USAID-CIFOR-ICRAF ProjectAssessing the Implications of Climate Change for USAID Forestry Programs (2009)

The Clean Development Mechanism: Overview

Topic 5, Section D

In this presentation you will learn

about the basics of the Clean

Development Mechanism (CDM),

the project development cycle, and

forestry projects within the CDM.

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Learning outcomes

Outline

1. CDM basics

2. Project development cycle

3. The role of forestry projects in CDM

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1. CDM basics

Article 12 of the Kyoto Protocol under the UNFCCC:

The purpose of the CDM shall be to assist non-Annex I Parties in achieving sustainable development and in contributing to the ultimate objective of the Convention, and to assist Annex I Parties in achieving compliance with their commitments

It is the host Party’s prerogative to confirm whether a CDM project activity assists it in achieving sustainable development

A CDM project activity is additional if greenhouse gas emissions are reduced below those that would have occurred in the absence of the registered CDM project activity

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Rules for the CDM Annex I Parties are to refrain from using Certified Emissions

Reductions (CERs) generated from nuclear facilities to meet their quantified greenhouse gas emissions reduction targets

The eligibility of land use, land-use change and forestry project activities under the CDM is limited to afforestation and reforestation

Public funding for CDM projects from Annex I Parties is not to result in the diversion of official development assistance (ODA) and is to be separate from, and not counted towards, the financial obligations of Annex I Parties

• ODA can be, and is being, used to help prepare CDM projects

• For example, the Danish government has used its ODA in select countries to help develop CDM projects. Then other non-ODA funds have been used by the Danish government and the private sector to actually buy the carbon credits generated by the CDM project

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The CDM market

UNEP/EcoSecurities, 2007

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Source: UNEP/EcoSecurities 2007

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CDM projects by sector CERs issued by sector

2. The CDM project cycle (1/2)

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2. The CDM project cycle (2/2)

3. The role of forestry projects in the CDM

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Marrakech Accord

CDM forestry is limited to:

• afforestation – land unforested 50 years ago

• reforestation – land unforested before 1990

First commitment period is 2008-2012 when Annex 1 parties must meet their reduction obligation

Allowed at a maximum level of 1% from the assigned amount, or cap: 140 megatonnes of CO2

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Afforestation

Afforestation is different from reforestation. It is the process of establishing a forest on land that is not a forest, or has not been a forest for a long time by planting trees or their seeds.

The Marrakesh Accord requires that to qualify as an afforestation project, the land to be planted has not been forested for at least 50 years.

50 years

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Reforestation Direct human-induced conversion of non-forested land to

forested land through planting, seeding and/or the human-induced promotion of natural seed sources, on land that was forested but that has been converted to non-forested land

For the first commitment period, reforestation activities will be limited to reforestation occurring on those lands that did not contain forest on 31 December 1989

1990

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What is a forest? Host country must define a forest within the following guidelines:

• minimum tree crown cover between 10 and 30%• minimum tree height between 2 and 5 metres • minimum land area between 0.05 and 1.0 hectare

Once chosen, values must remain fixed

0 10 Canopy Cover 30 100

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Non-permanence

Land-based systems subject to reversal by human and natural disturbances

Addressed by concept of ‘rental’ of the service

Includes two options – temporary and long-term certified emission reductions (tCER and lCER)

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How long can a CDM project last? (crediting period)

Two options:

• fixed – 30 years with no renewal

• renewable – may be a maximum of 20 years and may be renewed twice for a total maximum of 60 years

Need to determine if baseline is same or will be updated

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Forest carbon is a rental service

tCER expiring at the end of the commitment period following the one in which it was issued

• in practice it lasts for 5 years at most

lCER expiring at the end of the crediting period following the one for which it was issued

• in practice it can last for 20-30 years and is used in one commitment period in which it was issued

Annex 1 countries using the tCER or lCER must replace or retire them before they expire

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Additionality

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B

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Time

Car

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AB = Baseline

AC = Additionality

AD = Leakage

abcd = gain

abef = loss

abcd-abef = net gain

• Fixed: 30 years with no renewal• Renewable: may be a maximum of 20 years and may be

renewed twice for a total maximum of 60 years

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Transaction costs for forestry projects

Project preparation usually by a consultancy company: US$60,000 to US$180,000

Validation by a Designated Operational Entity: Estimated at US$15,000 to US$25,000

Registration fee by the Executive Board: For the first 15,000 CERs, projects are charged US$0.10/CER. For anything above 15,000 they are charged US$0.20/CER

Monitoring costs: Depends on project size and sample size needed, as well as on monitoring methods and intensity

On-going verification by the Designated Operational Entity: US$15 to US$25,000 per audit

Issuance fee by the Executive Board: The issuance fee is as above US$0.10/CER for the first 15,000 CERs, and US$0.20/CER for anything above 15,000 CERs

Adaptation levy by the Executive Board: 2% of the CERs generated

Taxes by the host country: Some countries claim a share of a project’s CERs in exchange for issuing a Letter of Approval that is prerequisite to registration

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Tropical forests and the carbon market

There are still very few takers of forestry carbon projects under the so-called Kyoto market

It has been estimate that up to 13.6 million carbon credits may be available by 2012 based on projects in the pipeline

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CDM Projects by scope as of 1 April 2009

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World Bank carbon funds Prototype Carbon Fund (PCF)

• all sectors

• with loan component

Community Development Carbon Fund

• for small-scale projects

• sector: energy, urban, waste, agroforestry

• prioritises the LDC

• contract price US$26 per 28 tonnes of carbon

BioCarbon Fund (BCF)

• especially for the forestry and land-use projects

• to improve people livelihoods

• to avoid erosion and desertification

• contract price US$12 per 16 tonnes of carbon

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Sustainable development objectives

Enhanced environmental services

• improve soil fertility

• conserve biodiversity

• maintain hydrological/watershed functions

Improved livelihoods

• create job opportunities

• increase income and financial benefits

Secured social capital

• ascertain land titles and tenure systems

• reduce conflicts over property

• strengthen institutions

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Barriers to CDM projects

A lack of financing for tree planting

High transaction cost (more than US$200,000)

Carbon credits not sufficient to cover total cost of project

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Strategies for overcoming barriers

For host countries, finding a partner from an Annex 1 party or financing institutions

Making carbon credits a supplemental source of income

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Programmatic CDM

Programmes of Activities (PoAs) increase the efficiency of the CDM

To complement traditional stand-alone CDM PoA is a programme coordinated by a private

or public entity  No approved forestry programmatic CDM But has good potential for forestry projects

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First CDM project:Facilitating Reforestation for Guangxi Watershed

Management in Pearl River Basin, China

The project activity aims to reduce threats to local forests and generate income for poor farmers by enabling the carbon sequestered by plantations to act like a ‘virtual’ cash crop for project participants

The overall objective is to explore and demonstrate the technical and methodological approaches related to credible carbon sequestration. The project will also enhance the livelihoods of people and native biodiversity

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Specific objectives

To sequester CO2 through forest restoration in small watershed areas and to test and pilot how reforestation activities generate high-quality emission reductions in greenhouse gases that can be measured, monitored and certified

To enhance biodiversity conservation by increasing the connectivity of forests adjacent to nature reserves

To improve soil and water erosion control To generate income for local communities

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Project activities Establishing 2,000 hectares of multiple-use forests in

Huanjiang County, Guangxi Establishing 2,000 hectares of multiple-use forests on sites

with severe soil and water erosion in Cangwu County, Guangxi

Establishing legal structures to aid the sale of Certified Emission Reductions (CERs)

Monitoring and assessing the project’s environmental and social-economic impacts

Developing and testing local financing mechanisms Developing, testing and disseminating the best practice in

watershed management

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Estimated carbon benefits

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Thank you for your attentionThank you for your attention