CD

M p

ote

nti

al in

fo

rest

ry s

ecto

r

Nat

ion

al S

emin

ar o

n

Cle

an D

evel

op

men

t M

ech

anis

m a

nd

Car

bo

n T

rad

ing

O

pp

ort

un

itie

s in

Ag

ricu

ltu

re a

nd

Alli

ed S

ecto

rs

CR

IDA

, Hyd

erab

adM

ay 0

8, 2

008

Var

gh

ese

Pau

lF

ello

w, T

ER

I

OU

TL

INE

…

•Introduction

•CDM project requirements

•Cost effectiveness of CDM-forestry

projects

•Voluntary Carbon Markets

•SWOT analysis of forestry projects

Ho

w f

ore

st s

ecto

r is

rel

evan

t to

Clim

ate

Ch

ang

e?

•As a source (deforestation and forest degradation)

•Impacted by the Climate Change

•As a sink (Existing natural forests & TOF)

•Offer opportunities for C-sequestration

(Afforestation, reforestation & existing plantations)

Car

bo

n M

arke

ts

•C-Sequestration

–Mandatory –CDM

–Institutional buying ( WB’s Biocarbon fund)

–Voluntary –CCX

•Asia Carbon Market –Yet to take off…

•India Carbon Exchange –

May be, we’ll have in future …

•Compensated Reduction & Conservation

–Relevant to post 2012 and being negotiated. Outcome

expected by Dec 2009

Kyo

to P

roto

col (

1997

) -

Co

mm

itm

ents

on

E

mis

sio

ns

Red

uct

ion

•At the heart of the Protocol lie its legally binding

emission reduction targets for Annex I Parties.

These amount to an aggregate reduction shared

among all such Parties of at least 5.2 percent

from 1990 levels by 2008-2012.

•KP provides for 3 flexible mechanisms

�JI (Joint Implementation)

�ET (Emission Trading)

�CDM (Clean DevelopmentMechanism)

•KP is operational since 16-02-2005

Th

e C

lean

Dev

elo

pm

ent

Mec

han

ism

(C

DM

)

CDM is designed to :

(a)Help developing (non-Annex I) countries in

achieving sustainable development and

(b)Assist developed countries (Annex I) to meet

emission reduction targets.

CD

M &

Fo

rest

Sec

tor

�CDM sink projects are limited to Afforestationand

Reforestation (A&R)

�C-pools accepted –AGB, BGB, woody litter and soil

carbon.

�C-pools being debated –Harvested Wood Products

�Under CDM GHG emission offsets are measured in

tonnes of CO2equivalent and are called Certified

Emission Reductions(CERs)

�CERsissued under forestry projects are non-permanent,

and are of two types:

�lCER(Market price: 50-70% of normal CER).

�tCER(Market price: 15-20% of normal CER).

Def

init

ion

: F

ore

sts

•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 percent 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 storeysand 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 percent or tree

height of 2-5 meters are included under forest, as are

areas normally forming part of the forest area which

are temporarily unstockedas a result of human

intervention such as harvesting or natural causes but

which are expected to revert to forests.

Def

init

ion

of

Fo

rest

Definition: A

fforestation

•Direct human-induced conversion of land

that has not been forested for a period of at

least 50 yearsto forested land through

planting, seeding and/or the human-induced

promotion of natural seed sources

50 years

Def

init

ion

: R

efo

rest

atio

n

•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 1990

Land use

change

Afforestation: If “non

forest”for 50 years.

Reforestation: If “non-

forest”on 31 Dec. 1989

Elig

ibili

ty o

f la

nd

s: e

xam

ple

s

50%

can

op

y co

ver:

is a

fo

rest

, th

eref

ore

is n

ot

elig

ible

(e.

g. n

o

lan

d u

se c

han

ge

occ

urs

.)

0% C

ano

py

cove

r,

bu

t d

efo

rest

ed in

19

92, n

ot

elig

ible

(e

.g. f

ails

to

mee

t th

e cr

iter

ia o

f 19

90 o

r 50

yea

rs)

10%

can

op

y co

ver

sin

ce 1

985,

it is

el

igib

le

Elig

ibili

ty o

f la

nd

s (c

on

td…

)

Mandatory tool for land eligibility

(EB 22 ndmeeting : Annex16)

•Demonstrate that the land at the moment the project

starts is not a forest at the start of the project

–The land is below the national thresholds of forest definition

–The land is not temporarily unstocked

•Demonstrate that the activity is a reforestation or

afforestationactivity

–31 December 1989 rule

–50 years rule

•Documents to prove land eligibility

–Aerial photographs, satellite imagery

–Ground based surveys (land use plans, land management plans, cadastre,

owners register)

–PRA documents

Ind

ia’s

th

resh

old

s

•Crown Cover : 30 %

•Tree height :5 m

•Land area: 0.05 ha

Implications:

•Degraded forests below 30 % crown

cover eligible for CDM activity

•Eligibility of agroforestsdoubtful

–With high canopy cover definition conversion of

non-forests to forests is difficult in case of

agroforests

Cri

tica

l co

mp

on

ents

of

CD

M

Pro

ject

s

Wh

at is

tra

ded

?

Certified Emission Reduction(CER)

1 CER= 1 tonneof CO2e

Bio

mas

s-C

arb

on

rel

atio

n1 tonneof biomass = 0.45 tonneof C

1 tonneof C corresponds to 44/12

(3.667) tonnesof CO2

Pro

ject

Bo

un

dar

y

�Project boundary should geographically

delineate all sequestrations and

emissions that are significant, can be

attributed to the project and are under

the control of project participants

�The project boundary can include one or

more discrete areas of land

�Boundaries should be clearly delineated

on the map or using GPS

•The baseline is the scenario that

reasonably represents the anthropogenic

emissions by sources of GHGsthat would

occur in absence of proposed project

activity

•Baseline scenario is used to calculate

additional removals from the project

•A clear and verifiable baseline scenario

giving C-stock changes in ‘without

project’ situation needs to be presented

using approved methodologies

Bas

elin

e

•Sequestration additionality

•Financial additionality

A/R CDM activity is additional, if it leads to

increase in net C-sequestration to what

would have happened in B-A-U scenario.

To demonstrate additionality, prove that

the project would not have gone ahead in

the absence of CDM benefits.

Additionality

Lea

kag

e

•Increase in greenhouse gas emissions by

sources which occurs outside the boundary of

an afforestationor reforestation project

activity under the CDM which is measurable

and attributable to the afforestationor

reforestation project activity

•Leakage may be because of displacement of

agricultural activities, livestock, fuelwood,

vehicle use, use of fence posts use

•Total leakage is equal to the sum of each of

the leakage components

Exa

mp

le o

f b

asel

ine

and

ad

dit

ion

al r

emo

vals

Time

Additional removal

Baseline scenario (BAU)

Removals

(CO2e)

Project scenario

Leakage

Fra

mew

ork

fo

r ca

lcu

lati

on

s

Net anthropogenic greenhouse gas removals

by sinks (NR):

The quantity of removals that will be issued as

ICERsor tCERs. It is calculated by subtracting the

baseline and leakage from the actual removals by

the project as:

NR = AR-BL-L

Cre

dit

ing

�tCERS

-expires at the end of the commitment period following

the one during which it was issued

-The amount of credits issued in each certification

corresponds to the total removals achieved by the project

since the beginning of the project

-Fees charged for issuance very five years

-Provide freedom for project proponents to retire credits if

they chose to harvest or discontinue an area

Crediting period: Max 30 yrs or 20 yrs with

two renewals

•lCERs

–expires at the end of the crediting period

–Must be replaced as soon as verification

shows carbon stock has decreased or if

there is no verification.

–The quantity of credit issued in each

certification corresponds only to the new

removals

–Likely to receive a higher price, but

commits carbon for the length of crediting

period

–Greater risk for the project operator

tCE

R

So

urc

e:G

EC

F, J

apan

lCER

lCER

Source:GECF, Japan

�C stock changes

�Socio-economic impact &

environmental impact assessment

�Biodiversity conservation

�Leakage

Mo

nit

ori

ng

& v

erif

icat

ion

(Sou

rce:

CA

TIE

, 200

7)

CD

M P

roje

ct C

ycle

Ob

stac

les

to F

ore

stry

Pro

ject

s

•Forest sinks were viewed as “loophole”

policy

•Late start (Dec 2003)

•Temporary credits

•Long-term investment

•Methodological & procedural issues

•Higher transaction costs & risks

•Leakage

Ob

stac

les

to F

ore

stry

Pro

ject

s

•Tenure

•Scattered land parcels

–Scattered VSS

•Presence of root stock-may revert to

forests if protection and some ANR is

provided

•Establishing land eligibility

•Establishing additionally

Fac

tors

th

at m

ay le

ad t

o a

su

cces

sfu

l C

DM

pro

ject

•Objectives & project description

–Strong combination of objectives:

•promotion of sustainable development

•biodiversity enhancement

•erosion control &

•poverty alleviation

•Tree species

–Mainly native species. Fast growing exotics

may be included purely for the reasons of

early income to the communities

Fac

tors

th

at m

ay le

ad t

o a

su

cces

sfu

l C

DM

pro

ject

contd…

•Contractual agreement

–Agreement between local communities & SFD or there

may be multi stakeholder agreement

•Strong local institutional mechanism

•Methodological & procedural approaches

–Additionality

–Leakage

–Monitoring

Mu

lti-

Sta

keh

old

er P

artn

ersh

ip (

MS

P)

for

LU

LU

CF

pro

ject

s

•Govt. to encourage private investment and

strengthen community participation in CDM forestry

projects.

•Legally enforceable MoUbetween parties

•Parties to MSP

–Investor: the investing entity may be a private company, Firm, User Group,

Trust, Society or any such organization.

–Local Community : Forest dwellers or local communities from adjoining

areas represented by local institutions like VSS, FDA or Gram Sabha.

–Land Owning Agency : government, institutions, public sector enterprises.

–Forest Department : Regulator, facilitator, providing technical know-how.

Exp

ecte

d d

eman

d o

f C

ER

sfr

om

fo

rest

se

cto

r u

nd

er C

DM

�Major Buyers: Japan, Spain & Italy

�Other Buyers: Finland, Portugal & Sweden

�Total Demand: 101 million CERsfor 2008-2012

�Annual demand = 20 million CERsduring 2008-

12

�Assuming 10% demand met by India, a market

potential of 2 million CERsper year is expected

�With avg. sequestration potential of 2 tC/ha/yr

i.e. 2 x 3.67 = 7.34 lCERs/ha/year, Land which

can be dedicated = 272,480 ha

Co

st E

ffec

tive

nes

s o

f F

ore

stry

Pro

ject

•Assumptions

–Project area: 6812 ha

–C sequestration potential: 2 tC/ha/year

–CO2removal: 2 X 3.67 = 7.34 X 6812

–Expected number of CERs/year: 50,000

–CER price: $10/t CO2

Co

st E

ffec

tive

nes

s o

f F

ore

stry

Pro

ject

(Pro

ject

siz

e -

50,0

00 C

ER

s/ye

ar)

No

Co

stIn

tern

atio

nal

mar

ket

Ind

ian

Sce

nar

io

(US

$)(I

NR

)

1P

roje

ct D

evel

op

men

t60

,000

-180

,000

20,0

0,00

0

2V

alid

atio

n15

,000

-25,

000

600,

000

(US

$ 15

,000

)

3R

egis

trat

ion

Fee

$0.1

0/C

ER

(F

irst

15,

000

CE

Rs)

@0.

20/C

ER

(15

,001

on

war

ds)

8,50

0 x

51,

700,

000

(US

$ 8,

500

x 5)

4M

on

ito

rin

g C

ost

Dep

end

s o

n s

ize

(25,

000

ha) --

-

7,00

,000

@R

s. 1

00/h

a/5

year

s5

Ver

ific

atio

n C

ost

15,0

00-2

5,00

0 p

er

aud

it60

0,00

0(U

S$

15,0

00)

No

.C

ost

Inte

rnat

ion

al m

arke

tIn

dia

n S

cen

ario

(US

$)(I

NR

)

6Is

suan

ce F

ee$0

.10/

CE

R (

Fir

st 1

5,00

0 C

ER

s)$0

.20/

CE

R (

15,0

01 o

nw

ard

s)

---

7A

dap

tati

on

Lev

y(b

y E

B)

2% o

f C

ER

gen

erat

ed(A

dap

tati

on

fu

nd

)20

,00,

000

8T

axes

Ho

st c

ou

ntr

y m

ay

char

ge

a sh

are

in

CE

Rs

issu

ed

Nil

9T

ota

l2,

27,5

00*

76,0

0,00

0

*Mo

nit

ori

ng

co

st f

or

pro

ject

s in

inte

rnat

ion

al m

arke

t n

ot

incl

ud

ed

Co

st E

ffec

tive

nes

s o

f F

ore

stry

Pro

ject

(Pro

ject

siz

e -

50,0

00 C

ER

s/ye

ar)

Exp

ecte

d C

ER

rev

enu

es

Expected revenue = 50,000 CERsX 10 $ X 5 Yr (Ist

verification)

= US$ 2,500,000

or Rs. 10,00,00,000 (10 Crore)

The revenue will accrue every 5 years on verification

Co

st/B

enef

its

Ver

ific

atio

n S

tag

e (R

up

ees

`000

)

IIIII

IVV

Mo

nit

ori

ng

Co

st70

070

070

070

0

Ver

ific

atio

n C

ost

600

600

600

600

Ad

apta

tio

n F

ee2,

000

2,00

02,

000

2,00

0

To

tal C

ost

3,30

03,

300

3,30

03,

300

Rev

enu

e10

0,00

010

0,00

010

0,00

010

0,00

0

Verification

Expected Benefit

(Rs.)

Expected Benefit

per ha/yr (Rs.)

I92,400

,000

2712/-

II96,700,000

2839/-

III96,700,000

2839/-

IV96,700,000

2839/-

V96,700,000

2839/-

Net

ben

efit

s ex

pec

ted

(In

clu

din

g t

ran

sact

ion

co

sts)

(Pro

ject

siz

e –

50,0

00 C

ER

s/ Y

ear)

SW

OT

An

alys

is o

f F

ore

stry

Pro

ject

s

Strengths

•Projects have multiple

benefits for local people

and their environment.

•Carbon finance can

enhance sustainable

forest management.

•Approved methodologies

present broad scope of

possible project types

(e.g., RDF, ANR agro-

forestry & silvipastoral)

Weaknesses

•First generation CDM

methodologies and

procedures are still

complex and time-

consuming.

•High upfront-financing

and late returns

•Projects bear risks of

non-approval under the

CDM, and non-

permanence risks.

SW

OT

An

alys

is o

f F

ore

stry

Pro

ject

s contd…

Opportunities

•Demand for carbon

credits by governments

is increasing.

•Insurance schemes can

address risks

•Political commitment to

mitigate climate change

and increasing public

awareness of forests’

crucial roles in it.

Threats

•Temporary credits face

competitive disadvantage

and relatively low value.

•EU Emissions Trading

Scheme excludes forestry

credits

•Kyoto Protocol imposes

1%-cap on forestry

credits.

•Future CDM regime (post

2012) still remains

uncertain.

Vo

lun

tary

Mar

kets

(Chicago Clim

ate Exchange)

•First voluntary, legally binding, GHG

reduction and trading system

•Launched on 1stJan 2003 & crediting

period 2003 -2010

•CCX members

–Companies

–Utilities

–Universities

–States

–City municipalities

Ch

icag

o C

limat

e E

xch

ang

e (C

CX

)

Ho

w d

oes

CC

X w

ork

?

•CCX members make a legally binding

commitment to

–reduce 1% per year from 2003-2006, for a total of 4%,

below a baseline average of 1998-2001 [PHASE I]

–reduce 6% below baseline by 2010 [PHASE II]

•Offset projects sequester or eliminate

GHGs, which can then earn credits that sell

on CCX to buyers seeking reductions

Req

uir

emen

ts o

f a

CC

X F

ore

stry

Off

set

Pro

ject

�Attestation that the planting occurred after Dec

31,1989

�A description of the pre-project condition and legal

description of the project area

�Demonstration that entity-wide forest holdings are

sustainablymanaged and maintained as forests;

�Demonstration of long term commitment to maintain

carbon stocks

�A projection of anticipated exchange forestry offsets

(XFOs) to be earned for each of the years 2003-2010;

�Among the C-pools, only above ground living biomass

is considered

Fo

rest

ry O

ffse

t P

roje

cts

contd…

•Carbon stock as on 31-12-2002 is the base line for carbon

sequestration estimation

•Above ground living biomass growth during 2003 to 2010 is

eligible for credits

•Verification by a CCX approved verifier, required for medium &

large projects.

•For quantification, CCX forestry projects are classified into

three categories as per CO2sequestration levels:

•small (<2,000 t CO2pa): C-accumulation tables/direct

measurements, subject to inspection; (may be around 200 ha)

•medium (2,000 –12,500 t CO2pa): accumulation tables/direct

measurements, subject to inspection; (may be around 500-2000

ha)

•large (>12,500 t CO2pa)–direct measurements/growth models.

(>2000ha)

•Offset aggregator can help in reducing the transaction costs

Exp

ecte

d c

arb

on

ben

efit

s fr

om

CC

X m

arke

t

Assumed sequestration levels = 2 tC/ha/yr

= 7.34 VERs(CO2ev)

VER price = $ 5.5 / t CO2

Expected benefits = 7.34 x $ 5.5*

= Rs. 1612/-** / ha / yr

* chicagoclim

ateexchange.com; ** 1 US $ = Rs. 40/-

Ro

ad m

ap f

or

C-b

enef

its

un

der

CC

X

•List out productive plantations which have

been planted after 1stJan 1990.

•Shortlist the plantations on the basis of

–Faster growth during 2003-10

–Workability of baseline as on 31-12-2002

–Ease of growth calculations (simpler plantation models)

–No harvest in near future

–Involvement of local communities

–Risk analysis

•Decide on the project size

•hApproachCCX through offset aggregator

CD

M V

s C

CX

Only living above

ground biomass

(AGB)

AGB, BGB, Soil C,

Litter

C-pools eligible

Carbon Reserve Pool

lCERs/tCERs

Permanence

Simpler

Complex

Methodologies

2003-2010

Up to 2008-12

Crediting period

Permanent

Temporary

Credits

Simple procedures

Lengthy process

Project approval

ODA and routine

funds are eligible

Dedicated funds for

CDM projects

Project funding

Forestation & Forest

enrichment (Existing

plantations eligible)

Afforestation &

Reforestation (A&R)

Eligible activities

CCX

CDM

Parameter

Thanks…

Thanks…

Thanks…

Thanks…

Lo

cal i

nst

itu

tio

nal

fra

mew

ork

fo

r C

DM