ITEM 8: Forestry and climate change: emerging carbon industry

Opportunities and challenges for the timber industryto participate in CDM activities

Discussion paper
By Dr. Carmenza Robledo
Intercooperation/EMPA¹¹
and Robert Tippmann
EcoSecurities Ltd., UK

The Kyoto Protocol of the United Nations Framework Convention on Climate Change (UNFCCC) defines three Flexible Mechanisms, that aim to help Annex I countries (most developed countries) to fulfill their commitments in reducing greenhouse gases (GHG). These mechanisms are Joint Implementation (JI), Emission Trading (ET) and the Clean Development Mechanism (CDM)¹².

Out of these three mechanisms, only the CDM allows participation of the non-Annex I countries (developing countries). CDM projects produce Certified Emission Reductions (CER), that can be accounted as reductions in Annex I countries or traded in Kyoto compliant trading systems, such as the EU emissions trading system, pending the inclusion of CERs from land use, land-use change, and forestry (LULUCF) projects, or other domestic trading systems (e.g., Canada, Japan). Prices of CERs currently range between $/€3-4 per ton CO₂e ¹³.

Several types of projects are potentially eligible under the CDM, both in the Energy Sector (ES) and LULUCF. For the time being, eligible LULUCF activities under the CDM are restricted to afforestation and reforestation until 2012. Activities in bio-energy are also eligible within the CDM until 2012.

This paper presents various opportunities that the CDM could offer to the private forestry sector in its efforts to contribute to poverty alleviation, to develop innovative ways to secure part of its raw material resources, by capitalizing non-timber values of forestry operations.

1. CDM-LULUCF projects

The CDM project cycle includes seven major steps: project design and development, validation, registration, monitoring, verification, certification and issuing of the CERs. It involves the interaction of a relatively wide range of actors: the project developers, the National CDM Authority, the Operational Entity and the CDM Executive Board of the UNFCCC.

The project cycle in the CDM is very challenging. Experience has shown that, due to their complexity, these projects can have higher transaction costs than other activities related to forest products or services.

1.1 Definitions:

In this document, reforestation, afforestation and forest are defined according to the decisions of the Conference of the Parties (COP) of the UNFCCC:

“Forest” is a minimum area of land of 0.05-1.0 hectares with tree crown cover (or equivalent stocking level) of more than 10-30 per cent with trees with the potential to reach a minimum height of 2-5 meters at maturity in situ. A forest may consist either of closed forest formations where trees of various storeys and undergrowth cover a high proportion of the ground or open forest. Young natural stands and all plantations which have yet to reach a crown density of 10-30 per cent or tree height of 2-5 meters are included under forest, as are areas normally forming part of the forest area which are temporarily unstocked as a result of human intervention such as harvesting or natural causes but which are expected to revert to forest;

“Afforestation” is the direct human-induced conversion of land that has not been forested for a period of at least 50 years to forested land through planting, seeding and/or the human-induced promotion of natural seed sources;

“Reforestation” is the direct human-induced conversion of non-forested land to forested land through planting, seeding and/or the human-induced promotion of natural seed sources, on land that was forested but that has been converted to non-forested land. For the first commitment period, reforestation activities will be limited to reforestation occurring on those lands that did not contain forest on 31 December 1989.

1.2 Key issues for the design of CDM/LULUCF projects:

In order to be validated, project participants (i.e., the project developer) shall present a “Project Design Document”(PDD) which shall provide enough information on crucial issues that are immanent in CDM LULUCF project such as additionality, permanence, leakage, definition of the carbon potential, and environmental and socio-economic impacts. In addition to this information related to the operational procedures of the project is required.

• Additionality means that a CDM/LULUCF project has to be additional to any activity that would have taken place in the absence of the project. Additionality is the result of the carbon sinks created by the project (project scenario) minus those sinks that would exist in the project’s absence (baseline). The additionality concept is of a threefold shaping: environmental, program or investment, and financial additionality;

• Permanence is related to the time that carbon can stay in the biosphere. Due to different risks, including fire and pests, carbon can be released to the atmosphere, reducing the project’s climate change mitigation effect. To solve this problem CDM-LULUCF projects have to choose between temporary CERs (tCER) or long-term CERs (lCER);

• Leakage is the increase in GHG emissions by sources which occur outside the boundary of an afforestation or reforestation project activity under the CDM, and which is measurable and attributable to the afforestation or reforestation project activity;

• Definition of the carbon potential: or “Net anthropogenic greenhouse gas removals by sinks” is the actual net greenhouse gas removals by sinks minus the baseline net greenhouse gas removals by sinks minus leakage;

• Environmental and socio-economic impacts. A CDM-LULUCF project has to provide information on potential environmental and socio-economic impacts. If negative impacts are considered significant by the project participants or the host Party, an environmental impact assessment has to be conducted and potential impacts have to be monitored during the project’s implementation.

2. Potential impacts for the wood trade

The estimation, reporting and accounting of carbon stored in wood products under the UNFCCC and its Kyoto Protocol could potentially affect forest and wood products management practices, as they may influence the development of policies and measures that affect the quantity and possibly the quality of the national stock of wood products.

Impacts on the trade of wood depend on the approach to accounting for changes in carbon stocks and GHG emissions from forest harvesting products¹⁴. Differences between these approaches are based on the consideration of three factors:

a) What will be accounted: whether net changes in carbon are estimated only for forests or also for wood products;

b) Where the changes are attributed: production or consumption country; and

c) When emissions and removals of GHG occur.

The UNFCCC has prepared a detailed document on the estimation, reporting and accounting of harvested wood products within the convention. It includes an analysis of impacts and implications for the wood trade of each of the above mentioned approaches (FCCC/TP/2003/7) and analyses potential socio-economic and environmental impacts.

During the negotiations on LULUCF activities under the Kyoto Protocol, some consideration was given to forest harvesting and wood products. As a result, Parties have agreed on definitions, modalities, rules and guidelines for LULUCF activities under the CDM. The wood product pool was excluded from accounting and, therefore, wood products are currently not included as a separate pool or activity for the first commitment period. However, the Conference of the Parties (COP), also decided that any changes to the treatment of wood products shall be in accordance with future decisions of the COP.

For CDM projects, this means that, for the first commitment period (2008 – 2012), wood products cannot be included or accounted separately and have to be included in the reforestation and afforestation activities, until further decisions are made by the COP. The issue of wood products will be taken up again for further consideration at the 21^st meetings of the Subsidiary Bodies to the COP, held in parallel to COP 10 in Buenos Aires in December 2004 (FCCC/SBSTA/2003/15).

3. Relation to poverty alleviation

An analysis by Niles et al (2002) shows that, over the next decade, 48 major tropical and subtropical developing countries will have the potential to reduce the atmospheric carbon burden by about 2.3 billion tonnes of carbon. Given a central price of $10 per tonne of carbon and a discount rate of 3%, this mitigation would generate a net present value of about $16.8 billion collectively for these countries. Achieving this potential would require a significant global effort, covering more than 50 million hectares of land, to implement carbon friendly practices in agriculture, forest and previously forested lands.

The analysis takes into account different activities in forestry and agriculture. Only two of these activities, reforestation and aforestation (see definitions above) are eligible under the CDM. Further, under the Marrakech Accords, the possibility of buying CERs from LULUCF activities was reduced to one per cent of base year emissions times five of the participating Annex I Party. This results in an amount of credits allowed from CDM-LULUCF activities equal to 33 Mt C (121 MtCO₂e) per year (Zammit Cutajar, 2001).

Currently, other carbon markets that include forest management activities are being developed. In particular, in the USA and Canada such schemes proactively promote the generation and purchase of further LULUCF activities, including forest management, conservation, reduced logging, revegetation or re-habilitation etc.. Existing bilateral negotiations between private investors and projects could be interesting for these other activities, apart from or in addition to reforestation and afforestation). However, this discussion paper focuses on the opportunities provided by the CDM.

As investments in CDM projects have to be additional to activities previously planned or financed, there is a potential opportunity to promote forestry projects that have so far been considered unfeasible. This consideration can be especially important for projects aimed at contributing to poverty reduction, because CERs payments could result in the establishment and management of activities that were not economically viable in the past.

To date, a number of projects have been designed with the objective of poverty reduction, including FAO projects in Central America, ITTO San Nicolás Project in Colombia, Scolel Té project in Chiapas, Mexico¹⁵. Experience from these projects demonstrates that well-designed CDM activities can represent new opportunities for local communities and for the private sector. The last thorough investigation or rather inventory of carbon sequestration projects, CDM and non CDM project activities, worldwide has been conducted by the World Resources Institute (2002). Of 71 projects identified, 10 were in Africa, 12 in Asia, 35 in Latin America and 15 in North America. Although the information has not been verified, it does provide an insight into some of the activities that have occurred to date. Although the numbers described above represent the results of quite thorough investigations, many projects may be underway or at least developing the relevant documentation and information, but have not registered officially. Also, a large number of projects have been developed with the objective of generating a wider range of environmental services, many of which have not been labelled as ‘carbon projects’ per se.

4. LULUCF activities

Reforestation or afforestation activities under the CDM that could be of interest to the private sector include:

a) Improved reforestation practices; including:

- planting more species than planned without the carbon incentive;

- extended rotation periods

- reducing thinning; and

- bioenergy plantations and (see below for bioenergy);

b) Forest land restoration;

c) Agroforesty activities;

d) Silvopastoral activities;

Traditional large-scale monoculture plantations are not considered here, because of the difficulty of proving their additionality (that this plantation would not have been planted in the absence of carbon incentives or financing). However, if additionality can be proved these projects can certainly be developed as CDM projects.

CDM-LULUCF activities can have a range of positive socio-economic and environmental impacts on poor livelihoods (see Table 1).

The challenge for CDM-LULUCF activities is to promote positive impacts and avoiding or reducing risks of negative impacts during the design, implementation and monitoring processes.

Table 1. Potential socio-economic and environmental impacts of CDM activities

4.1 Small-scale projects:

During the last COP in Milan, small-scale afforestation and reforestation activities were defined as “those that are expected to result in net anthropogenic greenhouse gas removals by sinks of less than 8 Kilotonnes of CO² per year and are developed or implemented by low-income communities and individuals as determined by the host Party. If a small-scale afforestation or reforestation project activity under the CDM results in net anthropogenic greenhouse gas removals by sinks greater than 8 Kilotonnes of CO² per year, the excess removals will not be eligible for the issuance of tCERs or lCERs”.

Graph 1: Maximum size of small scale projects according to forestry activities

Source: Author calculations based on data provided by Niles, John O

Graph 1 provides an indication of the size that small scale projects could have, according to different activities and regions. This is to give a clearer picture about the size of projects that could be presented as small scale ones.

Small scale projects were defined to promote participation of small scale farmers and local communities in the CDM. Small scale projects shall aim at improving the socio-economic and environmental conditions of poor communities that are currently implementing unsustainable land use practices on degraded land due to lack of knowledge or opportunities.

Simplified modalities for small scale reforestation and afforestation activities under the CDM are in preparation and should be decided upon at COP-10, to be held in Buenos Aires, Argentina in December 2004.

4.2 Bioenergy

The principle behind bioenergy differs from reforestation and afforestation activities in that bioenergy activities are aimed at substituting fossil fuels. Thus, bioenergy projects are considered primarily under “Modalities and procedures for a clean development mechanism as defined in Article 12 of the Kyoto Protocol”. In other words, for the purposes of the CDM, bioenergy projects are considered as “energy projects”. In certain ways, these projects are easier because they do not deal with socio-economic impacts or with permanence.

What is the potential for bioenergy projects in forestry? To answer this question, three elements can be considered:

• Bio-energy projects are unique in that they can combine both the energy sector GHG savings with net carbon sequestration savings, depending on the project type and activities. The sequestration aspects, for example the establishment of new fuelwood plantations, are treated in the same way as any other land use project in terms of eligibility as a JI or CDM project and the markets for credits. However, bio-energy projects are also able to claim CERs for the emissions they are avoiding through the displacement of such fuels with renewable sources;

• Wood residues from harvesting processes and wood transformation has a high energetic potential. Wood residues contstitute up to between 50 – 70% of total forest-cut timber. Improving production processes could lead to a reduction in wood residue whilst increasing productivity for wood producers and could represent significant potential for emissions reduction. However, implementing such activities requires investment and awareness raising to ensure local communities’ acceptance of new energy sources. The CDM could be a way to promote new business opportunities, overcoming these barriers;

• Many communities in tropical regions rely on fuelwood as their source of energy. Practices used in obtaining this wood are generally unsustainable and one of the major causes of forest degradation. That is especially relevant to poor communities. An improvement in local practices and transformation processes could reduce current emissions. For example, combining sustainable, emissions-neutral fuelwood plantations, as well as locally collected fuelwood with improved, energy-efficient fuel (e.g. wood pellets) and appropriate emission reducing combined cooking and heating stoves provided a considerable emission reduction potential on a low-cost basis.

Appropriate project design based on the above elements could contribute both to climate change mitigation and adaptation. The challenge now is to prepare pilot projects that are geared to a wider range of opportunities (i.e., multicomponent projects).

4. Opportunities to participate in CDM-LULUCF projects

Considering the markets promoted through the Kyoto Protocol, various opportunities arise for the private forestry sector to participate in CDM-LULUCF projects. These projects might not necessarily only be large scale plantations, due to the difficulties in demonstrating their additionality. Instead, other activities, including small scale forestry, agroforestry, or multicomponent projects, could be considered, whereby opportunities to create strategic partnerships between forest industry and local communities could result in a win-win partnership. The following examples illustrate some of these opportunities:

a) Multicomponent projects: For example, multicomponent projects (e.g., a combination of timber plantations, agroforestry, fuelwood plantations, as well as forest conservation) developed under a Forest Landscape Restoration (FLR) approach. FLR projects would focus on re-establishing functions and key ecosystem processes across a whole landscape rather than just planting or restoring individual sites. As such, FLR looks at a mosaic of land uses including agricultural lands and forest types ranging from plantations to natural forests. It might be used for example to help buffer a small and isolated protected area by re-establishing trees on surrounding land that, whilst having a range of social or commercial functions, could also help protect native biodiversity or deliver further environmental services.

b) Bioenergy: Bioenergy offers opportunities to increase the timber industry’s productivity and to promote the development of new products that would not be attractive without the carbon payments. If projects propose to substitute fuelwood, which is traditionally considered a non-marketed forest product by local communities, project developers should design strategies to increase the communites’ acceptance.

c) Diversification of local income: CERs payments are by definition an instrument to pay for an ecosystem service. Being a new instrument, CERs imply the diversification of traditional source of income. Moreover, past experience has shown that agroforestry and silvicultural activities are considered of special interest to local communities. These two activities are interesting because, if designed appropriately, they could deliver high value timber species.

d) Reduction of conflicts with local communities: There are many well-documented conflicts between local communities and the timber industry. Given that CDM projects could be based on a partnership between local community (e.g. farmers, municipalities, indigenous peoples, etc) and the timber industry, the project could be considered as a strategy to increase local income and reduce social conflict. Thus, the projects could have environmental and social benefits. For some potential investors, such as the Community Development Carbon Fund and the BioCarbon Fund of the World Bank, these collateral effects are decisive for their involvement.

e) Contribution to food security: Activities related to agroforestry and sylvopastoralism on degraded land in particular, can deliver important nutritional complements to the food basis of local communities. In some cases, these activities can deliver high-value timber species to the industry.

f) Watersheds management: Watershed degradation is considered a major ecological problem. Consequences vary from reduced water availability and quality, to biodiversity loss and increased risk of landslide. Climatic changes can exacerbate these risks. Restoration and rehabilitation of degraded land require significant investments which local communities often cannot provide. The timber industry could participate in CDM projects aimed at restoring and rehabilitating degraded forestland and obtain benefits such as part of the CDM income, improvement of the water supply and access to selected species (harvested in the future according to RIL practices). By doing so, the timber industry would develop “high-quality”projects with synergy effects that support all three Rio Conventions (i.e., the UNFCCC, the Convention on Biological Diversity, and the United Nations Convention on Combatting Desertification). Such projects have the potential to generate additional, and potentially saleable, environmental services apart from carbon sequestration.

5. Major challenges

Some of the major challenges faced by project developers in CDM activities are encountered in the following four elements: country support, legal aspects, transaction costs, lack of capacity and credibility.

• Country support: CDM projects have to be approved by the Designated National Authorities (DNA), which has to confirm the project’s contribution to sustainable development. To this end, each DNA has to define criteria and procedures. As of today, the level of development of DNAs varies from country to country;

• Legal aspects: There are some legal aspects that need to be clarified before a project can be validated and registered:

- Land-tenure issues;

- Property of the CERs; national legislation regarding carbon sequestration, which is an ecosystem service, is non-existent in many countries. In these cases, a potential conflict regarding the property of the CERs exists;

- Contracts and legal arrangements regarding project activities will be reviewed during the validation process;

• Transaction costs: The design and implementation costs of CDM-LULUCF activities, as well as of potential taxes and fees, can make these projects costly. Project developers have to be aware of the additional costs of developing a CDM project, i.e. its ‘transaction costs’. Some of these costs are upfront costs, but others can be deferred until the project is operational and generating revenue, such as the verification costs. Transaction costs associated with the project cycle, such as documentation, validation and registration, are usually independent of scale. The extent to which these costs will affect the project depends mainly on two aspects:

- The development of prices as the market grows; and

- The availability to local capacities;

• Lack of capacity: concerns regarding the capacity to design, implement and monitor projects relate to the following:

- Capacity to appropriately design projects, including use of methodologies to define baseline and additionality, to calculate carbon potential and to design the monitoring plan;

- Capacity to appropriately implement the project and to monitor the project and carbon fluxes;

- Capacity to establish clear and transparent legal agreements;

- Capacity to interact in the validation, verification and certification processes;

- Lack of entrepreneurial experience.

Some of these concerns are well known to the timber industry. Previous experience by industry representatives can improve competitiveness of a CDM project.

• Credibility: Negotiations on LULUCF activities within the CDM have been very difficult. This is partly the result of a general lack of credibility regarding some aspects of the potential CDM-LULUCF projects, relating to the:

- Duration of sinks in the biosphere (permanence);

- Credibility and appropriate communication between different project participants, such as the timber industry and farmers;

- Quality of data for project design and monitoring;

- Corruption in the sector.

Market conditions for CDM-LULUCF projects can be harder due to a certain lack of confidence amongst the potential buyers. While transparency and high quality data can be a strategy to alleviate this mistrust, the performance of such projects will be central to demonstrating that CDM-LULUCF activities can not only contribute to mitigating climate change, but also to provide positive collateral socio-economic and environmental impacts. If these multiple positive effects are achieved, CDM/LULUCF projects will greatly contribute to sustainable development and could be favoured by the market.

6. Potential impacts of climate change on forest resources

As climate change can affect forest ecosystems, including natural forest and plantations, project developers should bear in mind the adaptation capacity of their ecological and social systems as they design a CDM-LULUCF project.

FAO is currently preparing documents on adaptation of forest ecosystems and forestry to climate change. These documents include an analysis of potential effects of climate change on forest ecosystems and the forestry sector, of financing opportunities for adaptation projects, and of institutional development. Furthermore, FAO is preparing guidance for the design of adaptation projects that consider forest ecosystems and forestry.

7. The market for CERs from CDM-LULUCF activities

The market for CERs from CDM-LULUCF activities becomes more apparent, since the final decisions about the rules and modalities for these projects have been made at COP 9 in December 2003. Up to date the emerging market for CERs in general (i.e., CERs from energy related projects and LULUCF activities) has been characterized by having relatively few buyers. This certainly has changed with the EU Emissions Trading System starting in 2005 and the related Linking Directive for CDM and JI.

8.1 International Funds and Multilateral Buyers

The vast majority of the publicly known capital for purchasing emission reductions comes from various funds and multilateral buyers. In 2004, the major institutional buyers include:

• The World Bank Prototype Carbon Fund $180M

• Carboncredits.nl, the Dutch ERUPT/CERUPT $250M

• The Netherlands Carbon Development Fund $175M

• IFC-Netherlands Carbon Facility $40M

• The Andean Development Bank $40M

• Community Development Carbon Fund $100M (target)

• World Bank Bio-Carbon Fund $100M (target)

• The European Development Bank (EBRD) $61M

8.2 Annex I buyers and non-Kyoto compliant markets

The major Annex I countries or rather Annex I governments interested in buying CERs from LULUCF activities will mainly be found in Japan, Canada, and within the EU. However, within the EU some countries strongly oppose the use of CERs from CDM-LULUCF activities, whereas others are very much in favour of using or buying such CERs to meet their binding emission reduction targets under the Kyoto Protocol¹⁶. Because the US and Australia have decided not to ratify the Kyoto Protocol, at least for the time being, it should be emphazised that other, non-Kyoto compliant markets for forestry and the CDM arise in these countries. However, in many cases the requirements of these other markets will be similar, if not identical to those being developed under the Kyoto Protocol, but not necessarily bound by the same limitations imposed by the Kyoto process (e.g., limits on the use of forestry, for instance). In the future, potential markets for environmental services, in addition or apart from carbon sequestration, should be taken into consideration.

8.3 Private sector initiatives

In the past a number of private sector companies have already been involved in carbon or even first CER transactions, based mainly on voluntary GHG emission reduction targets accepted by individual business entities or industry sectors or as first test grounds for future investments in CDM projects. Apart from BP’s well-known voluntary emissions reduction program or Shell’s activities, in particular Canadian (e.g., BC Hydro, Ontario Power Generation Limited, TransAlta) and Japanese companies (e.g., Tokyo Electric Power Company, Tohoku Electric, Nissho Iwai Corp and Mitsubishi Heavy Industries Ltd., and Japanese coal exporters) got engaged in emission reductions or carbon sequestration projects.

There are examples of companies in non-Annex I countries with forestry operations that have started to develop CDM-LULUCF projects unilaterally. Also, multinaltional cooperations with forestry activities or traditional relations to the forestry sector are in the process of investigating the opportunity to invest in CDM-LULUCF projects to use the generated CERs to comply with emission reduction targets they are exposed to under the relevant emissions trading system.

8.4 Other funding opportunities

In addition to market-driven investment in projects and credits, there are a number of funding mechanisms under the UNFCCC and the Protocol that may be able to provide additional support to CDM projects (e.g., Climate Change Fund, Least Developed Country Fund, Adaptation Fund). Some of these UNFCCC and Kyoto Protocol funding sources could be used to fund elements of LULUCF projects, especially those relating to capacity building and adaptation. Funding for climate change related activities might also be available from a wide range of traditional project finance sources.

8.5 CER trading volumes and prices

Among the many emissions trading models the World Bank’s Pelangi’s Emission Trading Model (PET) is of particular interest, because this model has been revised in 2003 when it was used in the Indonesian National Strategy Study on LULUCF (Ministry of Environment, 2001 and 2003). In 2001 the size of the CDM is projected to reach 372 MtCO2/year (for 2010), where sinks would account for about 20% of total CERs generated. The estimated price of CERs and ERUs, is under U$ 4/tCO2. Total (cumulative) CDM revenue during the first Kyoto commitment period (2008-2012) is assessed to reach U$7.0 billion. In the revised PET model, the NSS team found that credit prices increased to US$ 0.25 and CDM volumes rose to 566 Mt CO₂. However, given the 1% cap on LULUCF, this increase is made up by the non-LULUCF sectors or through domestic abatement measures. The Kyoto Protocol limits the use of CDM-LULUCF credits to 1% of the importing Party’s base year emissions for each year in the first commitment period (2008-2012). This results in an amount of credits allowed from CDM LULUCF activities equal to 33 Mt C (121 MtCO₂e) per year (Zammit Cutajar, 2001).

Other models estimate the prices for carbon credits covering a range from $1.40/t CO₂ in the MIT-EPPA model (Babiker et al., 2002) to $5.50t/CO₂ during the first commitment period of the Kyoto Protocol, using the FAIR model (Elzen and Moor, 2001). Experience in developing CDM projects demonstrate that CDM is feasible under such prices. Empirically recorded market prices in 2002-2003 stood, on average, between U$1.15 and $3.50/tCO₂. The Dutch CERUPT program issued a tender for 13 million CERs with an average price of US$5/tCO₂ (Senter International, 2002), while the World Bank’s PCF estimated CER price to stand at US$3/tCO₂ during the same year. In general, it can be expected that the prices will increase over time due to increasing demand and market activity. Interestingly enough, EU allowances are expected to achieve up to €10-12/tCO₂, whereas CERs would be traded into the EU Emissions Trading System or changed into EU Allowances at a much lower price.

8.6 Bioenergy projects

However, bioenergy projects are also able to claim CERs for the emissions they are avoiding through the displacement of fuels with renewable sources. As a result of these emissions reductions being classified under the energy sector as opposed to the land use sectors, the potential market for emission reduction credits is both larger and more varied than for pure land use projects.

In summary, Table 4 provides a framework to examine the following key questions:

1. Capital: Does the forest industry need to consider how it can facilitate making more capital available to the poor?

2. Land, Labour: Has the forest industry response been sufficient with respect to land and labour dimensions of poverty, and if not, what else can it do?

3. Principles: Should the forest industry associations develop a set of common principles consistent the themes identified by their individual members, industry associations and the United Nations?

4. Objective and Targets: If principles are developed, should the industry develop the appropriate tools to measure their objectives and targets with respect to poverty alleviation?

Additional questions that may be of relevance in the context of the above discussion include:

• How can national and international processes be established that promote strategic partnerships between the forest industry and other social groups (tax discounts, improvement of legal framework, including property of ecosystem services, etc)?

• Is there a need to identify capacity gaps (regional, sectorial)?

• How can participative mechanisms be promoted that can facilitate project design and implementation?

• Which role should a multilateral institution like FAO play in order to support and promote strategic partnerships and CDM-LULUCF project development?

• Is there a need for a Facility promoting and assisting the development and implementation of small-scale CDM LULUCF projects through the provision of technical and financial assistance and how could this Facility be structured/financed (e.g., Public Private Partnership)?

• Are large-scale, commercial planations per se non-additional?

• What are the opportunties for the timber industry? Who and where are the buyers investors in the timber industry and how can larger corporations (e.g., trade within the group) and small or medium-sized companies benefit (e.g., direct investment in smaller projects marketing green, ethical and socially responsible investments)?

• What counts more when investing in CDM-LULUCF projects (i.e., sustainable development benefits vs. investment climate)?

References

Elzen, M.G.J den, Moor, A.P.G. de, 2001. Evaluating the Bonn Agreement and Some Key Issues. RIVM-Report 728001016, the Netherlands: http://www.rivm.nl/bibliotheek/rapporten/728001016.html

J. O. Niles, S. Brown, J. Pretty, A. S. Ball and J. Fay, 2003, „Potential carbon mitigation and income in developing countries from changes in use and management of agricultural and forest lands“. Contribution to the special Theme Issue ‘Carbon, biodiversity, conservation and income: an analysis of a free-market approach to land-use change and forestry in developing and developed countries’. The Royal Society, 10.1098/rsta.2002.1023

Babiker, M.H., Jacoby, H.D., Reilly, J.M. and Reiner, D.M., 2002. “The Evolution of a Climate Regime: Kyoto to Marrakech”. Environmental Science & Policy, Volume 5, Issue 3 , June 2002, Pages 195-206.

Ministry of Environment of Indonesia, 2001. “National Strategy Study on the Clean Development Mechanism in Indonesia”. Jakarta.

Ministry of Environment of Indonesia, 2003. “National Strategy Study on the CDM in the Forestry Sector”. Jakarta.

UNFCCC, 2001. “Marrakech Accords”, FCCC/CP/2001/13/.

UNFCCC, 2003. “Estimation, reporting and accounting of harvested wood products”. FCCC/TP/2003/7

UNFCCC, 2003. “Report of the Subsidiary Body for Scientific and Technological Advice on its Nineteenth Session, held at Milan from 1 to 9 December 2003”. FCCC/SBSTA/2003/15.

UNFCCC, 2003. “Land Use, Land-Use Change And Forestry: Definitions And Modalities For Including Afforestation and Reforestation Activities Under Article 12 Of The Kyoto Protocol”, FCCC/SBSTA/2003/L.23

World Resources Institute, 2003. “Results of the Carbon Sequestration Project”. Washington DC, USA.

Zammit Cutajar, M. , 2001. “The Kyoto Protocol in prospect - The climate change regime after the Bonn agreements”. Presentation at the Chatham House Conference "Delivering Kyoto" at the Royal Institute of International Affairs London, October 2001.

¹¹ Swiss Federal Laboratory for Material Testing and Research (EMPA)

¹² Joint Implementation (Art. 6): “Any Party included in Annex I may transfer to, or acquire from, any other such Party emission reduction units resulting from projects aimed at reducing anthropogenic emissions by sources or enhancing anthropogenic removals by sinks of greenhouse gases in any sector of the economy…”

Clean Development Mechanism (Art. 12): The purpose of the clean development mechanism shall be to assist Parties not included in Annex I in achieving sustainable development and in contributing to the ultimate objective of the Convention, and to assist Parties included in Annex I in achieving compliance with their quantified emission limitation and reduction commitments under Article 3.

Emission Trading (Art. 17): The Parties included in Annex B (Annex I of the UNFCCC) may participate in emissions trading for the purposes of fulfilling their commitments under Article 3. Any such trading shall be supplemental to domestic actions for the purpose of meeting quantified emission limitation and reduction commitments under that Article.

¹³ 1 Ton C = 3.66 Tonne CO_2.

¹⁴ The Intergovernmental Panel on Climate Change (IPCC) identified four approaches to accounting GHG emissions resulting from wood products: the IPCC default, the stock change, the production and the atmosferic-flow approach (FCCC/TP/2003/7).

¹⁵ Both projects, San Nicolas and Scolel Té, comprise CDM eligible as well as non-CDM eligible project activities.

¹⁶ The EU has already committed itself to meet the binding emission reduction targets as set out by the Kyoto Protocol, even without the Kyoto Protocol coming into force in its current shape. At the moment, the Kyoto Protocol would still need to be ratified by Russia to coming into force. In view of this fact, the EU decided to go ahead alone leading the way in the utilization of market-based mechanism to mitigate climate change. Furthermore, a so-called “Kyoto light” version is discussed consisting of the EU Emissions Trading System linked with emissions trading systems in Japan and Canada.