NON-PERMANENCE RISK REPORT RESTORATION OF DEGRADED AREAS AND REFORESTATION IN CÁCERES AND CRAVO NORTE, COLOMBIA

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1 NON-PERMANENCE RISK REPORT RESTORATION OF DEGRADED AREAS AND REFORESTATION IN CÁCERES AND CRAVO NORTE, COLOMBIA Document Prepared By South Pole Carbon Asset Management Ltd. Contact: Calle 1 # 34-11, Oficina 45, Medellín, Colombia T Project Title Restoration of degraded areas and reforestation in Caceres and Cravo Norte, Colombia Version v.1 Date of Issue Project ID 576 Monitoring Period to (Second monitoring period) Prepared By Victor Giraldo, Contact Calle 1a # office 45 Medellin Colombia v.giraldo@southpolecarbon.com Phone: Mobile: Skype: vida15 1

2 1 INTERNAL RISK Project Management and/or Mitigation Description a) NA: A. Mangium has been selected for remediation of degraded mining soils in a transition back to native species, because it is proven to be adapted to similar site conditions in projects such as RIA Forestal s Mining land rehabilitation project 1, or Corantioquia s rehabilitation work 2. b) Ongoing enforcement to prevent encroachment by outside actors is needed to protect the Caceres areas of the project, especially the mining strata of Caceres II area, from illegal mining and agricultural encroachment. c) NA: All required capacities are available. See documentation provided in the folder Capacities evidences and the book written by Mr. Moscoso. Business development and plantation operations, including monitoring and technical assistance will be made by ASORPAR Ltd. Reforestation is the core business of ASORPAR. Asorpar Ltd employs 4 engineers and two technicians who support the project. Also a group of over 2 indigenous people has been working with ASORPAR for 1 years; they are working as crew leaders for local employees. The technical manager, partner and director, Luis Gonzalo Moscoso Higuita, has worked in the forestry, environmental and landscaping areas for many years. He has the reputation of having designed and implemented outstanding projects, due to the knowledge he has gained in environmental and forestry management. He wrote the book Reforestation, a natural process in relation to the project in Cáceres. d) The Management team is located in Medellin and in the project area. From Medellin, there are 4 hours by car to Caceres project area and 2 hours. e) Mitigation: The management team includes members with significant experience in AFOLU project design: 2-2 From Asorpar side, Luis Moscoso: Experience with this project, the Bullet Forestal VCS project, the Vegachi Carbonfix project. South Pole Carbon as part of the carbon development team is in charge of VCS+CCBS registry process and is located in Medellin Colombia. South Pole Carbon s forestry and land use team consists of highly qualified experts including experienced foresters, methodology and standards experts, and GIS and remote sensing specialists. South Pole Carbon s Forest Carbon team specializes in afforestation/reforestation, REDD+, Improved Forest Management, Agroforestry And savannah conservation projects and related sectors such as biomass And improved cooking stove projects. The team offers the full range of services that encompass the entire carbon asset management cycle: Other similar experiences include 2

3 Feasibility Studies, Due Diligence Deforestation and Forest degradation Baseline Studies at project or regional level Advisory on selection of project activities and support in on the ground implementation PDD Development and support during validation and verification Planning and Implementation of Monitoring Capacity Building New Methodology Development Commercialization of issued carbon credits. More detailed information about the track record of South Pole and South Pole team is presented as a supporting folder document 1_ SP_AFOLU_Team and Supporting doc 2_South pole Forestry track record f) Mitigation: Part of the main goals of development a PD is to document information about the project. The project Document lets to summarize any kind of procedures to monitor the project. The monitoring plan for VCS and CCBS standard are part of this new documentation that will let the Project implementation team, to monitor the real impact of the project over the climate, the community and the biodiversity. Total Project Management (PM) [as applicable, (a + b + c + d + e + f)] Total may be less than zero. -2 Financial Viability and/or Mitigation Description a) Project cash flow breakeven point is greater than 1 years from the current risk assessment 3 b) c) NA d) NA e) NA f) NA g) NA h) Given that this tool focuses on the non-permanence risk of already issued VERs, this question is replied to focusing on the currently verified areas (Caceres) only. For 3

4 Caceres, 1% of the cost have been already invested. i) Mitigation: Given that this tool focuses on the non-permanence risk of already issued VERs, this question is replied to focusing on the currently verified areas (Caceres) only. For Caceres, 1% of the cost have been already invested. Total Financial Viability (FV) [as applicable, ((a, b, c or d) + (e, f, g or h) + i)] Total may not be less than zero Opportunity Cost and/or Mitigation Description a) The project NPV estimated in supporting doc 1_Cashflow for the project in a period of 2 years and considering a discount rate of 1% is ,59 COP and ,12 COP 3 with a discount rate of 12%. 4. The NPV for Livestock according to specific studies in a period of 1 years is COP with a discount rate of 1% (Supporting doc 2, page 16) and COP with a discount rate of 12% ( Supporting doc 3, page 61). The discount rates of 1% and 12% are commonly used to estimate NPV values for projects in Colombia and its coherent with a worldwide discount rates that are between 1% and 15% (supporting doc 4). An additional example of the use of this discount rates values is the NPV estimated for livestock in Colombia using a discount rate of 1.42% (Supporting doc 5, page 14,16) 8 In our analysis of opportunity cost we have specific data information for a period of 2 years in case of the project plantations, however this period of analysis is not commonly used to estimate NPV for livestock. There is not specific project information about livestock and even the official information is scarce about this productive activity in Colombia that normally only covers no more than 1 years. A projection of 1 years until year 3 using an interest rate its considered less credible without supporting information. In this case we compared the NPV for livestock and project with different periods of analysis. Supporting doc 6_summary_NPV_Compared summarizes the NPV for project plantations and Livestock and the magnitude of NPV of livestock compared with NPV of project plantations. Considering this table, the national information reported for livestock is in average 1 times bigger than project NPV. Caceres is part of the Bajo Cauca sub-region in the department of Antioquia. In case of mining there is no specific information about NPV for small mining in the project area. According to the government of Antioquia, gold mining is 3 The cashflow for Asorpar was developedin USD. We made the conversion to COP using the historic average conversion of USD to COP in The Excel file NPV_Summary present a summary of NPV for different studies in Colombia for livestock and the specific project cashflow 4

5 developed by small an unorganized companies in the municipality of Caceres (supporting doc 7_page 44, Supporting doc_8_page_152). In the sub region Bajo Cauca Mineros SA is the main gold company. This company developed a financial analysis for their extraction activities in the municipality of Bagre (Supporting doc_9. It reports a NPV of M COP for an interval of annual production between 35. to 75. troy oz (1 troy oz is equivalent to 31,1 grams 5 ) that means an interval of production of gr to gr. In case of Caceres, the average annual production estimated between 26 and 28 (Supporting doc_7_page_44; Supporting doc 8_page_151) is gr. This value is the half of production estimated for Mineros S.A. Using a simple three rule, we could have a NPV for mining gold activities in Caceres of ,66 MCOP. Considering that mining in this municipality is not well organized and combine a complex socioeconomic scenario, we could expect that this NPV could be less than 25%. However, even considering this percentage, NPV for mining (as in case of livestock) could be 1% higher than NPV estimated for the project activity. b) NA c) NA d) NA e) NA f) NA g) Mitigation: project proponent is not a non-for profit organization h) Mitigation: Project owner Asorpar is committed to continue with the sustainable management of the project during the crediting period and even after that. The project area has become in an example of restoration activities that not only will create incomes for the selective logging in the future, but for the opportunity to develop researches around the ecosystems restoration. -2 i) Mitigation: not the case Total Opportunity Cost (OC) [as applicable, (a, b, c, d, e or f) + (g + h or i)] Total may not be less than. 6 Project Longevity a) There is no legally binding agreement for 1 years in place, yet the project envisions a permanent sustainable forestry plantation with a 2 year rotational cycle

6 b) The crediting period is 3 years as required by the VCS. However at the end of that crediting period Asorpar will continue to operate the plantation as a sustainable forestry project. (Supporting doc_11) Total Project Longevity (PL) May not be less than zero Internal Total Internal (PM + FV + OC + PL) Total may not be less than zero EXTERNAL RISKS Land Tenure and Resource Access/Impacts and/or Mitigation Description a) Ownership and resource access and use rights are held by the same entities. b) NA c) There are no disputes over land tenure or ownership in more than 5% of the project area. No such case is filed at relevant authorities, and the land has registered land ownerships ( escritura ).(please check the certificates of tradition and freedom updated: Supporting docs_11) d) NA e) NA f) Mitigation: NA g) Mitigation: NA Total Land Tenure (LT) [as applicable, ((a or b) + c + d + e + f + g)] Total may not be less than zero. Community Engagement and/or Mitigation Description a) All of the households and individual persons living within the project area were consulted, either sold their land and moved or are still part of the project as employees. b) Households within 2 km outside the project area are not reliant on the project area except for recreational goals and such recreational use is allowed and 6

7 fostered by the project owners; and for environmental services such as erosion control, which is improved through the project. During the stakeholder consultation, there were public invitations for meetings done in locally suitable ways. c) Mitigation: Net positive impacts on the social and economic well-being have been validated and verified in the CCBS PD. Total Community Engagement (CE) [where applicable, (a + b + c)] Total may be less than zero. -5 Political and/or Mitigation Description a) NA b) The Governance score is (see support document Country data) 4 c) NA d) NA e) NA f) Colombia is active in the UNFCCC REDD+ negotiations where it supports market-based mechanisms and has been a vocal proponent of the idea that REDD+ should accommodate a stepped subnational approach, not only to Reference levels and MRV (Government of Colombia 212) but also in terms of eligibility for phase 3 of REDD+ (results-based payments). This interest in subnational processes is reflected by the fact that Colombia is a member of the advisory committee of the Jurisdictional and Nested Requirements (JNR) working group of the Voluntary Carbon Standard (VCS) (VCS 213). Colombia has ratified the UNFCCC (1995) and the Kyoto Protocol (25) and has submitted two National Communications to the UNFCCC (in 21 and 21) (UNFCCC 213). Colombia is a member of the World Bank Forest Carbon Partnership Facility (FCPF) and became a UN-REDD+ partner country in Colombia has an established Designated National Authority under the CDM and has at has more than one registered CDM Afforestation/Reforestation project Total Political (PC) [as applicable ((a, b, c, d or e) + f)] Total may not be less than zero. 2 External

8 Total External (LT + CE + PC) Total may not be less than zero. 3 NATURAL RISKS Significance Fire (F) Minor (less than 5% loss of carbon stocks). Given that this tool focuses on the non-permanence risk of already issued VERs, this question is replied to focusing on the currently verified areas (Caceres) only. Between 199 and 22 was reported that project area falls into the category of less than 1 ha affected. Considering 1 ha and a project effective planted area of more than 12 hectares. There is a significance of 12.5% affected in a historic period of 12 years (See supporting doc1). According to the fire frequency map for Colombia from 23 to 29 detected by daily MODIS imagery, in Caceres the fire frequency is low (See PD, page 64). Likelihood Every 1 to less than 25 years Score (LS) 2 Mitigation.5 Significance Likelihood Score (LS) 1 Mitigation.5 Pest and Disease Outbreaks (PD) Insignificant or transient: there has not been significant losses becoming from pests and diseases and there are no reports about it for the project area. Every 25 to <5 years Biological control has been considered (see in Spanish, supporting document Pest and disease control).constantly the Project is consulting experts in the area in different universities and research institutes. Extreme Weather (W) Significance No loss: Flood threat: IDEAM generates curves of intensity, duration and frequency for different areas of the country and return periods of 3, 5, 1, 25, 5 and 1 years in order to identify the rain conditions. Additionally IDEAM generates maps of daily and monthly precipitation to identify areas of higher rainfall. In addition, the institution publishes a national map of the 8

9 Likelihood Score (LS) Mitigation NON-PERMANENCE RISK REPORT: VCS Version 3 susceptible areas to flooding based mainly on previous events that occurred and on the topography of the low-lying valleys areas and rivers. In the case of the municipality of Caceres, the risk of extreme weather events is catalogued as low for the 1 years analyzed (See in Spanish, supporting doc 1_Amenazas_Colombia _page 29, Supporting doc 2_pages 5,6) NA NA Significance Geological (G) No loss: Within Ingeominas publications are a group of illustrative booklets in relation to seismic and volcanic hazards. Chart 2-6 presents a map of seismicity at the national level with the depth, magnitude and location of past events, and a map of major earthquakes in the country. It also presents the overall seismic hazard map published in the Seismic Standards (See in Spanish, supporting doc 1). Supporting doc 2 (in spanish) presents an analysis at the regional level of the geological risk. After Analyze these documents can be concluded that the geological risk in the project area is minor Likelihood Every 5 to less than 1 years Score (LS) Mitigation NA Score for each natural risk applicable to the project (Determined by (LS M) Fire (F) 1 Pest and Disease Outbreaks (PD).5 Extreme Weather (W) Geological (G) Other natural risk (ON) Total Natural (as applicable, F + PD + W + G + ON) OVERALL NON-PERMANENCE RISK RATING AND BUFFER DETERMINATION 4.1 Overall 9

10 Category a) Internal 22 b) External c) Natural 1.5 Overall (a + b + c) Calculation of Total VCUs Include in this calculation the number of buffer credits to be deposited in the AFOLU pooled buffer account based on the change in carbon stock only. Include any deductions for the AFOLU pooled buffer account, if applicable, to determine the number of GHG credits eligible to be issued as VCUs. C AR-VCS Total VCUs for the first monitoring period Total t CO2 at the end of the second monitorin period Non permanence risking rate (24%) Total VCUs for the second monitoring period ( ) t CO , , ,81 74., ,46 1