector

The FAO is presently the Task Manager of four "land cluster" chapters of Agenda 21 and is the main specialised UN agency for food and agriculture. It can play a very significant role in facilitating the implementation of CDM in the developing country agricultural sector. At present, the Agriculture, Economics, and Forestry Departments of FAO have initiated some works on the collection of field information on various land management practices and available data on carbon sequestration, and developing some policy mechanisms. The `climate change group' also has initiated some work on the carbon sequestration, but it is rather limited to the forestry sector. There is need for further coordination among the four Departments involved - Economics, Agriculture, Forestry and Sustainable Development Departments and for the extension the scope of the climate change group in order to integrate land use change and forestry sectors. The FAO could play a very significant role for facilitating the implementation of CDM in various ways, for example;


References


1 The KP Articles related to LUCF are explained further in section 2.

2 Although agriculture crop projections made by the Global Perspective Studies Unit, FAO, covers all of the regions, this section, however presents the case of Latin American and Caribbean region only. The region though may not be a representative one, but available case studies on the carbon sequestration in the region provide better information for the estimation of carbon sequestration potential.

3 Views expressed by O. Davidson, UNEP at the Latin American Workshop New Parternership for Sustainable Development: The Clean Development Mechanism under the KP, Mangartiba, Brazil, April 1998.

4 The GEF has recently developed some basic principles and guidelines for a GEF operational program on carbon sequestration which also focus on the investment financing services such as investment grants and loans to promote activities for sequestering carbon (GEF, 1999).

5 The proposed draft guidelines under preparation (IPCC, July 1999) attempts to define the land use change and forestry sector, but do not provide clear guidelines for accounting of carbon stocks from forestry and agriculture. The methodology was briefly discussed at the 10th Session of the FCC Subsidary Bodies held in Bonn Germany in May, 1999 ( IISD, 1999). The report is subject to the revision before the COP6 meeting in 2000.

6 Forum of the Ministers of the Environment of LAC , Lima, Peru, May 1999. Available online. Web page: www.mct.gov.br

7 Delegates opinion expressed at the Technical Workshop on Mechanisms under Articles 6, 12 and 17 of the KP, April, 1999 (IISD, 1999b).


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