Bringing forest carbon projects to the market

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2001 2002 2003 2004 2005 2006 2007 2008 2009Decisions on rules and proceduresOthersectorsXLULUCFsectorApproved methodologiesXOthersectorsLULUCFsector10 32 61 83 104 115 1321 5 13 15 16Registered projects in bracket : total number of AR projects applying for validation)Othersectors2 143 586 1146 1723 1834LULUCFsector1(4)1(13)1(36)8(52)Figure 8: Implementation of CDM AR projects compared to other sectors (cumulative through2009) (Source: ONFI)CDM forest carbon projects involve more complex technologies than many other CDMprojects (energy, industry, etc.), especially regarding methodology. They demand agreat many measurements in the field, land eligibility must be demonstrated, and theboundaries of plantations on land parcels have to be defined. Furthermore, for forestcarbon projects to be eligible, the DNAs have to select parameters to define forestsand sustainable development criteria, which has not yet been done in several countriesin the South. As projects are implemented, other problems may appear as well. Thesemay include legal hurdles relating to the definition of forest ownership, and obstaclesrelating to actual and use rights, including customary rights, over forest lands orresources. These hurdles have caused investors to turn to other less costly CDMtechnologies involving more manageable risks.Nevertheless, these technical, methodological and legal hurdles are diminishing asprojects develop and as experience builds among project promoters and consultants.At present, although setting up these projects is still complex, the main obstaclesBringing Forest Carbon Projects to the Market31
to their development no longer exist: 16 methodologies are now available as well as anumber of official tools to aid project promoters in demonstrating project additionality,calculating carbon sequestration, and choosing the right methodology.1.3.2.2. The European Emissions Trading System (EU-ETS)We have now described the constraints weighing on the supply of CDM AR projects.One of the other main factors slowing the development of CDM forest projects is thelimits of demand: notably, the European emissions trading system does not acceptforest carbon credits. The EU-ETS is the Community system adopted to reduceemissions from the power sector and the main GHG emitting industries. This carbonmarket is currently the world’s largest, both in value and volume, and also the largestsource of demand in credits from CDM projects 25 . Excluding forest carbon credits fromthe market greatly restricts demand for credits of this type.The problem arises primarily from (i) political factors. Some players have lobbiedto exclude the forest sector, on the grounds that carbon sequestration can only betemporary and reversible. The argument emphasizes the system should focus oninvestments in high-emission power and industry sectors. The second reason (ii) hasto do with accounting issues. Including temporary credits in the European registrysystem would create methodological complexities and fears that responsibilities wouldshift to the State if the companies concerned cease to exist and become unable toreplace their company credits once their validity expires. Finally (iii), fears of an influx offorest carbon credits liable to destabilize the emerging market contributed to Europe’sdecision-makers choosing to exclude this type of project from the EU-ETS system.1.3.2.3. Other regulated carbon marketsOther regulated markets are becoming established, some of which have now beenoperating for several years. One example is the Australian GGAS, which is open toafforestation and reforestation projects (but limited to national projects). In 2008,0.2 MteqCO 2in forest carbon credits were traded on this market 26 . In the US, manystates have adopted policies to cap their GHG emissions, in conjunction with widerregional initiatives. In the North-East, with the RGGI, a cap-and-trade mechanism limitsemissions from power plants for a period of six years. In the West, the WCI formed in25 World Bank, 2009. State and Trends of the Carbon Market 200926 Ecosystem Marketplace, 2010. State of the Forest Carbon Markets 200932The fragile position of forestry projects in the carbon markets
Page 3 and 4: Authors and AcknowledgementsThis gu
Page 5 and 6: 2.2. Br i n g i n g f o r e s t car
Page 9 and 10: needed credibility to the forestry
Page 11 and 12: This lower market share can be expl
Page 13 and 14: that are used include grants, prefe
Page 15 and 16: ◆◆ ConclusionWhile forestry pro
Page 17 and 18: a)Gt equiv-CO 2 /year28,735,639,444
Page 19 and 20: 1.2. The different types of forest
Page 21 and 22: What is a forest?The United Nations
Page 23 and 24: 1.2.4. Projects concerning uses of
Page 25 and 26: organized 13 . Rapidly increasing i
Page 27 and 28: In national GHG inventories, Articl
Page 29 and 30: ◆◆ Forest carbon in non-Annex I
Page 31: At present, CDM forest projects onl
Page 35 and 36: Primary CDM credits traded in 2008
Page 37 and 38: Main forest quality standards on th
Page 39 and 40: The quantities of forest credits tr
Page 41 and 42: several plantation sites but run by
Page 43 and 44: It should be remembered that the da
Page 45 and 46: 1< 5< 10< 30> 30Projects seeking st
Page 47 and 48: We were able to collect data on sur
Page 49 and 50: 1.5. ConclusionCompared to the fear
Page 51 and 52: 2. Prospects for the forestcarbon m
Page 53 and 54: of GHG emissions, etc.). Moreover,
Page 55 and 56: For countries currently experiencin
Page 57 and 58: 2.1.2.2. Implementing and financing
Page 59 and 60: With more robust data on GHG emissi
Page 61 and 62: system similar to the current CDM o
Page 63 and 64: Aside from these funds dedicated to
Page 65 and 66: It should be noted that a change in
Page 67 and 68: to boost project development. Howev
Page 69 and 70: Project for commercial reforestatio
Page 71 and 72: Investor Bank Public or philanthrop
Page 73 and 74: Drawing up these documents and secu
Page 75 and 76: Case 1:JumaCase 2: ARCorridorCase 3
Page 77 and 78: In order to cover these costs, the
Page 79 and 80: REDD project is to curb deforestati
Page 81 and 82: 3.2.1.2. Carbon costsImplementing t
Page 83 and 84:
3.2.1.3. Management costsManaging,
Page 85 and 86:
Income will depend on the volume of
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3.2.2.6. ConclusionCalculating cost
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3.2.3.3. Conclusion and recommendat
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Titleholders (100 %)ShareholdersInv
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Other indicators can also give a go
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IRR examples for plantations and na
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Example of a debt-financed project:
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3.3.2.3. Subsidies and donationsA s
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(Merrill Lynch, JP Morgan, BNP Pari
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InitiativesBioCarbon Fund(World Ban
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CasestudyNo. 1:JumaNo. 2: ARCorrido
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Carbon standardsExperience and cred
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3.4.1.2. Project eligibility for th
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To handle the issue of permanence u
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number of credits generated under a
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Plan Vivo Suitable forvery small-sc
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◆◆ Who has rights over the tree
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(when the transaction is effectivel
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◆◆ the person(s) financing the
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3.4.2.4. How should carbon credit o
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A contract presupposes an agreement
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carbon credits. It is important to
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The parties may agree on the method
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Annex 1: Applicable methodologiesfo
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Methodologies for large scale affor
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Methodologies for small-scale Affor
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Annex 2: The CDM project cycle136
Page 139 and 140:
The table below compares the calcul
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Case study no. 1Avoided deforestati
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Project activities and costs are as
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Case study no. 2Ankeniheny-Zahamena
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Project costs: 1.8 MUS$11%8%Activit
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Case Study no. 3Ankeniheny-Zahamena
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Direct income from conservation act
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Case study no. 4Commercial (re)affo
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Project costs: 15 M€4% Activity:
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Case study no. 5Afforestation on th
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Project costsProject income10%5%Pla
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GlossaryAcronym French Acronym Engl
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teqCO 2Tonne équivalent CO 2teqCO
Page 165:
164Etude de cas n°3
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