2
Acknowledgement
The process of putting together a feasibility study report for examining and recommending a model for
developing and selling forestry-related voluntary carbon markets in Thailand was formally initiated at the
FAO sponsored work-shop “Linking Communities in Southeast Asia to Forestry-related Voluntary Carbon
Markets (VCM)” held at Chiang Mai, Thailand, between 20-22nd September, 2010. The contours of the
study were defined by the insightful inputs of Ms. Maria Spirovska-Kono, consultant, FAO Regional Office
for Asia and the Pacific (RAPO) and Dr. Pongvipa Lohsomboon, Director, Investment and Marketing Office,
Thailand GreenHouse Gas Management Organization (TGO) and her team. The background of the report
was meticulously researched by the team of professionals at Emergent Ventures Bangkok Office and the
report would not have been completed successfully without their effort in collecting industry feedbacks,
compilation of latest industry developments and liaison with FAO and FAO offices. A concurrent study by
Equitech (TCP/THA/3203, component 2) also provided necessary details to understand the ground-reality
of forestry project implementation scenario in Thailand. Patrick B. Durst, Senior Project Officer, RAPO,
facilitated closure of the report through detailed analysis of draft versions and identifying multiple areas
of improvement and modification. We hope that the report made in collaboration with FAO and Emergent
Ventures will be useful to TGO in its efforts to develop a forestry-related voluntary carbon market
structure in Thailand.
Abhirup Sen Emergent Ventures
April, 2011
3
Executive Summary
Voluntary carbon markets are expanding rapidly of late and according to some estimates they have been
doubling both in volume and value in the past couple of years. Voluntary offsets are particularly feasible
and potentially attractive alternative for forestry and small-scale initiatives that face difficulties in meeting
the rigid protocols and high transaction costs of compliance markets. This said, such “perceived”
advantages of the voluntary market are still to be reflected in the progress of forest carbon scenario in
Thailand. The Government of Thailand has thus recognized the importance and need to promote and
support various activities aiming at reducing carbon emissions and pursuing the path of “green
development”. Considering that the ownership of the forests including the onus of their protection and
rehabilitation is primarily with the government and the indigenous communities represent the principle
beneficiary of the conservation of forest resources, accessing the voluntary carbon trade has potentials for
providing benefits at both national and community level. However, there is a strong need for developing
capacities within the various institutions for availing benefits of the voluntary carbon markets mechanism.
On the request of the Royal Government of Thailand and the Thailand Greenhouse Gas Management
Organization (TGO), Food and Agricultural Organization Regional Office for Asia and the Pacific, Bangkok,
has initiated a Technical Cooperation Programme (TCP) Facility in support of start-up activities for
identifying the key opportunities and requirements for accessing voluntary carbon markets. Emergent
Ventures has collaborated with FAO and TGO to analyse the different aspects of Thai Forestry sector and
propose appropriate designs to implement a domestic forestry-related voluntary market mechanism. The
findings will be further utilized by the recently initiated Regional TCP project “Linking communities in
Southeast Asia to forestry-related voluntary carbon markets” (TCP/RAS/3210). Under the supervision and
guidance of, and in consultation with the Senior Forestry Officer, Regional Office for Asia and the Pacific
(RAPO) and in collaboration with Ministry of Natural Resources and Environment, the Thailand
Greenhouse Gas Management Organization, the following aspects were covered under the report:
a. Size, structure, key players, and potential buyers
b. Overview of most important carbon offset providers (type of activities)
c. Opportunities and constraints for Thai forestry-related carbon offsets
d. Overview of available carbon standards and their comparative advantage for forestry projects
e. Recommendations for a model for developing and selling forestry-related voluntary carbon markets
in Thailand
The study finds that developing forest carbon projects for voluntary markets may only be easier when
compared relative to existing compliance markets but they still need to meet internationally accepted
4
standards that require specialized expertise, finding the right buyers and significant resources.
Methodological issues related to project categories such as REDD are being sorted out in the voluntary
standards, which at least will help clear the air when it comes to technical, if not governance issues related
to these categories of carbon offset projects.
The deforestation rate in Thailand peaked in the 70’s and 80’s.Since the 90’s, the deforestation rate has
declined remarkably. This decrease in deforestation rate can be attributed to steps such as logging ban
since 1989 and concerted efforts to reforestation and rehabilitation of degraded lands by RFD. But for
such efforts to result in long-term actual action on the ground require clear policy guidelines on the part of
the government regarding tenural rights of forests, usufruct distribution and community participation.
Besides, reforestation efforts especially face the rising opportunity costs of land as most deforested areas
in Northern Thailand are now under cash crop or rice cultivation. The phenomenon of deforestation has
been recognized as a complex socio-economic issue that cannot be addressed merely by targeting one
factor whilst not responding to the other drivers.
The major challenge for the long-term success of a voluntary market mechanism for Thailand is to ensure
wide participation by the potential players and to keep them involved in the set-up for the long-term to
make it meaningful. Given the fact that Thailand is largely an export-oriented economy, it may not be
possible to introduce a mandatory domestic trading system like Korea VER trading system without
affecting the competitiveness of the companies involved. Another challenge is to make the market
attractive enough to induce buyer participation. This requires some differentiating factors which will be
attractive to potential buyers in the voluntary market.
Alternatively, the Thai Government can come out with a set of nationally relevant Criteria and Indicators
(C&I) which may be used as a guideline to assess social and environmental contributions of the forestry
projects apart from the net sequestration they achieve. This can also help differentiate the value of Thai
credits in the voluntary markets. This will not only add value to the credits but also bring about credibility
for the market participants, even for CSR participants. Moreover, these credits will be of particular interest
to environmentally responsible multi-national companies with operations in Thailand as they will find the
option of offsetting Thai facility emissions with distinctly Thai projects.
Based on these factors, the report has envisioned multiple structures that could be considered by Govt. of
Thailand for kick-starting the process of domestic carbon forestry project development. We have
compared these structures on various parameters like government involvement, attractiveness of
participation, anticipated buyer response, price discovery etc. The principle aim is to ensure a debate and
adoption of the most appropriate mechanism, even if it means a permutation of the major points of each
of the discussed mechanisms.
5
S. No.
Parameters Proposed Market structure scenarios
Laissez Faire model Thai Forest Standard model Voluntary Market as unilateral NAMA
Mandated Market Mechanism
1 Description Enabling model. At present forestry projects can be done by Thai companies/NGOs under standards like VCS. Govt. enhances awareness of such standards/ methodologies and then, it’s up to private companies to take a call
Strengthening model. Govt. encourages companies/NGOs to develop forestry projects adhering to international standards and also on a set of Criteria & Indicators developed by the TGO. Projects subscribing to these C&Is would be eligible to get an additional recognition from Thai govt. in form of a lable.
Govt. to setup central nodal agency which will guide project developers through carbon markets by providing information about carbon credit generation services, buyers etc.
Proactive model. Govt. encourages companies/NGOs to develop forestry projects subscribing to international standards and then, purchases credits from these projects under govt. bio diversity conservation, forest cover improvement activities. Fund for purchasing these credits could come from the fund collected by small cess on sale of fossil fuels. (example: Cess on coal in India for financing solar projects)
Regulated model. Govt. mandates companies to ascribe a certain percentage share of their profits for purchasing Thailand forestry carbon credits. Govt. could facilitate this by pre-selecting implementation partners who will implement forestry projects and make their credits available for sale.
2 Scope of Participation
The NGOs, commercial forest companies and companies pursuing CSR activities can participate
NGOs, commercial forest companies and companies pursuing CSR activities can participate
NGOs, commercial forest companies and private companies
Commercial forest companies and NGOs (preselected by government)
3 Mechanism oversight of the market
There will be no formal oversight over the market except awareness generation
TGO or any other nodal agency can provide oversight to the market operations and frame C&I guidelines, review projects which apply to the guidelines, issue necessary compliance certificates and provide guidance for carbon market activities
TGO or any other competent organization can provide oversight to the fund operations, project development and purchase of credits.
TGO or any other competent organization can provide oversight to the running of program. Besides, the TGO shall also arrange for appointment of independent verifiers for verification and issuance of credits and monitor the participation of mandated players.
4 Project standards
The system will be integrated with the rest of the voluntary market
The projects can adhere to Thailand specific sustainable development norms and may be highlighted as contributing to Thailand developmental goals
The projects can adhere to international standards but since government is funding the projects, it can claim it as a unilateral NAMA
Projects can adhere to local standard published by Govt.
Convergence of Compliance and voluntary market components for a domestic
voluntary market mechanism
As per the analysis from prevailing ground realities, feedback from stakeholders and studying similar
market structures, it should be considered that a free market structure that we generally associate with
voluntary market may not be feasible enough to entice adequate response from market participants and
project developers. A completely voluntary country-specific market with no mandated participation may
be too restricted in terms of
participation as against the global
unrestricted market now in place.
Rather, a market either mandated or
facilitated by the government, with
clear modalities of participation and
governance may be the more rational
way to proceed. The high initial cost of
developing a forestry project requires
assurances on the part of the
government regarding long-term policy support as well as funding support for community based projects
which other-wise may not be feasible for development forest carbon projects.
Such a market may incorporate the MRV standards of CDM and voluntary standards and include such
activities as reforestation, REDD plus and IFM. The structure can also accelerate funding for lagging sectors
like community based forestry projects and can act as a catalyst for capacity building and co-coordinating
across market verticals.
7
Abbreviations
AFOLU Agriculture, Forestry and Other Land Use
ALM Agricultural Land Management
A/R Afforestation/Reforestation
CCBA Climate, Community and Biodiversity Alliance
CDM Clean Development Mechanism
CER Certified Emission Reduction
CFS Carbon Fix Standard
CSR Corporate Social Responsibility
DNP Department of National Parks, Wildlife and Plant Conservation
EVI Emergent Ventures International
FAO Food and Agriculture Organization
FSC Forest Stewardship Council
GHG Green House Gas
IFM Improved Forest Management
IPCC Intergovernmental on Climate Change
MONRE Ministry of Natural Resources and Environment
MRV Measurement, Reporting and Verification
NGO Non-governmental Organization
NTFP Non-Timber Forest Products
PCFC World Bank Forest Carbon Partnership Facility
PDD Project Design Document
PES Payments for Ecosystem Services
REDD Reduced Emissions from Deforestation and Forest Degradation
RFD Royal Forest Department
RPIN Readiness Plan Index Note
SFM Sustainable Forest Management
TCP Technical Cooperation Programme Facility
TGO Thailand Greenhouse Gas Management Organization
UNFCCC United Nations Framework Convention on Climate Change
VCM Voluntary Carbon Market
VCS Voluntary Carbon Standard
VER Verified Emission Reduction
8
Contents
1. Voluntary Carbon Markets: Carbon Cowboys’ Flight to Quality 9
2. Forest Carbon Markets: Philanthropy to Compliance 11
3. Forestry Sector in Thailand: Expected Variety of Offsets 13
4. Forest Carbon Standards: Making Sense of the markets 22
5. Feasibility for developing a forestry-related voluntary carbon market in Thailand 30
6. Overview of discussions so far and summarization of findings 50
Annex I to III
7. References 58
List of Figures
FIGURE 1. MAJOR FOREST TYPES OF THAILAND ............................................................................................................. 13
FIGURE 2. THE PRINCIPLE DRIVERS OF DEFORESTATION IN THAILAND OVER LAST HALF CENTURY .............................. 15
FIGURE 4. PROTECTED AREA NETWORK IN CENTRAL THAILAND ................................................................................... 17
FIGURE 5. PROTECTED AREA NETWORK IN SOUTHERN THAILAND ................................................................................ 17
FIGURE 3. PROTECTED AREA NETWORK IN NORTHERN THAILAND ............................................................................... 18
FIGURE 6. GOVERNMENT AND LOCAL COMMUNITIES CONTINUE TO BE ON THE OPPOSITE SIDE OF THE TABLE ON THE
REDD ISSUE ............................................................................................................................................................ 19
FIGURE 7. STEPS IN PROJECT DEVELOPMENT UNDER PLAN VIVO (ADAPTED FROM WWW.PLANVIVO.ORG) .............. 25
FIGURE 8. THE PROCESS OF PROJECT DEVELOPMENT UNDER VCS AFOLU .................................................................... 26
FIGURE 9. THE HIGH TRANSACTION COSTS TENDS TO OUTWEIGH THE ........................................................................ 26
FIGURE 10. COMPARATIVE ILLUSTRATION OF COSTS AND RETURNS FROM A 1000 HECTARE AFFORESTATION PROJECT
IN THAILAND OVER A PERIOD OF 20 YEARS ........................................................................................................... 27
FIGURE 11. THE GHG OFFSET MECHANISM ADAPTED BY PANDA STANDARD (©2010 PANDA STANDARD) ................. 31
FIGURE 12 ....................................................................................................................................................................... 33
FIGURE 13. CONVERGENCE OF COMPLIANCE AND VOLUNTARY MARKET COMPONENTS FOR A DOMESTIC
VOLUNTARY MARKET MECHANISM ....................................................................................................................... 44
FIGURE 14. PAGE 1 OF THAI INDUSTRY SURVEY ON VOLUNTARY CARBON MARKETS IN THAILAND ............................ 53
FIGURE 15. PAGE 2 OF THAI INDUSTRY SURVEY ON VOLUNTARY CARBON MARKETS IN THAILAND ............................ 54
FIGURE 16. PAGE 3 OF THAI INDUSTRY SURVEY ON VOLUNTARY CARBON MARKETS IN THAILAND ............................ 55
FIGURE 17. PAGE 4 OF THAI INDUSTRY SURVEY ON VOLUNTARY CARBON MARKETS IN THAILAND ............................ 56
FIGURE 18. PAGE 5 OF THAI INDUSTRY SURVEY ON VOLUNTARY CARBON MARKETS IN THAILAND ............................ 57
1. Voluntary Carbon Markets: Carbon
Cowboys’ Flight to Quality
The Voluntary Carbon Market is historically seen
as an unregulated playing field for trading in
carbon credits and offsets outside the purview of
the compliance requirements. It has always been
a space that has encouraged experimentation
with new concepts and incubation of innovative1
technologies. Although voluntary carbon
markets preceded compliance market
mechanisms, but the inception of Kyoto Protocol
gave a boost to both the trading volumes and
participants of the voluntary market. Today, the
role of voluntary markets are viewed as
expanding the gamut of global climate change
mitigation efforts beyond the realms of
compulsory emission reduction targets as
envisaged under Kyoto Protocol2. Voluntary
offsets are of major interest to voluntary buyers
like major corporations, individuals and private
organizations who purchase it in anticipation of
emission reduction regulations, CSR activities,
voluntary emission cuts in excess of regulatory
obligations etc. Voluntary market mechanisms
have helped reduced the weight of formalities,
bureaucracy and transaction cost generally
associated carbon offset projects.
Voluntary markets are driven largely by project
based transactions which are not governed by
internationally accepted regulations and
bindings. The fragmented nature of the
voluntary market structure and confidential
nature of transactions in the voluntary market
makes them hard to track leading to lack of
transparency and information. The smoke-screen
surrounding such deals opens the voluntary
market to questions regarding it’s the credibility.
The voluntary market has been accused of
encouraging credits of “questionable”
background as there is a general lack of
mechanism to review the credibility of such
offsets3.
Thus pivotal to the success of voluntary offsets is
adopting credible monitoring, reporting and
verification standards and ensuring that in the
process, the advantages generally associated
with the voluntary market like lower transaction
cost and s process requirements are not lost. To
address the above concerns and also to bring a
larger proportion of the voluntary credits under
certification a number of standards have come
into existence4. Some of the standards are
general in their purview (eg. Voluntary Carbon
Standard) whilst others have a more sector
specific approach (eg. Green-e for renewable
energy, Carbon Fix Standard for reforestation
etc). The project development norms for some of
the standards are aligned with those of CDM
whereas others have developed their own
distinguishing criteria. The standards dedicated
to the sectoral scope of forestry generally give
more importance to community development,
biodiversity conservation and overall sustainable
10
development that the projects contribute to as
part of their design and activity. Whilst the
emergence of so many various standards have
effectively fragmented the voluntary market
even further in the initial years of the present
decade, gradually the market seems to
consolidate around a few standards which have
gained relatively higher market share of the
trade, better buyers’ confidence, transparency
and ease of project development.
Another concern arising out of the fragmented
nature of the voluntary market is the lack of
traceability of the credits wherein due to the
absence of an international statute covering the
activities carried out by the offset providers, an
offset project developer can “recycle” i.e. resell
the same credit to multiple buyers as there are
no centralized registries to track the trade5,
which remains hidden in a veil of secrecy and
disaggregated market. The drive for more
transparency, liquidity and enhanced credibility
of the voluntary market has resulted in almost all
the standards tying up with one or more
registries. This step is supposed to reduce
double-counting to a large extent. The trend in
the voluntary market now shows that by 2009,
more than half of the credits are being tracked
through a registry6 which has increased
considerably from about 30% in 20077.
11
2. Forest Carbon offsets: Philanthropy to
compliance
‘Carbon offset’ describes the process whereby
entities purchase ‘credits’ generated from
projects that claim to reduce greenhouse gas
emissions8. The use of forestry carbon offsets by
an American power generation company in 1989
to reduce its carbon footprint marked the
initiation of voluntary carbon market. During the
period 1989- c.2000, forestry was one of the only
active sectors in the market. The principle reason
why forestry receives attention is the tangible
benefits that can be received from such projects.
But the projects were beset with problems that
have come to be associated with forestry offset
schemes and influenced later policy decisions.
Planting of exotic species not suitable to local
ecosystem regimes9, denial of traditional forest
rights and coercion of indigenous people, lack of
long-term monitoring mechanisms of
plantations, clearing of natural forests for the
purpose of establishing plantations to earn
carbon credits were some of the concerns that
led to the marginalization of forestry in
compliance market. The activities of forestry
carbon offset companies also led to a notion that
forests were being used as an easy way out for
the problems of climate change rather than
addressing issues like energy efficiencies and
development of newer technologies. Apart from
the above, the different aspects of the science of
global carbon cycle that is central to the premise
of the role of forests in climate change
mitigation were poorly understood10 and the
rationale of assuming simplistic linear
relationship between trees planted and the
reduction in green house gases from the
atmosphere for justifying carbon credit benefits
was questioned. All these concerns led to a very
restricted role of forestry under Kyoto Protocol.
The Ninth Conference of Parties (COP 9) in Milan
held in 2003 allowed only afforestation and
reforestation activities under the first
commitment period citing the issues like of non-
permanence, additionality, leakage,
uncertainties and adverse socio-economic and
environmental impacts11 associated with these
activities. Forestry was allowed under CDM from
2005 onwards, but the stringent guidelines
associated with CDM did not encourage many
forestry projects. The lack of market for forestry
credits after exclusion of forestry EUETS till 2012,
the expiring nature of forestry CERs, high upfront
cost of project development12, have affected
confidence in the project developer's ability to
deliver eligible, tradable benefits13 through
afforestation and reforestation projects under
CDM. Thus there is a general uncertainty in the
markets about the success of such projects.
During the first half of this decade, the demand
for forestry carbon offsets slumped mainly with
the availability of new sectors like renewable
energy, industrial gases etc in the compliance
market.
12
But gradually as the dust of the whirlwind of
regulations, endless debates and controversies
settled, forestry offset credits emerged once
again to a market structure supported by sound
scientific evidence14, better insight into project
implementation, anticipation of inclusion of
forestry under new emission capping
regulations15, new robust forestry standards and
newer project types like REDD, agro-forestry etc.
which pushed the realm of forestry offsets
beyond afforestation and reforestation as
mandated under CDM. Armed with new
scientific evidences, voluntary market became
the ground for testing new frontiers of forestry
offset market applications like REDD, so much so
that compliance markets have accepted the
trends in voluntary markets as guidance for
shaping future policy decisions including the
Copenhagen Accord16. Today forestry offsets
have regained its importance in the voluntary
market with at least a quarter of the market
share. It has become an attractive market for
small community based projects which have
proved to be prohibitively costly to develop
under CDM as well as for massive REDD
initiatives which are beyond the scope of CDM so
far, reflecting the diversity of project developers
as well as buyers’ profiles17. Under the light of
such a fast evolving scenario and a dynamic
global market, we shall discuss the opportunities
that the present scenario offers to develop and
encourage forestry related voluntary carbon
sector in Thailand and the adaptive regulations
and policies required to achieve the goal. The
reason behind the attraction of forestry projects
in voluntary markets is the additional tangible
benefits of such projects including sustainable
development, protection of natural resources
(e.g., biodiversity, water, and soil), recreation,
and the rehabilitation of degraded lands.
13
Figure 1. Major Forest Types of Thailand
Forests in Thailand
Evergeen
Tropical evergreen
Tropical rain forest
Semi-evergreen
Hill EvergreenPine forest
Mangrove
Beach
Decidous
Mixed Decidous forest
Dry Dipterocarp forest
3. Forestry Sector in Thailand: Overview of
important offset providers (types of
activities)
Forest ecosystems form an integral part of the
carbon cycle that is affected as a result of
increasing anthropogenic activities. Thus they
form an important in the development of climate
change mitigation strategies. There are basically
three categories of forest management activities
that may be considered for forestry18 viz.
management for conservation (conservation of
forests, tackling forest degradation),
management for storage (carbon sinks in
plantations, carbon storage in durable wood
products) and management for substitution (eg.
substituting GHG incentive fuels with biomass).
In order to identify such activities it is important
to dwell over the various forestry practices in
Thailand.
3.1. Major Forest Types in Thailand
The distribution of forests types in Thailand are
generally influenced by altitude and climatic
variations. Thailand is located in continental
south-east Asia approximately between 6-20° N
latitude and 98-105° E longitude. The altitude
varies from sea-level to the high hills in
Northern Thailand that rises over 2500m. The
northern part of the country is hilly and is the
source of the four main tributaries of the Chao
Phraya River, which flows through the alluvial
plan of central Thailand southward to the Gulf
of Thailand forming the Chao Phraya Delta. The
peninsula stretches far to the south through the
Isthmus of Kra. The northern part of the country
is a plateau stretching eastwards and is known
as the Northeast highland or Korat plateau that
slopes eastwards to the Mekong River.
14
The climate of Thailand is shaped by monsoon
winds. Northern Thailand has three distinct
seasons, viz. rainy (May-October), cool-dry
(November February), and hot-dry (March-April).
The other regions have only two seasons, viz.
wet and dry. The temperature may rise up to
40°C during the dry season and drop to 0°C in
some places in the cool-dry season. An average
temperature of 25°C is common throughout the
year. The variations in altitude also influence the
climate to some extent that gets cooler from
south (near the equator) towards the north. The
NE monsoon (dry) wind is prevalent from
October-November to February-March and the
SW monsoon (wet) lasts from April- May to
October19. In general, the rainfall decreases from
south towards north. The annual average rainfall
varies from 4000mm in the far south Ranong
Province to about 1,000 mm in northern areas.
There are mainly two major forest types in
Thailand viz. evergreen and deciduous forests.
As per a report of FAO on Thailand Forestry
Outlook Study20, the evergreen forest is
subdivided into tropical evergreen forest, pine
forest, mangrove forest and beach forest.
Tropical evergreen forest is found all over the
moist part of the country. Tropical rain forest is
characterized by very rich flora and very dense
undergrowth. This type of forest is commonly
found in the Southern and the Eastern regions
where rainfall is above 2,000 mm. It is also found
along rivers and/or in valleys in other parts of
the country. Pine forest has two species of
tropical pines, Pinus merkusii locally called Son
Song Bi (the two -needle pine) and P. kesiya
locally called Son Sam Bi (the three-needle pine).
P. merkusii is found in the northern and the
western part of the Central region where the soil
is poor, lateritic and podzolic. P. kesiya is found
only in the highlands of the Northern and
Northeastern regions. Mangrove forests occur
along the coastal areas of the Eastern, Central
and Southern regions. The mangrove forest is
scattered along the estuaries of rivers and
seashores where the soil is muddy and
influenced by the tide. Beach forests occur along
the sandy coastal plains especially in the eastern
coast of the Southern region. Deciduous forest is
characterized by the presence of deciduous tree
species that seasonally shed their leaves and is
commonly found throughout the country. It is
broadly subdivided according to the species
composition into the mixed deciduous forest
(with and without teak) and the dry dipterocarp
forest. Mixed deciduous forest is commercially
among the most valuable forest of Thailand. In
the Northern Region, this type of forest is called
the teak forest with Tectona grandis, Xylia kerrii,
Pterocarpus marcrocarpus, Afzelia xylocarpus
and Dalbergia spp (rose wood) as
dominant/common species. Dry dipterocarp
forest is commonly found in the dry area (rainfall
below 1,000 mm) with sandy or gravelly lateritic
fertile soils.
15
3.1.1. Degradation of forests in Thailand
The major drivers for forest degradation in
Thailand have historically been colonization of
Northern highlands by clearing forests for
agriculture and settlement, unsustainable forest
management practices21, development activities
such as road construction and pressure of ever-
increasing populationxx; both indigenous and
tribes fleeing conflict zones in neighboring
countries. By 1990, an estimated 10 million
people lived on reserved forestland without title
to the land.
The forest areas in Thailand were
indiscriminately cleared for rice cultivation
during the early 1900s. The colonization of forest
lands got further impetus with the advent of
lucrative cash crops in the post World War II
era22. More than 20 million hectares of forests
are estimated to have been converted into
agriculture lands post World War II. The forest
harvest concessions, logging roads and political
instability took a further toll on the forests of
Thailand during the 60s and the 70s. The
harvesting concessions covered more than 80%
of the nation’s forests and the consequent rapid
deforestation excabarated the ecological
disasters throughout the 1980s. It has been
noted that though indiscriminate logging
resulted in degradation of extensive forest areas
in Thailand, demand for agriculture land and
increasing population pressure has been the
major drivers for permanent conversion of the
logged forest areas to non-forest lands23. By the
early 1980s, more than half of the 270000 sqkm
of forests that existed at the beginning of 1960s
were lost.
As per Thailand submission to the Forest Carbon
Partnership Facility, the annual deforestation
rate between 2000-2005 has been 1.07%24. This
corresponds to about 1 million hectares of forest
lost between 2000-2005. But there is significant
incongruity in the data on rate of deforestation
from different sources. The Global Forest
Resource Assessment, 200525 by FAO reports an
annual deforestation rate of 0.4% between 2000-
2005 and 0.7 % between 1990-2005 for Thailand.
In this period, Thailand has reported to have lost
about 1.5 million hectares of forest area. In what
may be termed as a silver lining, the latest forest
assessment report by FAO26 reports a net
increase in forest area in Thailand by 0.11%
annually between 2005-2010 with a increase of
about 0.1 million hectares in area under forests.
Figure 2. The principle drivers of deforestation in Thailand over last half century
16
3.1.2. Evolving Forest Governance in Thailand
Almost the entire area under natural forests in
Thailand are owned by the state and managed
by the RFD, DNP or the DMC. The Royal Forest
Department (RFD) was established in 1896 to
regulate forest exploitation, particularly in the
teak forests of the North. Before the
establishment of the RFD, forestland was
managed by autonomous local vassals, who
profited from logging contracts with European
companies. After the formation of RFD, the
ownership and control of all forests were
transferred from the feudal chiefs to the central
government. The RFD was divided into three
Departments in 2002: the Royal Forest
Department (RFD), the National Park, Wildlife
and Plant Conservation Department (DNP) and
the Department of Marine and Coastal
Resources (DMC). The DNP is tasked with the
management of Protected Areas whilst the rest
of the forests are under the jurisdiction of the
RFD. The DMC is entrusted with resource
management of coastal flora and fauna,
including mangrove forests. All the departments
are under the supervision of the Ministry of
Natural Resources and Environment (MNRE).
Privately owned forests are mostly plantations
but are not accounted as part of Permanent
Forest Estate. There are two state enterprises in
the forestry sector viz. the Forest Industry
Organization (FIO) involved in reforestation, teak
plantation, sawmilling, and development of
forest villages and FIO′s subsidiary Thai Plywood
Company Ltd. produces plywood and other
wood products.
The inability of the RFD to single-handedly stem
the rate of deforestation led to the increasing
recognition of the potential of local community
participation in forest management, who could
assist in forest conservation as well as regulate
encroachment into forestland. In 1985, The
National Forest Policy targeted 40 percent of the
country to be under forestland and stressed the
need to involve local communities, the private
sector, academia, and other agencies concerned
with forest management. In 1988, serious
flooding and landslides in the South generated
public opinion in favour of reducing forest
degradation. This led to the 1989 national
logging ban. The ban on logging and forest titles
to private corporations pointed towards a shift in
national forest management policies toward
local participation and forest conservation19. The
logging ban in 1989 following massive landslides
and loss of lives is considered as the inflection
point in the rates of forest degradation in
Thailand. Although the deforestation has
continued beyond 1990, the degradation rate
has been reduced substantially following
adoption of decentralized forest conservation
measures by the government of Thailand,
especially the Royal Forest Department
(RFD).The protected area network in Thailand
was initiated under the National Park Act in 1961
17
Figure 3. Protected Area Network in Central Thailand
Figure 4. Protected Area Network in Southern Thailand
and they presently cover about 17 percent of the
total nation territory. The protected area (PA)
system consists of national parks, wildlife
sanctuaries or local government-controlled
forest parks, wildlife sanctuaries, no-hunting
areas (mostly private lands), botanical gardens
and arboretums. The existing 228 protected
areas including 115 National Parks and 59 Wild
life sanctuaries amount to about 11.5 million
hectares and they are under the control of the
DNP.
3.2. Community forestry activities in Thailand
18
Figure 5. Protected Area Network in Northern Thailand
Communities in Thailand are traditionally
dependent on forests for their livelihood and can
relate closely to nature as part of their culture.
About a third of the country’s population still
lives in the vicinity of forests. In recognition of
this, in November 2007, after decades of
deliberation, the Thai National Legislative
Assembly passed the community forestry bill
that grants legal rights to forest communities to
preserve and manage forest lands surrounding
their communities. But perhaps as a reflection of
the duality in perception about role of
communities in conservation, the above-
mentioned bill continues to be opposed and
have been declared void by the constitutional
court. The Royal Forest Department has made
community involvement one of the corner-
stones of sustainable forest management when
it became evident by the mid-1980s that one of
the reasons for the lack of success experienced
by the top-down government policy to protect
and conserve natural forests was the lack of
cooperation from the rural poor dependent
directly or indirectly on the forests. About 12000
villages are involved in managing community
forests in the country, which are managing a
total of about 2000 sq km. Many of the
communities are entirely dependent on the
community forests for fuelwood, fodder and
NTFPs. Buddhist monks sometimes seek refuge
inside the forests. The RFD facilitates such
forests by supplying planting materials,
maintaining nurseries and capacity building
activities. But while the idea of participatory
management was accepted as one of the
remedies for the continuous degradation of Thai
forests as reflected in the deliberation over the
community forestry bill, the views of different
stakeholders regarding sharing of administrative
and financial responsibility, allowing community
participation in protected area (PAs)
management etc. seem to have little common
ground27. This is more so because settlements,
especially of illegal immigrants from conflict
zones in neighboring countries, inside forests are
still seen as the principle reason of deforestation
19
Figure 6. Government and local communities continue to be on the opposite side of the table on the REDD issue
in protected areas and communities still don’t
have formal rights over forest resources since
the land belong to the government.
3.3. Plantations in Thailand and Trees Outside
Forests (TOF)
Forests in Thailand have been harvested on a
large-scale since the mid-19th century mostly for
valuable timber like teak. The majority of logged
timber was exported thus earning valuable
foreign exchange for the country28. Large scale
unsustainable logging and consequent
conversion of land to non-forest use was one of
the major causes for large scale deforestation
during the 60s through to 80s. During this period
Thailand lost her forests at a rate exceeding 2.5%
per annum, causing irreparabale damage to Thai
forests. The disastrous floods in Southern
Thailand were exacerbated by soil erosion by
deforestation. This led to a concerted demand
and a consequent ban on logging of natural
forests (except for some special cases like forests
that are to be submerged by dam projects,
periodic thinning etc.) in 1989. Although
plantations of teak and rubber were initiated in
the early 20th century and was given a fillip
through reforestation activities in the 1960s, the
logging ban led to renewed emphasis on
plantation sector in the country. Teak, rubber,
eucalyptus etc form the majority of plantations
in Thailand. Acacia mangium, Pterocarpus
marsupium, Albizzia lebbeck, Leucaena
leucocephala, Gmelina arborea, Pinus sp., Acacia
sp. and Azadirachta indica (neem) are some of
the other species that are planted. The state-
owned Forest Industry Organization is involved
in large scale plantation activities. Although data
regarding private plantations is not available, it
can be conservatively estimated that there are in
excess of 0.2 million hectares of teak plantations,
0.5 million hectares of eucalyptus plantations
and about 2 million hectares of rubber
plantations in Thailand today.
The major forest based industries in Thailand are
pulp and paper, furniture and accessories,
construction and plywood industries. While
eucalyptus and rubber are the main raw
materials in pulp and paper and furniture
respectively, most of the hardwood used in
construction industry is imported. Given the fact
that Thailand imports approximately 21 million
cubic metres of wood annually, there is huge
potential for expansion of commercial
plantations in the country. Based on suitability of
land, FAO has identified more than 7 million
hectares for extension of plantation activities.
20
As per FAO assessment, there are equivalent to
about 19 million hectares of trees that are
outside recorded forests areas (Trees Outside
Forest). But there is a lack of data regarding the
biological, economic and cultural importance of
TOFs to the local communities.
3.4. Vulnerability of forests in Thailand to the
effects of climate change
One of the fallouts of anthropogenic GHG
induced climate change that shall affect tropical
forests is enhanced frequency and magnitude of
the climate extremes, variability and associated
disasters, like drought, flood and storms.
Although the exact fallout of drier climate and
more extreme weather conditions are difficult to
predict due to the interlinked and intricate
nature of tropical forest ecosystem, but it is
speculated that such changes shall have a
negative domino effect on the entire ecosystem
due to increased incidences of forest fires,
increased vulnerability of drought-stressed trees
to pest attacks.
These effects may be magnified by the fact that
species in moist tropical forests, including
economically important hardwoods, are
extremely vulnerable to drought29. Changes in
environmental conditions as a result of human
induced climate change will also certainly affect
the array of biodiversity in Thai forests that are
adopted to very specialized ecological niches.
As per a study conducted on the potential
impact of climate change on forests of
Thailand30, it was predicted through various
scenarios that the forest types are likely to shift
from moist forests to increasingly drier species
composition.
Anthropogenic pressure on forests, in the form
of logging, encroachment, land-use changes etc,
will continue to adversely affect forests of
Thailand notwithstanding the uncertainty
surrounding the exact impact of climate change
on such complex ecosystems.
Thailand’s initial national communication to
UNFCCC on greenhouse gas inventory31 mentions
forest as a net carbon emitter. Net emissions
from Thai forests were estimated at about
61,000 Gg in 1994.
As another indicator, Thailand’s submission to
FCPF documents the fact that Thai forests
continue to be a net emitter of GHGs and given
the recent trends, it is unlikely that the scenario
will be reversed in the near future. Although the
values have been calculated from incomplete
datasets, as indicative figures it may be
mentioned that the net GHG emissions from
forest conversions had more than halved from
about 81000 Gg in 1990 to about 38,000 Gg in
2001, but alarmingly from recent trends in land-
use conversions in forest areas, the GHG
emissions from forest conversions are forecasted
to increase to about 1,00,000 Gg in 2006. On the
21
other hand, sequestration from government
plantations doesn’t seem to increase significantly
over 2000 levels, thus indicating the need for a
major boost in this sector. The divergence in
data from different sources as discussed in 3.1.1
shows the requirement for further analysis with
respect to the long term trend of Thai forests
being as a carbon source rather than a sink.
Thailand has a 2,700-km shoreline that is
seriously threatened by coastal erosion, which is
a direct fall out of rising sea levels as a result of
global warming. Coastal erosion is a significant
problem along the Gulf of Thailand from Trat
province in the east to Narathiwat province in
the south32. The situation is aggravated by
destruction of mangroves as a result of influx of
saline water and increasing storm surges. Thus a
vicious cycle has been set forth wherein the
mangroves are being lost as a result of increased
salinity leading to further degradation, erosion,
contamination of ground water and loss of
precious lands. Bang Khunthian, which is
Bangkok’s only seaside district and which once
comprised 5 km of muddy coastline with
abundant mangrove forests as well as rare and
diverse species of plants and marine life, has lost
more than 483 ha of mangrove forests over the
last 30 years.
3.5. Thrust areas for climate change mitigation
measures under forestry in Thailand
The discussions from the chapter elucidates the
fact that the major areas of thrust which need to
be concentrated upon while discussing climate
change mitigation measures under forestry are
reforestation activities on both government and
private land and taking measures to reduce the
alarming rate of deforestation of natural forests
despite the logging ban two decades ago. The
development of any emission trading mechanism
related to forests should consider that the
region’s forests are not only extensive terrestrial
sinks of GHGs, but also represents major refuge
of global biological diversity. In the process, the
adversities presently faced by forest
conservation efforts today like encroachment,
land-use changes, resolution of responsibilities
related to financing, implementation and
ownership of such projects, lack capacity of
different stakeholders to participate
meaningfully in such activities33 need to be
addressed in order to successfully implement
such initiatives.
The discussion in Section 3.3 also details the
potential and practice of teak and rubber
plantations in Thailand. Benefits from carbon
offsets can also be an additional incentive for
private enterprises in developing such
plantations on degraded and marginal lands that
are considered to be more capital inceptive and
risky investment as compared to traditional
rubber and teak estates.
22
4. Forest Carbon Standards: Making sense of
the market
Forest carbon standards tend to bring some
sense of order to the apparently
incomprehensible tangle of rules and jargons
that tend to govern the chaotic and murky world
of forestry carbon offsets. Whilst the benchmark
of a credible carbon standard revolves round the
core issues of additionality, transparency and
relative simplicity of design, the voluntary
standards also try to set themselves apart on the
basis of some uniqueness that will be positively
reviewed by both aggregators as well as project
developers. In order to make sense of how forest
carbon standards set out to position their
uniqueness, it is equally important to understand
what buyers intend to look for when they are
purchasing credits and the motivation behind
buying them in the first place. The motivation
behind buyers’ purchasing of credits is varied as
the profile of voluntary carbon market buyers
itself. Buyers who may either be individuals or
corporate and financial institutions, may look to
buy cheap offsets as part of their corporate
social responsibility policy, as a strategy for
green marketing, for the purpose of boosting
reputation or merely in anticipation of
compliance regulations as in USA and of late in
Australia. Within the voluntary market forestry
offsets are preferred mostly because benefits
from forestry activities are visible, tangible and
hence demonstrable, sometimes in an “eye-
catching” manner, like some of the REDD
projects, thus giving the buyer his or her share of
publicity. Besides, the co-benefits of forestry
activities including community development and
biodiversity conservation (especially in REDD
activities) are also useful to form an attractive
portfolio for the buyers.
In a survey conducted by Ecosecurities34 in 2009,
buyers give high importance to biodiversity and
community co-benefits of forestry projects. But
from a project developers’ point of view, it is
crucial to note that buyers are also very discreet
about the carbon standards followed and the
credibility of the project proponent. The same
survey shows that VCS (to be termed Verified
Carbon Standards from March, 2011 onwards) is
the major standard in the voluntary market in
terms of awareness among buyers. Hence, there
is a higher certainty of salability of credits under
this standard, though the average price
realization may be less than its peers like the
Carbonfix standards6.
4.1. Comparative discussion on salient features
of forestry standards
On the basis of the above discussion we shall
discuss in this chapter the relative requirements
and scope under the prominent forestry carbon
standards vis-à-vis project development viz. VCS
AFOLU35, Carbon Fix Standard, CCBS36 and Plan
Vivo. As most of the standards allow for Clean
Development Mechanism (CDM) approved tools
23
and methodologies to be used, hence CDM
Afforestation/ reforestation (A/R) guidelines
shall also be considered. In order to make the
discussion more focused, we shall categorize the
proceedings into a functional approach, that may
be more relevant to the project developer, and
the commercial approach, that shall concentrate
on buyers’ perspectives and help all stakeholders
to take a decision regarding choosing the
appropriate standard as per requirement and
focus of approach.
It should also be worth noting here that CCBS
has established itself as a remarkable certificate
for forestry projects to establish their credentials
of promoting biodiversity, facilitating local
community development and combating the
perils of climate change. As CCBS in itself is not
an accounting standard, any other accounting
standard has to be used along with it. CFS and
VCS are now actively encouraging project
developers to undertake CCBS certification to
prove sustainable development initiatives of the
project. Hence CCBA certified forestry projects
are highly valued by buyers, to whom, such a
certification fulfils the objectives which govern
their principles for buying voluntary forestry
credits in the first place. Though CCBS is a
voluntary standard, it can also be used with CDM
afforestation and reforestation projects in order
to establish the biodiversity and community
development credentials of the project. Such
projects can also potentially realize a better price
for their CERs.
4.1.1. Mechanism to address non-permanence
One of the factors that sets apart voluntary
forest standard from A/R CDM is the way the
inherent non-permanence of sequestered
carbon stocks are treated. Whilst CDM has
resorted to expiring credits which have to be
replaced after a given interval by the buyer, in
voluntary markets a percentage of the issued
credits are pooled into a non-tradable buffer
pool, as a sort of insurance premium against
reversal of sequestered carbon during the
crediting period of the project.
In VCS AFOLU, the buffer is determined on the
basis of the risk assessment of the project as per
the prescribed risk assessment tool. It is a unique
mechanism as it offers the flexibility of adjusting
the buffer on the basis of assessed risks. It also
provides an idea to the buyer regarding the
probability of future disruptions of credit flow
from the project and the overall management
and technical quality of the project as a whole.
Other standards generally have a fixed buffer of
about 20-30% of the issued credits. The credits in
the buffers are released at the end of the
crediting period after taking into account any
reversal that may have happened within the
time period.
24
Table 1. Comparative details of project eligibility criteria under different Forestry Carbon Standards
Carbon Standard
Type of activities allowed Earliest start date of project activity allowed
Crediting period
Restrictions if any, on project implementation
VCS AFOLU Afforestation, Reforestation, Revegetation (ARR), Improved Land Management (ILM), Reduced Emissions from Deforestation and Degradation (REDD), Agriculture Land Management (ALM)
1st
January, 2002; however earlier projects are allowed too but validation needs to be completed by October 2011 along with evidence on earlier consideration for carbon credits
20 years minimum, can be extended to hundred years. The earliest start date of crediting period is 1
st January,
2002.
As per VCS 2011 provisional rules: AFOLU projects completing validation on or before “release date of VCS 2011 plus two years” are not required to complete validation within a specific time frame. AFOLU projects completing validation after “release date of VCS 2011 plus two years” shall complete validation within five years of the project start date.
Carbon Fix Standard
Afforestation and reforestation
Same as in CDM, no separate date mentioned
30 years None
CCBS Projects need to confirm to accounting another standard like VCS or CFS
Same as in the corresponding accounting standard
Same as in the corresponding accounting standard
Same as in the corresponding accounting standard
Plan Vivo Community based sustainable land-use projects like agroforestry, afforestation and small-scale timber, fruit or wood fuel plantations; Conservation of forests and woodlands under threat from deforestation.
Projects will typically use the Plan Vivo Standards from the outset. However, it is also possible for a project that is already running to become approved under Plan Vivo Project at a later date provided it meets the Plan Vivo Standards. No retroactive crediting is possible for activities already implemented
lower limit is 10 years, upper limit 100 years, with 10 year increments
All activities must be limited to the use of native or naturalised species and promote the restoration or protection of native ecosystems.
CDM A/R Afforestation and reforestaion
1st
January,2000 20 years minimum can be renewed twice or thirty years fixed
For all projects after August, 2008, projects proponents should intimate CDM Executive Board regarding project activity within six months of project start date as a proof of CDM consideration
25
Table 2. Comparative details of project development process details under different Forestry Carbon Standards
Carbon Standard
Format of Project Design
Submission and review Methodology Tools Unique aspects of the standard
VCS AFOLU VCS PD format Submitted to third party validator for verification and issuance of credits
VCS approved methodologies as well as CDM approved methodologies allowed.
The project buffer is determined by a risk assessment methodology and has to undergo a double approval process
Carbon Fix Standard
CFS project document format
Project document need to be pre-validated with CFS before certification by a validator
CFS criteria as well as CDM approved tools
The project will be pre-validated by CFS. Thus project developer can opt for VER futures to arrange for project finance
CCBS No PD as such but own chapters
Project document needs to be web hosted in CCBA and certified by validator
CCBA standards used There is a possibility of Gold certification for projects with exceptional biodiversity, climate or community benefits
Plan Vivo Plan Vivo Project Design Document template
Project Idea Note (PIN) needs to be approved and registered by Plan Vivo before developing technical parameters and third party certification
Plan Vivo guidelines as well as CDM approved methodologies
Plan Vivo shall require registration of PIN, that allows the project proponent to have an interface with potential investors
CDM A/R CDM A/R Project Design Document format
PDD must be webhosted for global stakeholder consultation, PDD validated by a third party validator and reviewed by CDM Executive Board for registration
CDM methodologies used
CDM projects need to obtain Host Country Approval from the Designated National Authority of the country
Figure 7. Steps in project development under Plan Vivo (adapted from www.planvivo.org)
26
Figure 8. The process of project development under VCS AFOLU
Figure 9. The high transaction costs tends to outweigh the cash flow from offsets in forest carbon projects
4.1.2. Transaction costs involved in project
development
It is often pointed out that one of the main
reasons that37 dissuades persons from taking up
forest carbon projects are the high transaction
costs. Considerable amount of money needs to
be spent
over a
period of
time
before the
project
promoter
is in a
position to
have any
cash flow
from carbon credits. This coupled with the
uncertainty of the process of project
development and registration is considered one
of the risks of developing forestry projects. The
transaction costs include development of the
project document and associated costs of geo-
referencing of sites, undertaking studies for
establishing baseline, undertaking biodiversity
studies, conducting participatory rural appraisal
engaging DOEs for registration process,
undertaking laying of sample plots,
measurement and calculation of net
sequestrati
on,
monitoring
for leakages
in case of
shift in pre-
project
activities
and finally
paying for
registration
and issuance fees. In this back drop it will be
interesting to see whether taking up a forest
carbon project makes economic sense. We have
taken the example of the community forests at a
ethnic Karen village of Huay Pak Kood, sub
District Mae Suk, Chiang Mai Province. Equitech,
27
as part of FAO TCP Facility (TCP/THA/3203,
component 2) project to assess potential sites
for carbon forestry projects in Thailand has
identified the degraded land around this
settlement as one of the potential suitable areas
for an afforestation project. It has been chosen
over other afforestation sites such as Doi tung
and Banta Papao as the later projects were
started more than a decade ago and no longer
qualifies under
the proposed
new VCS
AFOLU criteria
(please refer
Table 2).
Besides, being
in operation
for so long, it
shall be
difficult to
prove the
additionality of
such project activities. The area that can
(qualifies as per VCS AFOLU norms) be
reforested in the Mae Suk district has been very
conservatively estimated at about 1000 hectares
(about 6200 rai). Assuming that the plantation is
undertaken in the area over a two year period,
the various estimated costs pertaining to project
development, hiring of validators etc. are
compared against the expected benefits from
the carbon credits which is estimated in the
range of 10 credits per hectare per annum39 over
a twenty year period. The calculations also
assume 20% of the issued credits to be part of a
non-tradable buffer pool that shall be released at
the end of the crediting period provided there is
no reversal. The initial project development cost
has been estimated at $30,000. The cost of
engaging validator for registration process has
been taken at $25000 for the size of the project
involved and each verification fees is assumed as
US$20,000. The
first verification
is envisaged to
occur on the
third year of the
project and
repeated every
third year. In
total there are 7
verification
(issuances)
planned over a
twenty year
period. Additionally $10,000 is assumed as the
administrative charges for preparing the
monitoring report. Following the trend in
forestry credit prices over last few years, the
value of each credit has been conservatively
taken as $3 over the life time of project. Under
this model whereas the net cash flow after
deduction of issuance charges and brokerage
fees is found to be about $535,050 (Annex I),
wheras the total project development costs is
about $265000. It may be noted that the project
Figure 10. Comparative illustration of costs and returns from a 1000 hectare afforestation project in Thailand over a period of 20 years
28
developer has to spend at least $80,000 before
he starts receiving any revenue from the project.
This huge upfront cost is the reason why carbon
forestry projects are widely met with skepticism.
4.1.3. Realizing the value of forestry offsets:
Finding the right buyers
The difference between buyers’ motivations in
the voluntary and the compliance market defines
the two market types. The voluntary market is
not driven by any particular legally binding
agreement to offset emissions. There are as
many reasons for purchasing credits as are
number of buyers. The motivations for buying
forestry credits under VCS have been detailed in
Section 4. The peculiarity of voluntary offset
buyers vis-à-vis those of compliance market is
that the former are mostly individuals or private
entities which deal through intermediaries or
brokers. This makes deal making and discovering
actual value of credits difficult as there is a lot
less transparency in such a process. Brokers have
their own preferences as per their clients’ needs
on the volume of credits, origin and quality (eg.
CCBA approved) of credits as well as the
expected price range. The buyers are generally
concerned about the credibility of the project
proponent, expected number of credits, financial
position of the project proponent (s), risks
associated with non-permanence like harvesting
frequency, related policies of government that
may affect long term prospect of the project (eg.
acquisition of the plantations by government
agencies) etc. These aspects are reviewed by
buyers when they sign a “term-sheet” with the
project proponents giving them exclusive access
to the project details for a mutually agreed
period of time.
These circumstances make discovering right
prices for credits very difficult for average
project proponents. A lot of project proponents
explore the possibilities of upfront payment
(payment against credits on signing a Voluntary
Emission Reduction Purchase Agreement) to
finance their projects. But these types of deals
are available only when the buyers are certain
about the project developers’ credentials (eg.
Projects backed by large institutions). This
mechanism is encouraged in such standards as
CFS and Plan Vivo, where buyers can acquaint
with projects at the stage of conceptualization.
It has been observed that the better
transparency in project development, for
example webhosting of project design
documents as in case of CCBA, Plan Vivo and CFS
help in greater visibility of projects and attracting
credible buyers.
The two ways of transacting VERs are via auction
and via one-to-one negotiations over the
counter through registries. As discussed earlier,
dealing through registries help in accounting for
the credits and prevent double-counting. It also
safeguards the buyers’ (eg delivery default) as
well as the seller interests (eg payment default).
Using registries also make the project proponent
29
more visible to potential buyers. But auction
route is appropriate only when there is a
demand-supply mismatch.
Table 3. Comparative details of project management and transaction process details under different Forestry Carbon Standards
Carbon Standard
Price of credits
(US$/ tCO2e)
Publicly available information
Registry System
Number of registered projects
Number of Projects under development
VCS AFOLU**
$1-$27* None
Caisse des Dé APX, Markit, Caisse des
1.1.1.1 Depo
1 ?
Carbon Fix Standard $10-$18*
Projects are web-hosted for information
Markit 1 8
CCBS
- Projects are web-
hosted for information and comments
NA 25 22
Plan Vivo
$6-$15* Projects are web-
hosted for information Markit 4 8
CDM A/R
$3-$7 Projects are web-
hosted for information and comments
Internal 17 25
* State of Voluntary Carbon Markets 2010
** Not distinguished whether AFOLU or industrial VERs
30
5. Feasibility for developing a forestry-related
voluntary carbon market in Thailand
Affirmative climate action that is becoming one
of the important aspects of ongoing
international negotiations on post-Kyoto climate
change mitigation regimes. For a developing
country like Thailand, the need to establish a
national emission trading mechanism has the
potential to be a cornerstone for such action. In
a recent study on Thailand’s prototype carbon
market supported by Thailand Greenhouse Gas
Organization (TGO)38, it was argued that the
basis of establishment of a domestic carbon
market in Thailand should be to encourage
domestic GHG emission reduction activities and
confirming to future binding targets on GHG
emission reductions. Taking these aspects in
view, it may well be said that potential
participants under any domestic voluntary
market mechanism will either have purely
voluntary targets in view or such targets will be
taken in anticipation of compliance market
legislation. The Bali Action Plan calls for
“Nationally appropriate mitigation actions’ by
developing country Parties in the context of
sustainable development, supported and
enabled by technology, financing and capacity
building, in a measurable, reportable and
verifiable manner.“ In the international climate
negotiations at Copenhagen in December 2009,
nationally appropriate mitigation actions,
(NAMAs) by developing countries was seen as a
way forward towards balanced global initiative
for climate change mitigation action. Views
differ on the institutional structure needed for
providing support to NAMAs as well as ways to
measure, report and verify actions. NAMAs have
generally been categorized39 as Unilateral
NAMAs where mitigation actions are undertaken
by developing countries on their own, supported
NAMAs involving mitigation actions in
developing countries supported by direct climate
finance from Annex I countries and Credited
NAMAs which include mitigation actions in
developing countries that generate credits to be
sold on the carbon market (e.g. sectoral
crediting). Examples of NAMA include such
widely spaced sectors as BRT in Mexico City and
National Solar Mission in India. On the occasion
of the 16th ASEAN Summit at Hanoi, Vietnam in
April 2010, leaders of member countries
released a statement on “Joint Response to
Climate Change”40 which has recognized the
importance of forests in mitigating effects of
climate change and acknowledged the critical
role of countries in this region for effective
implementation of REDD plus mechanisms.
Additionally it has accepted that effective
implementation of REDD shall not only help in
mitigating emissions but also provide
opportunities for biodiversity conservation,
sustainable use of natural resources and
livelihood development of local communities.
NAMAs by developing countries have been
formally included as one of the valid mitigation
31
Figure 11. The GHG offset mechanism adapted by Panda Standard (©2010 Panda Standard)
options in COP16 resolution at Cancun, Mexico41.
Thailand has not yet decided upon its strategy to
implement NAMAs post Cancun and the process
is under consideration by the Thai government.
An attempt to set up a national voluntary carbon
market can thus be classified as a credited NAMA
in the perspective of climate change
negotiations. It needs to be decided the extent
to which the government support may extend to
the activities included under such a program,
whether it should be limited to legislation or
regulation only or whether preferential financing
in addition to credits should be provided to
initially support such activities.
5.1. Motivation for initiating a forestry-related
voluntary market in Thailand
As pointed out in earlier chapters, the effects of
climate change can potentially have serious
implications on the ecosystems and livelihoods in
Thailand. The vulnerability of Thailand to the
detrimental effects of climate change can be
attributed to following things:
Increase in sea level leading to coastal
erosions, increased salinity in low lying river
basins etc
Accelerated environmental damage like soil
erosion and forest degradation
Although the present climate negotiations is
oriented towards reducing emissions by
historical emitters (industrialized countries), the
importance of voluntary initiatives by developing
countries to initiate their own “green projects”,
which are either self-financed or sponsored by
international climate funds pledged by
developed countries has been accepted in the
form of NAMAs. In ASEAN region, NAMAs
centering about forests protection (REDD plus),
afforestation and related ecosystem services are
under active consideration. Some of the
examples are:
Vietnam has been successfully implementing
and is on the threshold to scale up the
Payment for Ecosystem Services (PES)
scheme under active government oversight.
It is also in the process of designing REDD
plus pilot project for voluntary emission
reductions.
Indonesia too has set an ambitious target to
reduce its green house gas emissions under
NAMA and has prioritized REDD,
32
afforestation and peat land management as
the potential mitigation activities.
Khazanah, the Malaysian sovereign
investment fund, has tied up with CAMCO, a
UK based CDM project developer to fast
track CDM projects in Malaysia, though this
is not a NAMA activity.
Positive action for voluntary adoption of climate
change mitigation activities is bound to help
enhance Thailand’s leadership position in climate
negotiations on behalf of the ASEAN countries.
At the same time, it is important to note that
Thailand is a major manufacturing base for
various multinational companies like Samsung,
Toyota, Ford, Carrier, Sony, Phillips, LG,
Mitsubishi etc. Whilst a majority of these
companies are involved voluntarily in CSR
activities in Thailand, it may be noted that
binding such firms to emission reductions can
result in loss of competitiveness of Thai
industries and force a shift in bases of such
companies to more attractive destinations in the
region.
However it is also pertinent to note that as these
companies are already involved in voluntary
environmental mitigation actions and
community development initiatives, they may
well be encouraged to participate in voluntary
carbon markets, wherein Thai government can
acknowledge their contribution in direct project
development or indirect contribution. Such
efforts can also provide additional creditability to
the social and environmental contributions of
the multi-national companies.
International negotiations aside, a developed
carbon market can prove to be a valuable source
of long-term funding for forest project
developers. A developed carbon market can
ideally remove the entry barriers for small scale
project developers to enter the market by
providing access to initial funding and expertise.
It can also prove to be one of the catalysts for
forest governance reforms, which is a pre-
requisite to make the proposed forestry-based
carbon market mechanism effective.
5.2. Outlook of potential participants towards a
domestic voluntary market mechanism
As per the Stock Exchange of Thailand42 data,
most of the companies listed in the exchange,
irrespective of their size are engaged in some
corporate social responsibility activities. The
activities range from education, health to trees
plantation. Some Thai companies like Siam
Cement Group (SCG) and PTT have taken the
lead in adopting international standards for
corporate social responsibility. Siam Cement
Group is now the only Thai company listed in
Dow Jones Sustainability Index. PTT has launched
the tree planting program “Million Trees for
King” by giving away one million tree saplings to
the public to plant in six provinces. Similarly, The
Electricity Generating Authority of Thailand
(EGAT) has also launched a similar campaign to
plant 84,000 trees to honour His Majesty the
33
Figure 12
King. The paper manufacturers are nowadays
declaring that their product has been derived
from “Farmed Trees”. But the general activities
carried out under CSR differ from those included
in a market mechanism essentially on the
grounds that while CSR is linked to philanthropy
and good business practices, any activity
implemented under a market mechanism has a
component for cash flow and hence has to
undergo monitoring and audit. Example, the
mere declaration of the paper manufacturers
that the trees used as raw materials are derived
from “farmed trees” may not be able to add any
value except for good fath from the customers
but for a more robust system, the same
practices or claims need to be certified by using
standards such as FSC (Forest Stewardship
Council) Forest Management and Chanin of
Custody and verified annually.
In the backdrop of such a fundamental
difference between existing CSR activities of Thai
corporate and commitment for participation in a
voluntary market mechanism, 25 companies
from a cross section of potential market players
ranging from international buyers, domestic
industry houses to plantation companies were
surveyed regarding their outlook on a voluntary
market mechanism in Thailand (Questionnaire in
Annex II). 80% of the international buyers and PE
funds who were contacted responded, but only
about 20% of the rest replied, which may be
interpreted in various ways including lack of
awareness in such issues. Keeping in mind such
low response from the survey, it was
supplemented with personal discussions with the
above mentioned companies to get their views
on the subject.
The majority of those who responded however,
were not too keen on participating in such a
market without clear guidelines and policy
support emanating from the government. They
were skeptical about the viability and credibility
of such a market without a clear mandate from
the government in terms of either incentives or
guidelines for participation.
The international buyers who responded to the
questionnaires and domestic companies who
were interviewed however, too were not
convinced regarding the rationale of such a
national voluntary market structure in the
absence of any declared policy guidelines of the
Thai government. But such parties also evinced
keen interest of participating in a clearly
34
structured market environment which could
command credibility in terms of transparent
processes and review mechanisms. Buyers and
aggregators however are keen on sourcing
forestry offsets with or without the existence of
such a market mechanism provided they are
credibly validated.
5.3. Key players and potential buyers for the
proposed Thai forestry-based voluntary
market
There are three categories of forest promoters,
who can play a key role in the proposed market
viz. commercial forestry companies like timber
and rubber plantation companies, paper mills
etc, non-governmental organizations, companies
promoting forests as part of CSR activities and
community groups involved in forestry activities
and government agencies involved in
afforestation activities on wastelands and
protection of natural forests. Given the
mismatch in the volume of forestry operations
and the number of forest carbon projects
underway in Thailand, it may be said that listing
of potential players itself won’t lead to a clear
picture on the level of participation in the
proposed market. The barriers discussed in the
preceding chapters have to be dealt with as
appropriate for individual categories and project
specific cases to encourage participation in the
proposed market. eg. Forest carbon components
can be institutionalized in the CSR activities
presently being carried out in this sector.
Although cash flow from CSR projects may not
be a priority for companies undertaking such
activities, but regular income from credits can be
a way for long term sustainability of such
projects after the initial handholding-period by
the promoters. Hence, such companies can be
encouraged to incorporate elements of forest
carbon structure in their project design and
planning. In this case, funding such projects may
not be as much of an issue as will likely be the
question of understanding of the processes.
Organizations like TGO and FAO will play a very
important role in capacity building across the
spectrum of stakeholders in such projects.
Similarly, for a vast number of small and “micro”
scale forestry initiatives by non-governmental
organizations that are of immense socio-
economic significance to local communities but
lack the knowledge and the wherewithal to tap
the carbon market can also be accommodated
by grouping them together (please refer Section
5.5 for further details). However given the
diversity of NGOs in Thailand with respect to
their scope of work, their expertise and capacity
of project implementation, the heterogeneity of
the constituents should be taken into account
while working out a grouped project design.
Similarly, commercial plantation companies may
be encouraged to take up projects on degraded
lands with the additional income from carbon
credits as an incentive. Given the fact that timber
and rubber plantations cover approximately 15
35
million hectares in Thailand, it forms a very
important component of the market.
Given the fact that most of the natural forests in
Thailand are government owned, the initiative
for launching REDD project activities ought to be
taken by respecting government departments.
As discussed in details in section 4.1.3, the
voluntary market is a buyers’ market. Hence the
project standards those are to be followed for
project implementation should be determined
by the prevailing market preferences. The
majority of the buyers are based in developed
countries but not exclusively from those
countries as in the case of compliance market.
One way to encourage greater participation in
the proposed market mechanism is to encourage
Thai corporate houses to use the carbon credits
generated in the market as a “currency for CSR
activities” in Thailand. The voluntary
involvement of Thai corporate houses in the
proposed market can be a positive impetus and
ultimately help in encouraging the community
forestry activities that the corporate houses are
presently striving to promote themselves.
5.4. Precedence of voluntary market
mechanisms in developing countries
In the discussion for possible mechanism for
voluntary markets involving forestry credits, the
precedent set by China and Korea may be
reviewed.
As part of their domestic climate change
mitigation plan, China has aimed to create a
robust national market infrastructure for
developing and trading of high quality carbon
credits through the domestic voluntary GHG
offset program- the Panda Standard (2009)43.
The standard shall initially focus on AFOLU
projects starting after 1st January 2005 (base
year for calculating emission reduction) in view
of the potential of these activities to enhance
rural incomes while promoting reductions in
GHG emissions and emissions intensity. The
standard witnessed its first transaction in March,
2011, selling about 17000 VERs valued at
$9.14/tCO2e44.
Similarly Korea has initiated a Korea Voluntary
Emission Reductions (KVER) program which
involves the voluntary participation of public and
private sectors of Korea. These KVERS target
clean energy projects which cover project sizes
of 500t CO2e or above.
India has initiated a Renewable energy
Certification (REC) program which aims to
incentivize renewable energy in addition to
present CDM benefits.
The trend in all of these market mechanisms is
that they are “voluntary” on the basis that no
binding international convention exists to
legislate such markets and are voluntarily
established by developing countries. There are
not in essence laissez faire markets like the
voluntary markets that we know of, but are
clearly and efficiently regulated and guided by
36
competent government agencies, giving the
mandate and legitimacy required for wide
participation. Korea and India has, in the their
respective programs described above gone to
the extent of fixing a price band for the tradable
certificates so as to lower the uncertainties
associated with market volatility. These are in
keeping with the views of the potential
stakeholders as discussed in Section 5.1.
5.5. Potential size of a forestry based voluntary
market structure in Thailand
In an initial study by FAO into the opportunities
of developing Emission Reduction Credit (ERC)45
projects in Asia- Pacific Region, it was observed
that biodiversity conservation is as important as
protecting carbon sinks when it comes to forests
in Asia-Pacific region which implied the need for
a mechanism that encompasses both
conservation of forest land besides rehabilitation
of degraded land.
In view of the prevailing condition of the forestry
sector and associated policies of the Thai
government as discussed in Chapter 3, we may
consider afforestation/ reforestation,
revegtation, REDD and IFM as viable activities to
consider for the proposed mechanism.
Replanting activities that do not result in
vegetation that qualifies as “forest” as per
national forest definition for CDM46 are
considered as revegetation. Activities related to
improved forest management include those
implemented on forest lands managed for wood
products such as sawn timber, pulpwood, and
fuelwood. Only areas that have been designated,
sanctioned or approved for such activities (e.g.,
as logging concessions or plantations) by the
national or local regulatory bodies are eligible for
crediting under the VCS Improved Forest
Management (IFM) category35. Activities to
reduce emissions from unsanctioned forest
degradation (e.g., illegal logging) are not eligible
for crediting under the IFM category. Hence in
view of the logging ban on most of Thai forests,
only existing plantations can be included under
such project activity. Extending the rotation age
of evenly aged plantations (managed forests)
and improved productivity of forests by
mitigation of existing disturbances, undertaking
enrichment planting i.e. ANR etc. can be viable
activities under IFM in existing conditions in
Thailand. It has been estimated45 that restoring
degraded forests can augment forest carbon
pool by more than 100 tonnes per hectare. In a
demonstration project on assisted natural
regeneration (ANR) in Philippines, undertaken by
FAO in collaboration with the Philippine
Department of Environment and Natural
Resources (DENR) and the "Bagong Pagasa
Foundation, it was found that ANR activities can
reduce the costs of reforestation by 50%, while
successfully preventing fires and enhancing local
biodiversity. However, the biggest success of the
project is the strong catalytic effect it had on
attracting commitment from the local people,
37
the policy makers and the private sector. Such
models may be adopted for the proposed
regional ANR projects involving Thailand.
5.5.1. Potential of afforestation activities in
Thailand
The afforestation and reforestation
methodologies currently approved under CDM
and applicable in voluntary markets offer a wide
ranging scope of scenarios wherein afforestation
projects are applicable including wastelands,
degraded farmlands, pastures, agro-forestry
activities, rehabilitation of saline soils and mine
spoils, urban plantations (eg. Road-side
plantations, mangrove plantations etc.). The
variety of activities that are applicable under the
approved CDM afforestation and reforestation
project activities are provided in Table below.
The prevailing plantation practices in Thailand,
example of teak and rubber provide excellent
opportunity for developing carbon sequestration
project for rehabilitation of wastelands. It has
been estimated that the above ground carbon
content in a 20 year old plantation will be about
38 tonnes/ hectare47. This converts to an average
of about 9 tonnes of net CO2 sequestration per
annum per hectare. Large-scale monoculture
plantations however may be discouraged
because of the negative effects of single species
plantations versus the obvious biodiversity
benefits of ecological restoration and
conservation projects.
Community forestry too can be structured to
provide GHG benefits as a by-product. Because
of the land tenure systems in most communities,
the projects may generally be small scale once
that may not be financially attractive to private
investors and government may decide to
subsidize such initiatives as part of sustainable
development mandate. Such plantations may be
for timber production, energy plantations or fruit
or fodder yielding trees. Presently, an A/R CDM
initiative has been launched for mangrove
forests in Chanthaburi province of Thailand.
This report refrains from putting a figure on the
total land that can potentially brought under
afforestation projects qualifying for carbon
credits and the cumulative credits thus
generated as such projects not only depend on
the availability of degraded land for plantation,
but also on such factors as long-term funding,
proper management structure, clear tenural
rights, documentation processes and these
factors can only be assessed on a case by case
basis that is beyond the scope of this report. A
cumulative figure of the total potential credits
shall thus be speculative and hence misleading.
5.5.2. Potential for REDD project activities in
Thailand
The continuous loss of forest land in Thailand
over that last half a century and the aim to
reverse that trend over the next ten years forms
the basis of REDD potential in the country. The
38
annual average deforestation rate in Thailand for
about fifty years since 1961 has been more that
0.4% annually. During this period, Thailand have
lost almost 40% of her about 28 million hectares
of natural forests. Today Thailand is ranked 26th
country in the world in terms of GHG emissions
from LULUCF sector. The regional assessment48
of REDD program planning by USAID however
finds Thailand lagging all regional countries in
terms of all indicators pertaining to REDD
readiness. There are currently 228 protected
areas established in Thailand and more being
planned. Many of these are to be located in the
upland watersheds of northern Thailand where
ethnic minority settlers are viewed as
encroachers and blamed for continuous
deforestation. Thus REDD initiative shall require
resolution of such issues.
Presently DNP serves as the REDD focal point.
REDD efforts are currently being supported in
Thailand by ADB BCI, which is working on a REDD
pilot site with DNP in the Western Forest
Complex.
In the REDD PIN submitted by Thailand it
projects a decrease in emissions of net CO2
emission from forest conversion in Thailand from
59 Tg in 1994 to 51Tg in 2020. But this is
considerably above its figure of 38Tg in 2001 (as
per REDD PIN). As per FAO estimate in 199845,
REDD efforts in this region can save upto 300
tonnes of CO2 per hectare of sequestered carbon
from being lost. As per the studies conducted by
Petsri et al the carbon sequestered in a
secondary mixed deciduous forest in Thailand is
of the order of 71.60 t ha-1 after 24 years which is
about 13 tCO2 sequestered per hectare per
annum. Although this figure will vary with the
stocking density and management practices, but
the fact that such forests are capable of
sequestering as much carbon as a plantation or
even more lends credence to the importance of
forest conservation and rehabilitation of
degraded forests.
As discussed in Chapter 3, the political issues
surrounding forest ownership (and by extension
future efforts to clarify carbon ownership) have
given way to fears of further resource exclusion
and denial of land rights to indigenous by the
government. Also central to this debate is the
fact that there is lack of clarity regarding revenue
sharing from REDD proceeds between
government and the local communities
dependent on such forests. In such
circumstances it is unclear if Thailand can initiate
any meaningful domestic trading mechanism
involving REDD project activities.
As per the provisional finding of the FAO project
“Development of REDD model sites in Thailand:
Assessment of potential sites for developing a
carbon offsetting forestry project” (TCP Facility
(TCP/THA/3203, component 2), any site under
threat of continued deforestation, as long as it is
possibly larger than 20,000 ha could qualify as a
REDD project. Larger areas are required to make
39
a REDD project viable from as only a part of the
forest does in essence undergo deforestation
and the number of credits depend on the
baseline carbon loss, that is only about 1-5%
annually of the total carbon stocks.
The other major impediment to developing
REDD projects is the lack of peer reviewed
methodologies to estimate the baseline and
project net removals for such projects activities.
In this discussion it will be worthwhile to note
that VCS has in recent months approved a few
methodologies for REDD project activities as
discussed below. Besides such methodologies,
VCS has also approved methodology modules
that provides guidance for constructing
methodologies for REDD project activities
compliant with the requirements of the VCS.
These methodologies provide the basis for
developing REDD and IFM projects in conditions
that is familiar in Thailand and South-East Asia
including mosaic deforestation, peat forests and
converting low productive forests to high
productive ones. These methodologies can be
adopted on project–specific basis for
implementation of REDD projects.
40
Table 4. Table illustrating various scenarios under which approved CDM methodologies can be used under voluntary standards
Applicability Scenario
Sr. No.
Methodologies
Degraded land/ Degrading land
Degraded Grassland
Unmanaged grassland
in reserves or protected
areas
Croplands/ Degraded
Agricultural lands
Pastoral land
Polyculture, including perennial tree crops
and/or fallow periods with woody re-growth
Wetlands Settlements
Large-Scale
1 AR-ACM0001/ ver 05
2 AR-ACM0002/ ver 01
3 AR-AM0002/ ver 03
4 AR-AM0004/ ver 04
5 AR-AM0005/ ver 04
6 AR-AM0006/ ver 03.1
7 AR-AM0007/ ver 05
8 AR-AM0009/ ver 04
9 AR-AM0010/ ver 04
10 AR-AM0011/ ver 01 No Alternatively Yes
11 AR-AM0012/Ver 01
Small-Scale
1 AR-AMS0001/ ver06
2 AR-AMS0002/ ver02
3 AR-AMS0003/ ver01
4 AR-AMS0004/ ver02
5 AR-AMS0005/ ver02
6 AR-AMS0006/ ver01
7 AR-AMS0007/ ver01
41
Table 5. Overview of existing VCS methodologies on REDD and IFM
Sl. No.
Methodology Code Name Eligible Project
Activity Essential elements
Methodology Developer
1 VM0003 / v1.0 (May,2010)
Methodology for Improved Forest Management through Extension of Rotation Age
IFM
Forests must be certified by the Forest Stewardship Council (FSC) or become FSC-Certified within one year of the Project Start Date
The project does not encompass managed peat forests
Ecotrust
2 VM0004 / v1.0 (August, 2010)
Methodology for Conservation Projects that Avoid Planned Land Use Conversion in Peat Swamp Forests
REDD The methodology is applicable to preventing planned land use change on undrained tropical peat swamp forests in southeast Asia.
Infinite Earth, Ltd.
3 VM0005 / v1.0 (November,2010)
Methodology for Conversion of Low-productive Forest to High-productive Forest
IFM
IFM projects in natural evergreen tropical rainforests
Avoiding emissions from re-logging of already logged-over forest; and/or
Rehabilitation of previously logged-over forest by cutting climbers and vines, or liberation thinning, or enrichment planting, or a combination of these activities.
Face the Future
4 VM0006 / v1.0 (December,2010)
Methodology for Carbon Accounting in Project Activities that Reduce Emissions from Mosaic Deforestation and Degradation
REDD This methodology is aimed at reducing unplanned deforestation and forest degradation of the mosaic type
Terra Global Capital
5 VM0009/v1.0 (January, 2011)
Methodology for Avoided Mosaic Deforestation of Tropical Forests
REDD
This methodology provides a means to quantify net emissions reductions and/or removals (NERs) from project activities that avoid mosaic deforestation of semi-arid tropical forests.
Wildlife Works Carbon
* Apart from the above VCS has also approved many methodology elements that may be used as building blocks for devising REDD methodologies
5.6. Preparedness for rolling out forestry
based voluntary markets in Thailand
In the process of discussion in previous
sections, it is apparent that Thailand is still to
be ready as far as its policies and projects are
concerned, to roll out a forestry-based
voluntary carbon market mechanism. In a FAO
sponsored first regional workshop on “Linking
Communities in Southeast Asia to Forestry-
related Voluntary Carbon Markets (VCM)”
held at Chiang Mai, Thailand, between 20-22nd
September, 2010 critical gaps were identified in
existing structures that hamper the
advancement of forestry VCM initiatives.
Hence, while discussing the strategy for rolling
out a policy framework supportive of such a
market, the outcomes of the workshop shall
also be considered.
To summarize the inputs of the workshop that
was attended by almost all South-east Asian
countries, the major gaps that were identified
in terms of preparedness for rolling out a
forestry-based VCM are as follows:
i) Knowledge related barriers like
inadequate information sharing about
process related to project development
and accessing markets, related
government policies, lack of usable data
and lack of access to advanced
technologies.
ii) Barriers to integration of local communities
with Voluntary Carbon Markets like lack of
integrated capacity building with other
stakeholders of the system like buyers and
aggregators, lack of governance and
transparency for forestry negotiations, lack of
access to decision making and benefit sharing
process.
iii) Barriers related to forestry VCM finance and
market advancements like uncertain land
tenure, carbon rights, and carbon market
pricing; high transactions cost linked to MRV
methodologies, lack of confidence to institute
equitable benefit sharing mechanisms and
meet carbon sequestration and co-benefit
expectations, lack of a system to connect and
govern carbon brokers and forestry VCM
facilitators and lack of a system to promote,
provide guidance, regulation, standardization,
and integration with PES in forestry VCM
finance and marketing structures.
43
Existing deficiencies Recommendated actions Expected results
Lack of well defined tenural rights
Framing legislation for clearly defined tenural rights and benefit
sharing mechanisms
More inclusive participation from all stakeholders
Lack of centralized clearing house, information portal and
process facilitation
TGO canbe mandated to develop processes and capacity to act as
facilitation center in Thailand
Centralized facilitation center will help streamline processes including interface between
different gorvenment departmentsand stakeholders
High transaction cost in project development and
unpredictable financial returns
Setting up of a carbon fund from the proceeds of a
domestic emission trading market
Carbon funds can initiate pilot projects and help co-ordinate with potential buyers for sale
of credits
Lack of capacity on the part of grassroot project developers to
take part in decision making process, Lack of knowledge
dissemination
Capacity building activties need to be carried out involving
government agencies as well as communities
Better knowledge dissemination will help stakeholders participate more meaningfully in a dynamic
market
iv) Structural barriers like complicated
government processes, uncertainties
regarding carbon ownership, absence of
central information portal, lack of
flexibility within national structures to link
with a dynamic market and absence of a
centralized (either regionally or nationally)
forestry carbon clearing house.
v) Policy and governance barriers like
inability to formulate consistent
community forestry laws and access rights
to natural resources, gaps in policy
support respective of laws, regulations,
and national strategy implementation;
absence of national forestry VCM or PES
policy incentives. On the basis of these
discussions, the following issues needs to be
addressed to prepare for a successful
voluntary market initiative involving forestry
projects.
5.7. Proposed Market structures that may be
considered for the proposed mechanism
The foremost challenge for the long-term success
of the proposed voluntary market mechanism is to
ensure wide participation by the potential players
and to keep them involved in the set-up for the
long-term to make the process meaningful. Given
the fact that Thailand is largely an export-oriented
economy, it may not be possible to introduce a
mandatory domestic trading system like Korea VER
trading system without affecting the
competitiveness of the companies involved.
Po
licy
Bar
rier
s
Stru
ctu
ral
Bar
rier
s
Mar
ket
Bar
rier
s
Kn
ow
led
ge
Bar
rier
s
44
Figure 13. Convergence of Compliance and voluntary market components for a
domestic voluntary market mechanism
Another challenge is to make the market
attractive enough to induce buyer
participation. This requires some differentiating
factors which will be attractive to potential
buyers in the voluntary market.
As discussed earlier, buyers of voluntary carbon
credits are especially interested in strong co-
benefits associated with the project such as
socio-economic impacts, conservation of
biodiversity and implementation in
environmentally threatened zones. On the
other hand, projects have the potential to
show-case the efforts of Thai government in
taking positive climate mitigation action, so,
the latter (TGO) can come out with a set of
nationally relevant Criteria and Indicators (C&I)
which may be used as a guideline to measure
social and environmental contributions of the
forestry projects apart from the net
sequestration it achieves. This can also help
differentiate the value of Thai credits in the
voluntary markets. This will not only help to
add value to the credits but also bring about
credibility for the market participants, even for
CSR participants. Moreover, these credits
would be lucrative for MNCs with operations in
Thailand as then; they can offset Thai facility
emissions with distinctly Thai projects.
Another major obstacle in developing forest
carbon projects is the huge upfront investment
and the uncertainty involved in expecting
returns from carbon credits. One way that the
Thai government may pitch in is to provide the
project proponents with funding for project
verification and in turn get it reimbursed, once they
have realized the carbon credit revenue from the
projects. This will not only help in realizing goals for
NAMAs, but also encourage wider participation and
remove a major obstacle in domestic forest carbon
project development.
Also, various Annex I countries like Australia faced
initial hiccups for developing domestic forestry
carbon market projects because of double
counting. It was not clear that who will claim the
emission reductions, because once credits are sold
to a buyer, project owner has to submit his right to
claim emission reduction from the same project.
Although, this should not affect Thailand as being
an Annex II country, it hasn’t taken any mandatory
cuts under Kyoto. It should be noted that emission
reduction achieved under such voluntary
mechanism should fall under proper category of
NAMA.
Based on these points, we have created multiple
structures that could be considered by Govt. of
45
Thailand for kick-starting domestic forestry
project development. We have compared these
structures on various parameters like
government involvement, attractiveness of
participation, anticipated buyer response, price
discovery etc. The principle aim is to ensure a
debate and adoption of the most appropriate
mechanism, even if it means a permutation of
the major points of each of the discussed
mechanisms.
46
Table 6. Various Market structures that may be considered for the proposed mechanism
S. No. Parameters Market structure scenarios
Laissez Faire model Thai Forest Standard model Voluntary Market as unilateral NAMA
Mandated Market Mechanism
1 Description Enabling model. At present forestry projects can be done by Thai companies/NGOs under standards like VCS. Government enhances awareness of such standards/ methodologies and then, it’s up to private companies to undertake such projects
Strengthening model. Government encourages companies/NGOs to develop forestry projects adhering to international standards and also on a set of Criteria & Indicators developed by the TGO. Projects subscribing to these C&Is would be eligible to get an additional recognition from Thai government in form of a label.
Government to setup central nodal agency which will guide project developers through carbon markets by providing information about carbon credit generation services, buyers etc.
Proactive model. Govt. encourages companies/ NGOs to develop forestry projects subscribing to international standards and then, purchases credits from these projects under govt. bio diversity conservation, forest cover improvement activities. Fund for purchasing these credits could come from the fund collected by small cess on sale of fossil fuels. (example: Cess on coal in India for encouraging large scale solar power projects)
Regulated model. Govt. mandates companies to ascribe a certain percentage share of their profits for purchasing Thailand forestry carbon credits. Govt. could facilitate this by pre-selecting implementation partners who will implement forestry projects and make their credits available for sale.
2 Costs Companies/NGOs to take care of all project costs themselves
Carbon market costs to be borne by Government through nodal agency. These can be reimbursed back by project developers when they receive carbon credit sale revenue
Companies/NGOs to take care of all project costs themselves. Since, govt. would buy the credits, there aren’t any buyer acquisition costs
Companies/NGOs to take care of all project costs themselves. Since, buyers are free to chose projects, enhanced quality would mean better revenue realisation
3 Ability to encourage participation
Low Medium to high High Mandatory
4 Anticipated Buyer response
Medium, because credits supply from Thailand is less and thus, market players favorably look at Thai projects
High, as added government lable would provide better recognition and PR value especially for MNCs having manufacturing set-up in Thailand
Fixed, as govt. will buy predetermined numbers annually
High, being mandatory means buyers will have to purchase annually.
5 Scope of Participation
The NGOs, commercial forest companies and companies pursuing CSR activities can participate
NGOs, commercial forest companies and companies pursuing CSR activities can participate
NGOs, commercial forest companies and private companies
Commercial forest companies and NGOs (preselected by government)
6 Mechanism oversight of the market
There will be no formal oversight over the market except awareness generation
TGO or any other nodal agency can provide oversight to the market operations and frame C&I guidelines, review projects which apply to the guidelines, issue necessary compliance certificates and provide guidance for carbon market activities
TGO or any other competent organization can provide oversight to the fund operations, project development and purchase of credits.
TGO or any other competent organization can provide oversight to the running of program. Besides, the TGO shall also arrange for appointment of independent verifiers for verification and issuance of credits and monitor the participation of mandated players.
47
Xxxxx
7 Project standards
The system will be integrated with the rest of the voluntary market
The projects can adhere to Thailand specific sustainable development norms and may be highlighted as contributing to Thailand developmental goals
The projects can adhere to international standards but since government is funding the projects, it can claim it as a unilateral NAMA
Projects can adhere to local standard published by Govt.
8 Price discovery of credits
The price will be discovered in the open market based on demand and supply as is the norm in voluntary market
The price will be discovered in the open market based on demand and supply as is the norm in voluntary market. But added label would ensure premium for Thai forestry credits
The price will be fixed by the govt. on an annual basis taking into account project costs and decent ROI
This system is prone to economic vagaries as if the economy is good, buyer demand may be high but supply cannot be raised overnight, so there should be a provision of collar price in this scheme. So, supply should be forecasted annually and accordingly, percentage should be fixed
9 Any additional benefits linked to the market participation
None The project developers shall be recognized as contributing to Thailand development goals especially if they subscribe to C&I
The project developers shall be recognized as contributing to Thailand’s efforts to restore biodiversity, forest cover etc.
None
10 Economic impact
Purely voluntary in nature, so no adverse impact on companies
Purely voluntary in nature, so no adverse impact on companies. In fact, for interested project developers, government is sharing the burden of carbon market costs and thus scheme might have a positive impact
Adverse impact on fossil fuel consumers, but impact per consumer could be very low
Adverse impact on all Thai companies as this is more like an added tax/surcharge on revenue, thus making this model as less preferred for corporate.
5.8. Review of proposed market scenarios
As per the analysis from prevailing ground
realities, feedback from stakeholders and
studying similar market structures, it may be
considered that a free market structure that we
generally associate with voluntary market may
not be feasible enough to entice significant
response from market participants and project
developers. Rather, a proper structured market
supported by the government, with clear goals
and objectives may be the more rational way to
proceed. Such a market may incorporate the
MRV standards and governance of CDM and
include such activities as REDD and IFM. The
structure can also accelerate funding for
lagging sectors like community based forestry
projects and can act as a catalyst for capacity
building and co-coordinating across market
verticals.
Besides, the mandate of the participants,
potential targets and price discovery
mechanism for such market too needs to be
worked out in order to have clarity about the
structure. In case of price discovery, a floor
price may be fixed as in Korea Voluntary
Market, where the buyer is the government.
Such a move may safe guard the participants
from volatility but may be against the spirit of
voluntary market itself. The voluntary market
tends to reward relatively well executed
projects more than the once that are not well
managed or do not meet certain standards. In
the scenario wherein credit pricing range may be
fixed, there may not be any incentives for
developing high quality initiatives. Range-bound
pricing thus won’t allow many choices to the
potential buyers and consequently lead to lesser
participation. Further-more, price-fixing in a
completely voluntary structure may be unviable as
they may be out of sync with the price movements
in international markets.
One perceived drawback of such a market
structure being implemented in Thailand is the
level of participation. Scaling up of the proposed
market system is essential for its long-term
viability, but unlike countries like China, the
number and sizes of participants and the present
status and scale of forest carbon projects may not
be sufficient to make the process viable, especially
in the near future. The alternate approach that
may be effective especially as a transition to such a
market system is a collective effort by present
project developers to initiate forest carbon projects
in Thailand.
Some of the potential triggers to kick-start the
voluntary forest carbon initiative are the inclusion
of small landholders who have been excluded so
far due to small land sizes and disproportionately
large transaction costs, accommodating “willing”
corporate houses who have not yet participated
due to lack of adequate insight in this subject,
lower transaction costs by adopting comparatively
less elaborate certification system and if viable,
49
lessen a part of the upfront development cost,
that may be recouped after actual sale of the
credits.
One way forward under the existing voluntary
standards structure may be to launch a
“grouped project” program under the umbrella
of a competent authority like the TGO. In the
VCS version 3 scheduled to be launched in
March, 2011 has proposed the structure of
grouped projects, which is in line with Program
of Activities (PoA) of CDM but has less
complexity and prima facie appears to be less
costly than the later. Grouped projects are
structured to allow the expansion of a project
activity subsequent to project validation. Thus
once the project design is validated initially,
projects of similar criteria as defined in the
initial design can be included in every
verification event. This said, smaller projects,
which would other-wise have been unviable as
standalone projects can be included in these
project structures. This also brings down the
transaction cost as multiple projects can be
included at each verification event. It is also
possible, if circumstances permit for the
umbrella organization to pay a part of the
initial validation costs, which can later be
recovered by claiming a part of the proceeds
from the sale of VERs.
On the other hand, “Mandated Markets”
however, may not be politically or economically
admissible due to the binding nature of such
markets as well as the fact that “mandate”
effectively takes away the “voluntary” component
of the entire process.
50
6. Overview of discussions and
summarization of findings
The forests in Thailand are an integral part of
the socio-economic and cultural life. They are
also pivotal in maintaining the environmental
balance in Thailand. The natural forests have
been nationalized as part of the effort to stem
their degradation. Side by side, private
plantations too continue to play a pivotal part
in the economy though they have not been
able to fully substitute the supply of timber
from natural forests after the ban on large-
scale commercial logging. Over the last two
decades, the deforestation rate of Thai forests
has almost been reduced to zero. This said, the
socio-economic causes of deforestation, like
poverty, population growth vis-à-vis stagnation
of available arable lands, illicit felling still
persists. Thus the gains achieved in reducing
forest degradation need to be consolidated
through policy measures addressing issues like
land tenure, forest rights etc. The
incentivization of forest protection and
afforestation activities on wastelands under the
carbon market mechanisms has provided an
added impetus to the process of institutional
reforms as these are considered as one of the
main barriers to the wider penetration of such
markets in Thailand. The other major barriers
to the development of forest carbon projects in
Thailand are the high initial investments
required and the lack of easily accessible
expertise in project development. These barriers
can be removed by developing an effective
mechanism to market domestic carbon credits
generated from forestry projects. Four different
market structures have been proposed, on the
basis of various levels of involvement by different
stakeholders like the forest project developers,
corporate houses, NGOs and the government.
Though over-arching government mandate for
private sector participation in such a market
mechanism may be untenable, minimal
involvement too may result in a still-born proposal.
Thus the aspects such as Thailand’s stance in
international climate negotiations, the urgency to
encourage forest enterprises, the private
participation in natural resource management etc.
should be properly calibrated whilst envisioning a
forestry-related voluntary carbon market structure
in Thailand.
Annex I
TCP/THA/3201 “Voluntary Carbon Markets in Thailand”
Terms of Reference Consultant to conduct assessment on opportunities for forestry-related voluntary carbon markets in Thailand
Background
Voluntary carbon markets are expanding rapidly, and according to some estimates they have been doubling both in
volume and value in the past couple of years. Voluntary offsets are particularly feasible alternative for forestry and
other small-scale initiatives that face difficulties in meeting the rigid protocols and high transaction costs of
compliance markets. The Government of Thailand has recognized the importance and need to promote and support
various activities aiming at reducing carbon emissions and pursuing the path of “green development”. Considering
the country’s important forest resources and valuable experience with community forestry, accessing the voluntary
carbon trade has potentials for providing benefits at both national and community level. However, there is a strong
need for developing capacities within the country for learning how the voluntary carbon markets function. On the
request of the Government of Thailand and the Thailand Greenhouse Gas Management Organization (TGO), FAO has
initiated a Technical Cooperation Programme (TCP) Facility in support of start-up activities for identifying the key
opportunities and requirements for accessing voluntary carbon markets. The findings will be further utilized by the
recently initiated Regional TCP project “Linking communities in Southeast Asia to forestry-related voluntary carbon
markets” (TCP/RAS/3210).
Tasks
Under the supervision and guidance of, and in consultation with the Senior Forestry Officer, Regional Office for Asia and the Pacific (RAPO), and in collaboration with Ministry of Natural Resources and Environment, the Thailand Greenhouse Gas Management Organization, and the consultants working for the TCP/RAS/3210, the National Consultant will carry out the following tasks:
1. Conduct a gap analysis of the potential for voluntary carbon markets in Thailand, and develop a concise report including:
a. Size, structure, key players, and potential buyers b. Overview of most important carbon offset providers (type of activities) c. Opportunities and constraints for Thai forestry-related carbon offsets d. Overview of available carbon standards and their comparative advantage for forestry projects e. Recommendations for a model for developing and selling forestry-related voluntary carbon
markets in Thailand 2. Participate at the regional start-up workshop and present the key findings of the study to a wide-range
of stakeholders1.
Duration: 32 days of input during a three months period (15 August – 31 October 2010)
1 The regional start-up workshop for the TCP/RAS/3210 “Linking communities in Southeast Asia to forestry-related
voluntary carbon markets” will take place in Chiang Mai in September 2010.
52
Annex II
Table 7. Cash Flow Table for potential 1000 hectares afforestation project in Chiang Mai Province
Year Area (Ha)
Cumulative VERs Buffers
VERs issued
Price/ VER
Revenue DOE Cost
Per Unit Administrative
cost
Issuance Cost
Consultant Cost
Brokerage/ Issuance
Rate
Brokerage/ Verification
Support Cost
Yearly Net
Revenue
0 2011 500
- $ (25,000)
$(30,000)
0 0 $ (55,000)
1 2012 1000 5000 1000
$ 3.00 - - $ 0.20 - 0 5%
-
-
2 2013 1000 10000 2000
$ 3.00 - - $ 0.20 - 0 5%
-
-
3 2014 1000 10000 2000 20000 $ 3.00 $60,000
$ (20,000) $ 0.20 $(4,000)
$(10,000)
5% $ (1,000.00) $ 55,000
4 2015 1000 10000 2000
$ 3.00 - - $ 0.20 - 0 5%
-
-
5 2016 1000 10000 2000
$ 3.00 - - $ 0.20 - 0 5%
-
-
6 2017 1000 10000 2000 24000 $ 3.00 $ 72,000 $ (20,000) $ 0.20 $ (4,800) $(10,000) 5% $ (1,200.00) $ 66,000
7 2018 1000 10000 2000
$ 3.00 - - $ 0.20 - 0 5%
-
-
8 2019 1000 10000 2000
$ 3.00 - - $ 0.20 - 0 5%
-
-
9 2020 1000 10000 2000 24000 $ 3.00 $ 72,000 $ (20,000) $ 0.20 $ (4,800) $(10,000) 5% $ (1,200.00) $ 66,000
10 2021 1000 10000 2000
$ 3.00 - - $ 0.20 - 0 5%
-
-
11 2022 1000 10000 2000
$ 3.00
- - $ 0.20 - 0 5%
-
-
12 2023 1000 10000 2000 24000 $ 3.00 $ 72,000 $ (20,000) $ 0.20 $ (4800) $(10,000) 5% $ (1,200.00) $ 66,000
13 2024 1000 10000 2000
$ 3.00 - - $ 0.20 - 0 5%
-
-
14 2025 1000 10000 2000
$ 3.00 -
-
$ 0.20 - 0 5%
-
-
15 2026 1000 10000 2000 24000 $ 3.00 $ 72,000.
$(20 000) $ 0.20 $ (4,800) $(10,000) 5% $ (1,200.00) $ 66,000
16 2027 1000 10000 2000
$ 3.00 - - $ 0.20 - 0 5%
-
-
17 2028 1000 10000 2000
$ 3.00 - - $ 0.20 - 0 5%
-
-
18 2029 1000 10000 2000 24000 $ 3.00 $ 72,000. $ (20,000) $ 0.20 $ (4,800) $(10,000) 5% $ (1,200.00) $ 66,000
19 2030 1000 10000 2000
$ 3.00 - - $ 0.20 - 0 5%
-
-
20 2031 1000 10000 2000 55100 $ 3.00 $ 165,300 $ (20,000) $ 0.20 $(11,020) $(10,000) 5% $ (2,755.00) $ 151,525
Annex III
Format for questionnaire on potential for “Voluntary Market in Thailand” shared with participants of survey
(Five pages)
Figure 14. Page 1 of Thai industry survey on Voluntary Carbon Markets in Thailand
54
Figure 15. Page 2 of Thai industry survey on Voluntary Carbon Markets in Thailand
55
Figure 16. Page 3 of Thai industry survey on Voluntary Carbon Markets in Thailand
56
Figure 17. Page 4 of Thai industry survey on Voluntary Carbon Markets in Thailand
57
Figure 18. Page 5 of Thai industry survey on Voluntary Carbon Markets in Thailand
58
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