This paper outlines how the Clean Development Mechanism in the context of Land Use, Land-Use Change and Forestry (LULUCF) of the Kyoto Protocol (UNFCCC) benefits forest producers and rural communities in enhancing their livelihoods. It examines the potential of afforestation and reforestation activities to mitigate climate change. Forests play important roles both positively as sinks for carbon and negatively as a source of carbon. The emergence of new opportunities for developing, and attracting foreign investment into carbon mitigation projects is of importance to developing countries, particularly in the Asia-Pacific region. When the Kyoto Protocol becomes fully operational, it is anticipated that the carbon credits will be bought and sold in a new environmental carbon trading market with the global potential of LULUCF activities estimated at 50 MtC annually at $10 per tonne of carbon. The paper illustrates some pilot projects undertaken in various parts of the world so that the developing countries in the Asia-Pacific region can learn from experiences elsewhere. An account is given of various steps involved in the development of a CDM project and the strategy for operationalizing CDM in forestry sector. The paper also underlines the limitations and identifies the issues to be addressed, and recommends a holistic approach to integrate carbon sequestration objectives with improving livelihoods to achieve the ultimate goal of sustainable development coupled with poverty eradication.
Rising levels of greenhouse gas emissions are a major source of climate change and many people working in land use and forestry sectors are becoming increasingly aware of the inclusion of these sectors in international policy deliberations on climate change. Forest ecosystems play important roles both positively by acting as sinks for carbon (sequestering carbon through photosynthesis), and negatively as a source of carbon (through deforestation, decomposition, soil erosion, etc.)
The emergence of new opportunities for developing and attracting foreign investment into carbon mitigation projects is of importance to developing countries particularly in the Asia-Pacific region. These exciting opportunities are provided in the context of Land Use, Land-Use Change and Forestry (LULUCF) under the Clean Development Mechanism (CDM) of the United Nations Framework Convention on Climate Change (UNFCCC), which is also known as the Kyoto Protocol.
What is the Kyoto Protocol
It is an intergovernmental agreement to stabilize greenhouse gases in the atmosphere, at a level that would prevent adverse changes to the climate. The UNFCCC was agreed upon at the United Nations Conference on Environment and Development (UNCED) in Rio, 1992, and to date 186 countries have ratified the Convention. To put the Convention into operation, a protocol was outlined in Kyoto in 1997 which is popularly known as the Kyoto Protocol. The developed countries with emission reduction targets are called the Annex 1 countries, whereas those without targets are known as non-Annex 1 countries. The Annex 1 countries can invest in JI (Joint Implementation)/CDM projects as well as host JI projects, and non-Annex 1 countries can host CDM projects.
Clean Development Mechanism
The Clean Development Mechanism (CDM) was established to assist Annex I Parties in complying with the emission limitations and reduction commitments under the Kyoto Protocol. Under this Protocol, at present, the developing countries have no obligation to limit or reduce their greenhouse gas emissions. But they can, on voluntary basis, contribute to global emission reduction targets by hosting projects under the CDM. The two key goals of the CDM are:
to provide developed countries with flexibility for achieving their emission reduction targets, by allowing them to take credits from emission reducing projects undertaken in developing countries; and
to assist developing countries that host CDM projects to achieve sustainable development.
In addition to initiatives in energy, transport and other sectors, Land Use, Land-Use Change and Forestry (LULUCF) is an important aspect of CDM wherein afforestation and reforestation are included in the first commitment period (2008-2012). Deforestation, forest, crop and grassland management projects do not qualify under the CDM at present though they may be included in a subsequent commitment period (beyond the year 2012). The role of land use and forestry projects in the CDM beyond 2012 will be decided as part of the negotiations on the second commitment period.
A framework known as CDM Executive Board (EB) (10 members) has been established for supervising and approving CDM projects by the 7th Conferences of Parties (COP) held in Marrakech in November 2001. The CDM EB is also establishing more detailed rules, methodologies and guidance for projects, including for land-use projects. Operational entities, accredited by the executive board, review project proposals and verify and certify emission reductions from projects. The greenhouse gas benefits of each CDM project will be measured according to internationally agreed methods and will be quantified in standard units, to be known as Certified Emission Reductions (CERs). These are expressed in tons of CO2 emission avoided.
When the Kyoto Protocol becomes fully operational, it is anticipated that these carbon credits will be bought and sold in a new environmental carbon trading market.
However, the governments still need to agree upon definitions and methodological issues such as setting baselines, verifying additionality, leakage, non-permanence and accounting for socio-economic and environmental impacts (including impacts on biodiversity and natural ecosystems) methods for afforestation and reforestation projects. These issues are likely to be finalized in the COP 9 in December 2003, scheduled to be held in Italy.
Developed Annex 1 countries over the years have reoriented their domestic policies to comply with the provisions of the Kyoto Protocol with the expectation that there will be a growing demand for carbon credit once the Protocol comes into operation and the developing countries need to position themselves to take benefit of carbon trading market. While many factors may influence the size and stability of the global market, it is expected that the market could be to the tune of several billion dollars a year. It may be mentioned here that total foreign aid for forestry activities in developing countries is currently at about US$1.5 billion a year.
The CDM can offer developing countries an opportunity to promote and attract investment in sustainable forestry, land restoration, energy efficiency and renewable energy projects. For a project developer, it may offer the additional input required to make a project financially viable and for a local farmer, it may provide an additional source of income. Afforestation and reforestation activities create rural employment in establishing, protecting and maintaining forests or plantations and provide diverse biomass products (fuelwood, fodder, timber and non-timber forest products such as fruits, oil seeds, leaves, gum, honey, etc.) contributing to the socio-economic development of rural areas. The CDM would provide a good opportunity to obtain external financial support and technology (for high yields), to promote the commercial forestry strategy aimed at meeting the domestic biomass demands as well as to reduce CO2 emissions and remove CO2 from atmosphere. The global potential of LULUCF activities is estimated at 50 MtC annually at $10 per tonne of carbon.
CDM rules and conditions
While the detailed procedures and methodologies to be applied for CDM forestry projects are still to be agreed, the overall framework is already in place for approving projects and accounting for the carbon credits generated:
Only areas that were not forest on 31 December 1989 are likely to meet the CDM definitions of afforestation or reforestation.
Projects must result in real, measurable and long-term emission reductions as certified by the Operational Entities (OE).
Sequestration must be additional to any that would occur without the project.
The carbon stocks generated by the project need to be secure over the long term (permanence).
Only projects starting from the year 2000 onwards would be eligible.
Each CDM projects management plan must address and account for potential leakage.
Projects need to select a crediting period for activities, either a maximum of seven years that can be renewed at most twice or a maximum of ten years with no renewal option.
Some of the proceeds from carbon credit sales from all the CDM projects will be used to cover administrative expenses of the CDM.
Two percent of the carbon credits awarded to a CDM project will be allocated to a fund to help cover the costs of adaptation in countries severely affected by climate change and would provide support for land-use activities that are not presently eligible under the CDM, for example conservation of existing forest resources.
Development of a CDM project
It includes various steps irrespective of whether the CDM projects are initiated by communities, NGOs or even government agencies, viz.:
a. set project and baseline boundaries
b. define baseline scenario and additionality
c. set baseline emission level and crediting period
d. calculate baseline emissions
e. calculate project emissions
f. adjust for leakage
g. adjust for risk
h. host country approval
i. validation of project by the OE
j. submission of validation reports and Project Design Document by the OE
k. possible review by the CDM Executive Board
l. registration with the CDM
m. project implementation and monitoring
n. verification and certification by the OE
o. possible review by CDM Executive Board
p. issue of CERs to project developers
Some of the pilot projects that have already been undertaken in various parts of the world are given below to better understand the kind of projects that can be supported in afforestation and reforestation under the CDM.
Scolel Te (the tree that grows) and the Plan Vivo System
The pilot project implemented in Mexico with support from the UK DFIDs Forestry Research Programme began with an agreement to provide 18 000 t CO2 prototype carbon credits per year, at a price of US$2.7 per t CO2 (US$10 per tC) to the International Automobile Federation. Companies, individuals or institutions wishing to offset greenhouse gas emissions can purchase carbon credits from the Fondo BioClimatico, a local trust fund. These funds were used to provide farmers with carbon payments to cover the costs of establishing agroforestry systems, small-scale plantations and community reforestation activities. The system favours small-scale farmers and allows them a greater degree of self-sustainability. The local promoters help farmers draw up working plans (known as Planes Vivos) for forestry or agroforestry systems that reflect their specific needs, priorities and capabilities. These Planes Vivos are assessed for technical feasibility, socio-economic and environmental impacts and carbon sequestration potential.
The Scolel Te project is now run by a trust fund which has become a financially viable organization, whose income is derived from the sale of carbon services. There are currently over 400 individual participants from about 30 communities, representing four different ethnic groups and a wide range of agro-ecosystems. The project promotes significant carbon sequestration, provides secure commercial and subsistence outputs, encourages capacity building, facilitates application of sustainable agricultural production systems and benefits biodiversity.
Community-based forest management projects such as this that utilize local and traditional knowledge can greatly benefit the CDM projects and communities. The use of traditional knowledge enhances the ability of local communities to change and improve their resilience to adverse conditions. Communities can also benefit from innovative projects by learning new skills through training and learning by doing. The participatory approach has particularly contributed to the success of this project.
Tamarind project in southern India
The Plan Vivo system is now also being used in an agroforestry and bioenergy project in southern India, run by an NGO called Women for Sustainable Development. Under this innovative project, small farmers with holdings of about 2 ha have come together under a society and entered into a carbon sale agreement with Future Forests, an international company based in UK. Under this, mango and tamarind plantations have been raised over each 2 ha of land belonging to a small farmer and it is expected that 18 tC would be fixed over 6 years. It has been agreed to sell the fixed carbon at the rate of $10/tC which provides INR8640. The amount is to be paid by the company to the farmer in five installments starting from the 2nd year. The farmer would receive 50 percent of the amount, i.e. INR4320 in the 2nd year as the 1st installment and 20 percent of the amount as 2nd installment in the 3rd year and the balance 30 percent in the remaining three installments in the 4th, 5th and 6th year respectively. The farmers are able to get additional income for the sale of carbon in addition to the income generated by the fruits, etc.
Costa Rican model
Costa Rica was the first developing country to launch a national carbon sequestration programme in 1997. The Private Forestry Programme (PFP) encourages land owners to opt for forestry related land uses by providing direct payment for environmental services, CO2. fixation, water quality, biodiversity and landscape beauty. As monetary incentives increase the attractiveness of forestry compared to environmentally damaging land uses, incentives are paid to land owners, following the signing of a contract to keep land under a specified use for at least 20 years. Farmers who sign up for these incentives hand over their environmental service rights to the government, which in turn sells them to investors.
The institution coordinating these incentives is called FONAFIFO, a Forestry Financing Fund under the Ministry of Energy and Environment which receives and analyses applications, conducts field verifications, carries out the payments and monitors the forestry projects. The carbon credits are marketed by the Costa Rican Office for Joint Implementation (OCIC), which acts as a one-stop-shop for buying and sale of carbon credits known as Certified Tradable Offsets or CTOs. International investors purchase the CTOs developed either by the government or individual developers from the OCIC. By centralizing carbon trading, the OCIC lowers the transaction costs. The first batch of carbon credits (200 000 tonnes of carbon) was sold to a Norwegian consortium at US$10/tC (US$2.70/tCO2), for a total of US$2 000 000.
The Innoprise-FACE Foundation Rainforest Rehabilitation Project (INFAPRO) was the first large-scale forestry-based carbon offset project in the world. It is a cooperative venture between the Sabah Foundation, a semi-governmental forestry organization in Malaysia and the FACE Foundation of the Netherlands. Its objective is to rehabilitate 25 000 ha of degraded land and the total investment committed by the FACE Foundation amounts to US$15 million. It is expected that the project will sequester at least 4.25 million tonnes of carbon (15.6 million tonnes CO2) during its lifetime at an average cost of US$3.52 per tonne of carbon (US$0.95 per t CO2). The planting phase will last for 25 years and forests will be maintained for 99 years. At the end of the first 60-year growth cycle, these forests will be exploited for timber, which belongs to the Sabah Foundation and the FACE Foundation will have exclusive rights to the carbon sequestered through the 99 years of the project.
However, if the current definition of afforestation and reforestation is applied, this project may not be eligible under the Kyoto Protocol, since the areas to be rehabilitated have a dense canopy cover and would already be classed as forest. Appropriate definitions of forestry would have to be developed and adopted to enable the inclusion of a wide range of projects.
Tree Farms AS, a Norwegian forestry company, hopes to sell carbon credits to private GHG emitters in Norway as the Kyoto Protocol targets begin to bite and the government presses companies to attain emission reductions (Aukland et al. 2002).
Large-scale plantation forestry in Tanzania, the Guaraquecaba Climate Action Projects in Brazil, and the carbon sequestration project in Uganda are some other examples where carbon offsets are to be supplied through afforestation (Orlando et al. 2002).
Strategy for operationalizing the CDM in the forestry sector
In order to take advantage of the CDM in the forestry sector, the countries need to:
The US decision not to participate in the Kyoto Protocol will likely mean a reduced demand for project credits, particularly from the CDM. However, it is expected that there will be a carbon trading market even outside the Protocol. Further, the carbon credits from afforestation and reforestation projects under the CDM that can be generated annually by an industrialized country cannot exceed one percent of that countrys base year emissions as of 1990. This means that the total global market potential for afforestation and reforestation project credits is limited to a maximum of approximately 33 million tonnes of carbon per year.
Kemfert (2001) estimated that the trading of emission allowances between economies in transition and other industrialized countries would dominate the global market because of the large number of allowances and low prices at which they are expected to trade. Under this scenario, carbon credits from the CDM projects would not be traded.
Another factor influencing the carbon trading is price. Estimates of the market price of a tonne of carbon range from US$3 to US$57 (Boehringer 2001, Buchner et al. 2001, Den Elzen and de Moor 2001, Eyckmans et al. 2001, Jakeman et al. 2001, Jotzo and Michaelowa 2001, Kemfert 2001). All estimates, however, are likely to change over time as the market evolves and the rules for trading become known.
ISSUES TO BE ADDRESSED
The requirements of the CDM projects can be daunting for smaller groups with few international connections. The transaction costs can be high and there are considerable information, negotiation, design, monitoring and risk management requirements and it will be difficult for smaller companies and community groups to access the benefits of the CDM. Unless there is some active intervention on the part of developing countries, governments and agencies wishing to promote people oriented forestry, an emphasis on monocultures with few people may dominate the CDM in forestry for the simple reason that it will be difficult to organize smaller scale, livelihood-oriented forestry projects despite their benefits to the local communities.
This can be addressed through appropriate institutional arrangements and facilitation through an NGO, rural banks or even by confederations of village committees. The institutional arrangements should be put in place to ensure information flow to the stakeholders, consistency of management regime, and financial and administrative systems for cost-benefit sharing amongst many small and marginal players. In order to involve smallholders/communities in the CDM projects, their land-use systems need to be recognized by the sustainable development criteria applied to the CDM nationally and also the transaction costs need to be overcome.
National laws regarding property ownership may need to be reviewed and amended to address the emerging carbon market. Clarifying issues such as land tenure and access to and control of resources will be especially important in determining the success of activities and projects with social components.
As we realize that local stakeholders are often not a homogeneous group, project participants and evaluators should therefore include social heterogeneity in their project analysis and review. Project participants should also identify strategies that can minimize social hardship and/or social conflicts among local stakeholders.
Agroforestry and integrated rural forestry and energy projects provide considerable livelihood benefits though carbon conservation activities such as biodiversity conservation, ecotourism, etc. which may offer some of the highest livelihood benefits rather than afforestation.
There is concern that only a few larger developing countries which have adequate infrastructure and institutional arrangements to handle large projects may be benefited and the majority of the poorer developing countries, where the private sector is unlikely to pay any attention, may not be in a position to take advantage of the CDM in forestry. This can be addressed through using the Prototype Carbon Fund of the World Bank which may wish to spread its projects in poorer developing countries or by using the Overseas Development Assistance (ODA) to help poorer developing countries build the national capacity to develop and promote the CDM projects.
The CDM, therefore, is a win-win strategy, providing local as well as global benefits. The CDM projects, if implemented through innovative institutional, technical and financial mechanisms, could contribute positively to forest conservation and also at the same time provide socio-economic and environmental benefits to rural communities.
Environmentally sound and socially equitable climate change mitigation projects in the forestry and land-use sectors will require a strong enabling environment both at national and international levels. We should learn from the mistakes of the past and adopt an integrated approach instead of a sectoral approach by integrating carbon sequestration projects and activities into existing land-use planning, environment, development, and financial policy processes. The stakeholders, who include buyers, sellers, project developers, financial institutions and communities, can take steps to deliver environmentally sound and socially beneficial outcomes of climate change mitigation projects under the CDM of the Kyoto Protocol. It is important to adopt a holistic approach to integrate carbon sequestration objectives into improving livelihoods to achieve the ultimate goal of sustainable development coupled with poverty eradication.
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