Natural Resource Management and Climate Change Mitigation, Adaptation and REDD+ Part II: Forest and Carbon Sequestration

Transcription

1 Natural Resource Management and Climate Change Mitigation, Adaptation and REDD+ Part II: Forest and Carbon Sequestration

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3 2 Natural Resource Management and Climate Change Mitigation, Adaptation and REDD+ Contributions / Credentials Authors Peer Review Editing Carmenza Robledo Co-head of the Environment and Climate Change Group Intercooperation Berne Oliver Gardi Climate Change Mitigation Specialist Intercooperation Berne Nadeem Bukhari Project Coordinator Integrated Natural Resource Management Project (INRMP) Intercooperation Pakistan Arjumand Nizami Programme Coordinator Pakistan Intercooperation Delegation Office-Pakistan Muhammad Asad Saleem Junior Programme Officer Intercooperation Pakistan Fatima Daud Kamal Consultant Knowledge Management Photographs in the publication Arjumand Nizami, Fayaz Muhammad, Aamir Rana and Tahir Saleem Design and layout Printing Salman Beenish PanGraphics (Pvt) Ltd. Islamabad Parts of this publication can be copied with proper citation in favour of Intercooperation Pakistan 2010 Published by Intercooperation Pakistan

4 Part II: Forest and Carbon Sequestration 3 Acronyms AFOLU A/R CDM CCBS CCX CDM CDM-EB CERs COP DNA DOE DRR EU-ETS EPA FCPF GHGs GPG GoP HWP IC IET IPCC ITTO JI KP lcers LULUCF LUCF NGOs ODA OTC PDD PIN REDD REDD+ SDC tcers UNFCCC VCS Agriculture, Forestry and Other Land Uses Afforestation / Reforestation CDM Climate, Community and Biodiversity Standard Chicago Climate Exchange Clean Development Mechanism Executive Board of the CDM Certified Emission Reductions Conference of Parties to the UNFCCC Designated National Authority for the CDM Designated Operational Entity Disaster Risk Reduction Emission Trading Scheme of the European Union Environmental Protection Agency Forest Carbon Partnership Facility of the World Bank Green House Gases Good Practice Guidance Government of Pakistan Harvested Wood Products Intercooperation International Emission Trading Intergovernmental Panel on Climate Change International Tropical Timber Organization Joint Implementation Kyoto Protocol Long-term Certified Emission Reductions Land Use, Land-Use Change and Forestry Land-Use Change and Forestry Non-Governmental Organizations Overseas Development Assistance Over the Counter Project Design Document Project Idea Note Reducing Emission from Deforestation and Forest Degradation in Developing Countries Reducing Emission from Deforestation and Forest Degradation and the Role of Conservation, Sustainable Management of Forest and Enhancement of Forest Carbon Stocks in Developing Countries Swiss Agency for Development and Cooperation Temporary Certified Emission Reductions United Nations Framework Convention on Climate Change Voluntary Carbon Standard

5 4 Natural Resource Management and Climate Change Mitigation, Adaptation and REDD+ Contents 1.1 An overview of AFOLU first From LULUCF to AFOLU and why Mitigation options in AFOLU Mitigation options in the agricultural sector Forest mitigation options The Clean Development Mechanism Afforestation / Reforestation in the Clean Development Mechanism (A/R CDM) Small-scale A/R CDM projects Global progress and Pakistan (A/R CDM project example of IC) Reasons for slow progress in A/R CDM Options for forestry other than A/R CDM Energy CDM and biofuels Outlook 20 Annex-1 Frequently asked questions 22

6 Part II: Forest and Carbon Sequestration An overview of AFOLU first Agriculture, Forestry and Other Land Uses (AFOLU) comprises of greenhouse gas (GHG) emissions from all land uses in a landscape (e.g. forest land, agricultural lands such as croplands, grasslands, wetlands, lands used for settlements) and the land-use changes among these categories. The burning of fossil fuels is the most important source of GHGs. The second major source of GHG emissions globally is from AFOLU activities, primarily tropical deforestation, forest degradation, agricultural use and forest fires. According to the fourth assessment of the Intergovernmental Panel on Climate Change (IPCC), emissions from forestry alone are over 17% of the global figure yearly (2007). IPCC estimates that land-use change (e.g. conversion of forest into agricultural land) contributes a net Figure 1: Share of forestry and agriculture in greenhouse gas. Source: IPCC 2007 global anthropogenic 5.87 ± 2.93 Gt CO 2 per year to the atmosphere. When adding all emissions from the agriculture sector, the figure goes over 30% of global anthropogenic GHG emissions. Thus the contribution of AFOLU to climate change is very significant. Figure 2: Fluxes of greenhouse gases affected by activities in Agriculture, Forestry & Other Land Use. Source: IPCC Guidelines for National GHG Inventories, Volume 4, Agriculture, Forestry and Other Land Use. GHGs emitted from the AFOLU sector are mainly CO 2 emissions (loss of terrestrial carbon stocks 1 ), as well as CH 4 and N 2 O from livestock and soils (Fig 2). The concept currently used in the Kyoto Protocol for the reporting of emissions from Land Use, Land Use Change and Forestry (LULUCF), does not include agricultural non-co 2 emissions, because agriculture was considered as a separate sector. This accountability 1 IPCC distinguishes 5 carbon stocks: above- and below ground living biomass, deadwood, litter and soil organic carbon.

7 6 Natural Resource Management and Climate Change Mitigation, Adaptation and REDD+ system did not allow understanding of the dynamics from a more complete landscape view. For this reason AFOLU was introduced with the 2006 IPCC guidelines for National Greenhouse Gas Inventories 2 as a holistic approach, because it integrates all GHG emissions to be considered in land-use decisions e.g. afforestation / reforestation, sustainable forest management, forest restoration, reduced deforestation and reduced forest degradation, improvement of agricultural practices, harvested wood products (HWP), etc. However AFOLU has not yet been adopted by the Conference of Parties to the UNFCCC. AFOLU is an umbrella concept of land-based mitigation options in the forest and agricultural sectors which includes various activities around three major options, reduction of GHG emissions, carbon sequestration and carbon substitution as follows: 1.2 From LULUCF to AFOLU and why 3 The concept of Agriculture, Forestry and Other Land Uses (AFOLU) has been introduced by the IPCC 2006 Guidelines for national greenhouse gas inventories (IPCC, 2006). It combines direct GHG emissions of all land-based activities, in contrast to the concept of Land Use, Land-Use Change and Forestry (LULUCF), as used by the IPCC since decades e.g. in LULUCF Good Practice Guidance 2003 (IPCC, 2003), in the GHG inventories guidelines 1996 or the Special Report on LULUCF (IPCC, 2000), which excludes part of the GHG emissions from the agricultural sector (e.g. fertilizer application, enteric fermentation, manure management, etc.).the term LULUCF has been widely used in the UNFCCC negotiations while the term AFOLU is only newly introduced in the recent negotiations on Reducing Emissions on Deforestation and Forest Degradation for a post 2010 regime. IPCC will continue using this wider approach of land-based mitigation options through AFOLU in its next Assessment Report, currently in preparation. The reason for using this approach is that it allows having a better understanding of the mitigation options in the territory. It should facilitate dialogue among different sectors, especially agriculture and forest for a strategic planning and use of mitigation mechanisms in the future. Slowly the concept of AFOLU is being recognized in the discussions in the UNFCCC, although an AFOLU decision has not yet been taken. 1.3 Mitigation options in AFOLU Mitigation options in the agricultural sector 4 Agricultural activities can cause direct GHG emission by sources and removals by sinks and improvement of these activities offer a potential for climate change mitigation. On the other side, as agriculture competes for land-resources with other land-use options such as forestry, indirect GHG emissions or removals can be caused by agriculture, e.g. through increased deforestation caused by agricultural expansion, reduced deforestation through agricultural intensification, Source: Robledo and Blaser, 2008 updated by the authors 4 Based on Gardi, O.; C. Robledo, T. Shimizu, M. Rattinger and G. Rivera, 2010 Agriculture, Forestry and Other Land Use (AFOLU) for addressing climate change mitigation and adaptation in the Latin American and Caribbean Region. Inter- American development Bank, Washington, USA

8 Part II: Forest and Carbon Sequestration 7 etc. Such inter-sectoral effects have to be considered in a holistic land-use approach for addressing climate change mitigation. Direct emissions and mitigation options CO 2 accounts for only a very small proportion of the agricultural GHG emissions. Large fluxes of CO 2 passing from farmland into the atmosphere are counterbalanced by agricultural photosynthesis. The net CO 2 emissions from agricultural lands are estimated at less than one per cent of global anthropogenic CO 2 emissions (IPCC, 2007c). The anthropogenic non-co 2 emissions from agriculture constitute as follows: 38% N 2 O from soil (mainly by fertilizer application) 32% CH 4 from digestive processes of ruminants 12% CH 4 from combustion of biomass 11% CH 4 from paddy cultivation 7% CH 4 from dung In the majority of regions, N 2 O from the use of fertilizers in the production of food and feed crops, especially commercial crops, is the main source of GHG emissions in agriculture. Agriculture can contribute to climate change mitigation through reductions in CO 2, N 2 O and CH 4 emissions, through increased carbon storage in soil or biomass, and through the use of agricultural products and residues to generate biofuels. Mitigation options thus include improved cropland management, grazing land management and pasture improvement, management of organic soils, restoration of degraded lands, livestock and manure management, and bioenergy (IPCC, 2007c). According to the IPCC, one of the most effective methods of reducing emissions in Figure. 3: Total technical mitigation potentials in the agricultural sector (all practices, all GHGs: MtCO 2 -eq/yr ) for each region by 2030, showing mean estimates. Source IPCC 2007, based on data from Smith et al, agriculture is the conversion of cropland into land with semi-natural vegetation. Figure 3 shows the technical mitigation potential of the world s regions in the agricultural sector. Large uncertainty exists about the economic mitigation potential. Indirect emissions and mitigation options One main driver of deforestation worldwide is agricultural expansion, including both commercial and subsistence cultivation. Hence, agricultural intensification has significant potential to reduce pressure on forest land by meeting demand more efficiently. Agricultural intensification has the potential to help increase global food security and support livelihoods, as well as reduce pressure on forests. Linking agricultural programs to forest protection, and possibly carbon finance, would require far more integrated consideration and planning

9 8 Natural Resource Management and Climate Change Mitigation, Adaptation and REDD+ of land use at national and local levels, including forest and agriculture authorities. However, agricultural intensification bears the risk of increasing agricultural profitability and thus increasing the pressure on forests again. If agricultural intensifications were an economic success, not only would individual farmers increase the proportion of their land devoted to the system, but additional investors would be attracted to take advantage of the opportunity (Fearnside, 2002). Agricultural extension onto non-forested land not currently being used for agriculture (e.g. fuel crops on wasteland), may also offer possibilities in some areas. It is estimated, that in Brazil, 25% of the deforested area is either abandoned or under-used. The Brazilian Cerrado region, for example, has an estimated 106 million hectares of currently unused land which would be suitable for agriculture, outside forested land. Estimates also indicate that there are at least 16 million hectares of lands which were converted to agriculture and cattle ranching in the Brazilian Amazon and have now been abandoned (Eliasch, 2009) Forest mitigation options 5 In its Fourth Assessment Report, the IPCC concluded that forest-related mitigation activities can considerably reduce emissions from sources and increase CO 2 removals by sinks at a low cost, and can be designed to create synergies with adaptation and sustainable development. Forest mitigation options have to be considered as an immediate option to be applied over the next 20 to 30 years. The longer-term mitigation potential of such options remains, however, unclear. Global change will impact carbon mitigation in the forest sector, but the magnitude and direction of this impact cannot be predicted with confidence over longer period. Global change may affect tree growth and decomposition rates, the area, type, and intensity of natural disturbances, land-use patterns, and other ecological processes. Forestry can make a very significant contribution to a low-cost global mitigation portfolio that provides synergies with adaptation and sustainable development. However, this opportunity is not being taken fully into consideration in the current institutional context and has resulted in only a small portion of this potential being realized at present (mainly through the A/R CDM). Forestry mitigation options include reducing emissions from deforestation and forest degradation, enhancing carbon sinks through enhancing the sequestration rate in existing and new forests, providing wood fuels as a substitute for fossil fuels, and providing wood products for more energy-intensive materials. Properly designed and implemented, forestry mitigation options can have substantial co-benefits in terms of employment and income generation opportunities, biodiversity and watershed conservation, provision of timber and fibre, as well as aesthetic, cultural and recreational services. Table 1 presents a simple classification of the mitigation options in forestry. 6 For each option, the corresponding forest management approach is specified. The combined effects of reduced deforestation and degradation, afforestation, forest management, agro-forestry and bio-energy have the potential to increase from the present to 2030 and beyond. Thus, they all are important when discussing the implementation of the Bali Action Plan. 5 Based on C. Robledo and Blaser, J key Issues on; 6 It is understood that these mitigation options consider all 5 carbon pools, including organic soil carbon.

10 Part II: Forest and Carbon Sequestration 9 The carbon mitigation potential from reducing deforestation, promoting forest management, afforestation, and agro-forestry differ greatly by activity, regions, system boundaries and the time horizon over which the options are compared (IPCC 2007c IPCC Fourth Assessment Report (AR4), WG III). Table 1: Mitigation options in forestry Mitigation options (general) Reduction of GHG emissions Carbon sequestration Carbon substitution Mitigation options in the UNFCCC or its Kyoto Protocol (KP) (LULUCF) Reducing emissions from deforestation and forest degradation (REDD) Afforestation Reforestation Enhancement of sinks through forest restoration (not yet clearly defined) Substitution through harvested wood products: using forest products for electricity and fuel Forest management options Sustainable management of (natural) forests Committing forests for REDD Plantation, forestry, agroforestry, agrosylvo-pastoral systems In forested areas: enrichment, planting, guided natural regeneration Forest biofuel plantations, sustainable use of wood production Realization of the mitigation potential requires institutional capacity, investment capital, research and development, and knowledge transfer, as well as appropriate policies, incentives and international cooperation 7. Under the mitigation options of reducing emissions and increasing carbon sequestration, there are four forest management options 8 to be considered, including: Reducing emissions from deforestation and forest degradation (REDD); Forest management (sustainable use of existing forests); Forest restoration (restoring degraded forest areas to a sustainably used forest); Afforestation and reforestation 9 (restoring lost carbon stocks to a sustainably used forest). Figure 4 illustrates the link between different forest management options. Note that the forest degradation process is defined as the loss of existing carbon stocks through unsustainable use of forest resources. Degraded forests are still considered as forest area and not submitted to any land use change. Nevertheless, most of the existing carbon stock is lost within forested areas through overharvesting of timber, fuel wood and other forest products. Reversing forest degradation through enhancement of sinks is here defined as forest restoration. The assessment of the potential of any of these forest mitigation options should include the overall policy framework of the sector. Especially important is the analysis of the impact of mitigation options on the availability and quality of forest goods and services and the overall development goals of a given country as well as national and international processes on policies and agreements with regard to forests and/or environmental issues. 7 Many efforts are now underway to provide technology and knowledge transfer. One of the most comprehensive approaches by mid-2008 is the development of the READINESS Plan of the Forest Carbon Partnership Facility of the World Bank (FCPF). More than 20 countries are preparing such plans with considerable financial support of the international community through the FCFP. 8 Other important elements in the overall context of mitigation options in forests are: How to treat reduced impact logging? How to treat pioneer agroforestry? How to treat synergies between REDD and adaptation? How to treat the substitution potential of wood products? 9 In the newest reports of the IPCC and the Secretariat, agroforestry has been included in the agricultural sector. Nevertheless, it needs to be clarified that many A/R CDM projects that count under afforestation / reforestation are promoting agroforestry systems.

11 10 Natural Resource Management and Climate Change Mitigation, Adaptation and REDD+ Sustainable management of forests (for conservation, timber or multi-use): Keeping a relatively high carbon stock over a specific period of time; this principle is applied for example in a production forest that is managed according to sustained yield criteria. A medium carbon stock is maintained over a rotation period, e.g. 30 years. Restoring degraded forests (for regaining the entire range of goods and services): Most of the carbon emissions from forestry happen through forest degradation processes. Restoring lost carbon pools based on close-to-nature silviculture and bringing them back into sustained yield managed forests or in conservation forests is a major option to enhance GHG sinks. Afforestation and reforestation (from non-forests to forests): Planting new forests on non-forest land and bringing them back into a full carbon stocked forest (e.g. through A/R CDM). Forests are artificially created and can include dense plantations of exotic trees or agroforestry systems. Figure 4: Illustrative overview of mitigation options in forest management Source: Blaser and Robledo Reduction of GHG emissions Deforestation (including land-use change) and forest degradation are the main emission sources in many developing countries (Stern, 2007). Latest figures released by the IPCC in 2007 indicate that land use change contributed to more than 20% of global carbon dioxide emissions, of which tropical deforestation makes the largest part. Estimates on their share of the total global anthropogenic emissions differ according to the source and the type of activity included (Schlamadinger et al., 2007). Deforestation causes significant GHG emissions an estimated 7.6 billion tones of CO 2 per year in 2000, about 15 to 20% of all GHG emissions (Baumert et al., 2005). Houghton (2005a) estimates that forest conversion, forest degradation and shifting cultivation altogether were responsible for carbon emissions equivalent to 15 35% of fossil fuel emissions in the 1990s. While these figures have a large degree of uncertainty, they stress the relevance of including efforts to combat deforestation in climate negotiations. In some circumstances, deforestation and degradation can be delayed or reduced through the complete protection of forests (Soares-Filho et al., 2006), through sustainable forest management practices, or by providing economic returns from non-timber forest products and forest uses not involving tree removal. Protecting forests from all harvests typically results in maintained or increased forest carbon stocks, but also reduces the wood and land supply to meet other societal needs. Reducing deforestation and degradation is

12 Part II: Forest and Carbon Sequestration 11 the forest mitigation option with the largest and most immediate carbon stock impact in the short term per hectare and year globally. The mitigation costs of reduced deforestation depend on the causes of deforestation (commercial agriculture, subsistence farming, and wood extraction), the associated returns from the non-forest land use, the returns from potential alternative forest uses, and on any compensation paid to the individual or institutional landowner. Forest management activities include silvicultural interventions that promote a greater proportion of the desired species, tree population and size structure, which in terms of timber means promoting the maximum volume of usable growing stock and, therefore, of carbon which may not be released to the atmosphere. They also include harvesting systems that maintain partial forest cover, minimize losses of dead organic matter or soil carbon by reducing soil erosion, and avoid slash and burning and other high-emission activities. Replanting or natural regeneration promotion after harvest or natural disturbances accelerates tree growth and reduces carbon losses. Economic considerations are typically the main constraint, because retaining additional carbon on site delays revenues from harvest (IPCC 2007c). The use of fertilizers or drainage of forest soil (especially in peat lands) can have a negative effect on the overall carbon balance and should, therefore, be minimized. Moderate drainage, however, can lead to increased peat carbon accumulation (Minkkinen et al., 2002). Landscape-level carbon stock changes are the sum of stand-level changes in the different pools, and the impacts of forest management on carbon stocks ultimately needs to be evaluated at a landscape level. Increasing harvest rotation lengths can increase some carbon pools (e.g. tree boles) while decreasing others (e.g. harvested wood products) (Kurz et al. 1998). In the long term, a sustainable forest management strategy aimed at maintaining or increasing forest carbon stocks while producing an annual sustained yield of timber, fibre or energy from the forest will generate a meaningful and sustained mitigation benefit. Most mitigation activities require up-front investment with benefits and co-benefits typically accruing for many years to decades Carbon sequestration Carbon sequestration refers to human activities aimed at increasing the carbon stocks in any of the carbon pools existing in the forest (below ground biomass, above ground biomass, litter, carbon organic soil and dead wood). Carbon sequestration can be done through different forestry activities including restoration, afforestation and reforestation (which includes both plantation and agroforestry systems). Forest restoration Forest restoration is a combination of planting trees and human-induced natural regeneration within a degraded forest area that has lost most of its carbon stock. 10 Forest restoration thus is a strategy applied in degraded forest areas. Forest restoration aims to enhance and accelerate natural processes of forest regeneration (including carbon stocks) in order to regain the desired species composition and growing capacity of the forest ecosystem. In terms of mitigating climate change, forest restoration becomes complementary to reducing emissions from reducing forest degradation. One could try to reduce as far as possible emissions from degradation. In those areas where such a strategy is not completely successful, and where degradation has already taken place, one would need to restore the forest. Under current conditions there is a huge area of degraded forest that could be restored while improving overall livelihood conditions (including biodiversity, long-term income and health). Worldwide, the potential of forest restoration in terms of mitigating climate change has been calculated as 32 GtC by 2030 (equal to 117 GtCO 2 e). 10 In the context of forest management, forest degradation is the reduction of the capacity of a forest to produce goods and services. Capacity includes the maintenance of ecosystem structure, functions and carbon stocks (ITTO, 2002a).

13 12 Natural Resource Management and Climate Change Mitigation, Adaptation and REDD+ Afforestration and reforestation As defined in classical forestry science, is planting trees on non-forested land (afforestation) or on forested land without trees in 1990 (reforestation). 11 As will be explained in the section below, under the UNFCCC, these two terms have a particular definition and have been used as such for A/R CDM. Both terms, in the LULUCF context, refer to planting trees on land that is defined as non-forests. A particular form of A/R CDM is the use of agroforestry. Agroforestry refers to the planting of trees among or around crops or on pasture land as a means of preserving or enhancing the productivity of the land. In many parts of the world, smallholder agroforestry systems are tree- and species-rich systems producing non-wood and wood products for both home use and market sale. These systems can sequester large amounts of carbon that are retained in the biosphere over time. While the individual systems may be of limited size, on a per area basis smallholder systems accumulate significant amounts of carbon, equal or beyond the amount of carbon stored in degraded forests. Their ability to simultaneously address smallholders livelihood needs and store large amounts of carbon makes smallholder agroforesty systems viable project types under A/R CDM, with its dual objective of emission reductions and sustainable development. Simplified smallholder A/R CDM projects based on agroforestry concepts still need to be refined, in particular with respect to the bundling of approaches and to the acceptance of a carbon accounting approach at landscape level. Sathaye et al. (2006) projected the potential land area planted and the removals by sinks (including planting forests and agroforestry systems) benefits across a number of scenarios relative to year 2100 and compared them to a reference scenario. For 2050 the range of land area planted is between 52 and 192 million ha whereas the carbon benefits range from 18 to 94 million t of CO 2. According to the same authors, the forest establishment costs range from $654 per ha to $1580 per ha (ORNL 1995). Using this range, the initial investment required for mitigation equivalent to million t CO 2 through afforestation / reforestation on million hectares of land would be $ billion. The IPCC WG III AR4 estimate of the mitigation potential of afforestation by 2030, i.e. 1,618 to 4,045 Mt CO 2 / year, is substantially lower than the estimate of Sathaye et al. (2006). Using a similar ratio between carbon sequestered and hectares planted, the WG III AR4 estimates would require million ha. At an establishment cost of $ per ha that would be $ billion or $ billion per year over 25 years Carbon substitution Mitigation options in the forestry sector include extending carbon retention in harvested wood products, product substitution and producing biomass for bio-energy. This carbon is removed from the atmosphere and is available to meet society s needs for timber, fibre, and energy. Biomass from forestry can contribute EJ/yr to energy consumption, with a mitigation potential roughly equal to GtCO 2 /yr depending on the assumption of whether biomass replaces coal or gas in power plants (IPCC 2007 AR4, WG III). Forest biofuel refers either to energy carriers derived from processed or unprocessed plants 11 The European Environmental Agency recently defined forest plantations as forest stands established by planting or / and seeding in the process of afforestation or reforestation. They are either: a) of introduced species (all planted stands), or b) intensively managed stands of indigenous species which meet all the following criteria: one or two species at plantation, even age class and regular spacing. It excludes stands which are established as plantations but which have been without intense management for a significant period of time; these should be considered semi-natural.

14 Part II: Forest and Carbon Sequestration 13 biomass, such as the plantation of Jatropha and other forest trees and shrubs or to so-called second generation biofuels that is deriving biofuels from cellulosic material, in particular from wood. Bioethanol and biodiesel are the most common forms of biofuels. For the forestry sector, wood substitution, ethanol from wood (second generation biofuels) and biodiesel from vegetable oils from trees and bushes (e.g. palm oil or Jatropha-oil) are the most important options. Recently, the commercial use of biomass for bioenergy has received a boost from high oil prices and the policies that governments have initiated to promote renewable energy sources. Over the past few years, the areas under biofuel plantations have increased dramatically around the world, particularly of soybeans and oil palm. This latter produces more oil per hectare than any other oilseed, and can be blended directly with petroleum-based diesel, producing a cleaner fuel. Malaysia and Indonesia account for 85% of the palm oil produced worldwide (Carrere 2006). Rising demand for intensively produced biofuel outside forests, such as palm oil, will decimate biodiversity unless producers and politicians can work together to preserve as much remaining natural forest as possible. Even if recognising that tree crops have a considerable mitigation potential, some aspects need to be taken into account when assessing the overall benefits for sustainable development, including the impact of biofuel plantations on increasing deforestation, on food security and considering the inter-related environmental impacts of this type of fuels. A brief history of forestry sector entry into the negotiations on mitigation of climate change is presented in the Box 1.1 below: Box 1.1: Forests in UNFCCC negotiation process 1992 UNFCCC, ratified in 1994 (include a comprehensive role of forests in Annex-I countries) 1997 Kyoto protocol 2001 Marrakesh Accords (for developed countries all LULUCF activities, for developing countries only A/R in CDM) 2003 Modalities and procedures for A/R CDM 2005 Kyoto protocol ratified, creation of the A/R CDM Working Group 2005 RED reducing emissions from deforestation in developing countries Negotiation in the Convention (Montreal) 2005 First A/R CDM methodology registered (AR-AM0001: Reforestation of degraded land) 2007 REDD (including forest degradation) Bali Action Plan 2009 REDD +: including also forest conservation, sustainable management of forest and reforestation Copenhagen Accord 2010 Decision on REDD+ Source: FCCC/CP/2003/6/Add.2, Dec 19/CP The Clean Development Mechanism As mentioned in the Introduction, the Kyoto Protocol of the UNFCCC obliges the signatory Annex-I Parties (industrialized countries) to reduce their collective GHG emissions by 5.2 % below 1990 reference emission level. In order to achieve this commitment, the Annex-I countries have two options: 1) through internal measures and 2) through flexible mechanisms. In the first option the developed countries will reduce their emissions by reducing the emissions from within the country like improving technologies, changing practices, etc. In the second option the Annex-I Parties can opt for any of the three flexible mechanisms: International Emission Trading (IET), Joint Implementation (JI)or Clean Development Mechanism (CDM). Of these three

15 14 Natural Resource Management and Climate Change Mitigation, Adaptation and REDD+ mechanisms only CDM provides the option of buying credits from a project in a developing country that has proven reduction of GHG emissions in the form of CERs issued. The modalities and procedures for the CDM are defined in the Marrakesh Accords, agreed during the COP-7 in 2001 where a specific authority for the mechanism, CDM Executive Board was established. Further, the modalities and procedures define the project cycle and the requirements for each of the steps of the cycle (see Box 1.2). The CDM project cycle includes seven major steps: project design; validation, registration; monitoring; verification, certification; and issuance of the CERs. The cycle involves the participation of a relatively wide range of actors, including project developers; the Designated National Authority (DNA), the Designated Operational Entity (DOE) and the CDM Executive Board (CDM-EB). The explanation of these steps in the forestry activities in the CDM is presented below. The CDM project cycle is very challenging. Experience has shown that due to complexity, CDM projects can have higher transaction costs apart from other barriers discussed later. There are some specific steps for a CDM project initiative which are summarized in the box 1.2 below: Box 1.2 Steps of a CDM project activity Validation is the process of independent evaluation of a proposed afforestation or reforestation project activity under the CDM by a designated operational entity (DOE) against the requirements of afforestation and reforestation project activities under the CDM. Registration is the formal acceptance by the Executive Board of a validated project as an afforestation or reforestation project activity under the CDM. Registration is the prerequisite for the verification, certification and issuance of temporary CERs (tcers) or long-term CERs (lcers) 12 relating to that project activity. Monitoring is meant to control the implementation of the project activity against the documentation provided in the project design document (PDD) and produced during the design step. Verification is the periodic independent review and ex post determination by the DOE of the achieved net anthropogenic greenhouse gas removals by sinks, since the start of the project, by an afforestation or reforestation project activity under the CDM. Certification is the written assurance by a DOE that an afforestation or reforestation project activity under the CDM achieved the net anthropogenic greenhouse gas removals by sinks since the start of the project, as verified. Issuance refers to the actual emission of CERs. Source: FCCC/CP/2003/6/Add.2, Dec 19/CP Afforestation / Reforestation in the Clean Development Mechanism (A/R CDM) Only two forestry activities are eligible under the CDM: afforestation and reforestation (as defined in the Marrakesh Accords, 2001). For this reason when discussing forestry and the CDM we usually refer to the A/R CDM. During the COP 9 in Milan, Italia (2003) the modalities and procedures for the participation of forestry in the CDM were agreed and the first methodology for these activities was approved by the CDM Executive Board only in Hence, it is only since the year 2005 that forest sector stakeholders in developing countries can undertake A/R CDM. This and the fact that these regulations made the A/R CDM projects more complex and 12 - Temporary CER or tcer is a CER issued to project participants in an afforestation or reforestation project activity under the CDM which, expires at the end of the commitment period following the one in which they are issued. - Long-term CER or lcer is a CER issued for an afforestation or reforestation project activity under the CDM which expires at the end of the crediting period of the afforestation or reforestation project activity under the CDM for which it was issued (Decision 5/CMP.1).

16 Part II: Forest and Carbon Sequestration 15 less attractive for investors explain the low participation of afforestation and reforestation projects compared with projects in the other sectors eligible in CDM. The box 1.3 below provides some relevant information on the Clean Development Mechanism, with focus on decisions relevant for afforestation and reforestation. Box 1.3: A Glance at CDM and Forestry Activities Key issues Explanation Eligible activities in LULUCF until 2012 Units Investors / Buyers Host Countries Principle Size of the potential market Project cycle Afforestation and reforestation (as defined in the UNFCCC) 13 Temporary and long-term Certified Emission Reductions (tcers and lcers) Annex-I countries (public or private) Non Annex-I countries (developing countries) Projects For the first commitment period, the total of additions to a Party s assigned amount resulting from eligible land use, land-use change and forestry project activities under the clean development mechanism shall not exceed one per cent of base year emissions of that Party, multiplied by five (1% Annex-1 emissions in 1990 x 5) 1. Design 2. Validation 3. Registration 4. Implementation and monitoring 5. Verification 6. Certification 7. Issuance of the CERs Relevant decisions Marrakesh Accords (2001) Decision 11/CP7 Decision 17/CP7 Decision 19/CP7 Small-scale projects Activities expected to result in carbon removals by sinks of less than 16 Kilo tonnes of CO 2 per year and developed or implemented by low-income communities and individuals Entities / Involved Institutions Uncertainties Participants Project developers Designated National Authority (DNA) Designated Operational Entity (DOE) CDM Executive Board (CDM-EB) Transaction costs / Methodologies What will happen after the finalisation of the first commitment period in 2012? 13 Forest is a minimum area of land of hectare with tree crown cover (or equivalent stocking level) of more than per cent with trees with the potential to reach a minimum height of 2-5 metres at maturity in situ. A forest may consist either of closed forest formations where trees of various storeys and undergrowth cover a high proportion of the ground or open forest. Young natural stands and all plantations which have yet to reach a crown density of per cent or tree height of 2-5 metres are included under forest, as are areas normally forming part of the forest area which are temporarily unstocked as a result of human intervention such as harvesting or natural causes but which are expected to revert to forest. In case of Pakistan, a Forest is defined as minimum area of 0.05 ha, with tree crown cover of more than 30% with trees with the potential to reach a minimum height of 3 meters at maturity in situ. Afforestation is the direct human-induced conversion of land that has not been forested for a period of at least 50 years to forested land through planting, seeding and / or the human-induced promotion of natural seed sources. Reforestation is the direct human-induced conversion of non-forested land to forested land through planting, seeding and / or the human-induced promotion of natural seed sources, on land that was forested but that has been converted to nonforested land. For the first commitment period, reforestation activities will be limited to reforestation occurring on lands that did not contain forest on 31 December 1989.

17 16 Natural Resource Management and Climate Change Mitigation, Adaptation and REDD+ A/R CDM projects have to fulfil the same project cycle as explained in the section above. In summary, the most important elements of the rules and procedures related to A/R CDM are the following: - The market size for A/R CDM projects is limited during the first commitment period ( ) to one per cent of the emissions of each Annex-I country in 1990, multiplied by five; 14 - Eligible activities in the LULUCF sector until 2012 are restricted to afforestation and reforestation. Activities in bio-energy (considered under Energy sector, not LULUCF) are also eligible until 2012 as long as these are undertaken using an approved methodology and considering all other clarifications made by the Executive Board of the CDM in this regard. Forest management and reduced emissions from deforestation are not eligible forestry activities under the CDM; - Agreement on the modalities and the process for proposing and getting the CDM project approved and its corresponding methodologies; - Baseline and monitoring methodologies for the CDM are to be presented by project developers and approved by the Executive Board of the CDM. In order to be validated, project participants have to present a Project Design Document (PDD), which needs to provide enough information on additionality, permanence, leakage, definition of baseline, ex-ante estimation and ex-post monitoring of emission reductions, environmental and socioeconomic impacts (see Box 1.4). Box 1.4: Some key elements to be included in the Project Design Document Additionality means that a CDM project activity has to be additional to any activity that would have taken place in the absence of the project (i.e. in absence of the CDM, baseline). A CDM project activity is additional if anthropogenic emissions of greenhouse gases by sources are reduced below those that would have occurred in the absence of the registered CDM project activity (Decision 3/CMP.1A). Permanence relates to the period of time that carbon can stay in the biosphere. Due to different risks, including fires and pests, carbon can be released into the atmosphere, thereby reducing the climate change mitigation effect of a project. To solve this problem, credits issued for A/R CDM have a limited lifetime. Projects have to choose between temporary CERs (tcer) or long-term CERs (lcer). Leakage is the increase in GHG emissions by sources, which occurs outside the boundary of an afforestation or reforestation project activity under the CDM, and which is measurable and attributable to the afforestation or reforestation project activity. The carbon potential or net anthropogenic greenhouse gas removals by sinks is the actual net GHG removals by sinks minus the baseline minus leakage; Net GHG removals Baseline leakage = GHG removal. Environmental and socioeconomic impacts. A CDM project has to provide enough information on potential negative environmental and socioeconomic impacts. If any negative impact is considered significant by the project participants or the host Party, an impact assessment has to be conducted, and impacts have to be monitored during the project s implementation. Source: FCCC/CP/2003/6 and Besides, the Project Design Document (PDD) that each project has to prepare will include information on the legal title to the land, rights of access to the carbon, a detailed monitoring plan and information on sources of public funding for the project activity. The monitoring plan shall include: - Collection and archiving data on the GHG fluxes; - Identification of potential leakages; - Monitoring activities for potential socioeconomic and environmental impacts considered as significantly negative; - Changes that affect legal title to the land or rights of access to the carbon pools; and - Procedures for periodic calculations of GHG fluxes. 14 For the first commitment period, the total additions to a Party s assigned amount resulting from eligible LULUCF project activities under Article 12 shall not exceed one per cent of base year emissions of that Party, times five (FCCC/CP/2001/13, Marrakesh Accords, Decision 11/CP.7).

18 Part II: Forest and Carbon Sequestration Small-scale A/R CDM projects Small-scale A/R CDM project activities are defined as those that are expected to result in net anthropogenic GHG removals by sinks of less than 16 Kilo tons of CO 2 per year and are developed or implemented by low-income communities and individuals, as determined by the host Party. If a small-scale afforestation or reforestation project activity under the CDM results in net anthropogenic GHG removals by sinks greater than 16 Kilo tons of CO 2 per year, the excess removals will not be eligible for the issuance of tcers or lcers. Small-scale projects were defined to promote participation of small-scale farmers and local communities in the CDM. These projects aim to improve the socioeconomic and environmental conditions of poor communities, which are currently implementing unsustainable land use practices on degraded land due to lack of knowledge or opportunities, and which could not participate in the CDM without special modalities and procedures. Methodologies for small-scale reforestation and afforestation activities under the CDM are available only since Global progress and Pakistan (A/R CDM project example of IC) Implementation of A/R CDM project activities has been very limited until now. Out of the 2,645 CDM projects that are registered as on December 21st, 2010, only 18 are A/R CDM projects and thereof 7 are small scale A/R CDM projects. These projects are situated in China (3), India (3), whereas 1 in each of these countries: Brazil, Moldova, Bolivia, Chile, Colombia, Vietnam, Uganda, Paraguay, Uruguay, Peru, Ethiopia and Albania. The first A/R CDM project, the Guangxi Watershed Management project in China, was registered in the end of projects have been registered in 2009 and 7 in The Government of Pakistan (GoP) funded Mega Forestry Projects for sequestering carbon dioxide and made provision for registering these activities under the A/R CDM. Realizing the capacity gaps in the country, GoP requested the Swiss Agency for Development and Cooperation (SDC) and Intercooperation (IC) to arrange for the training of forest officers in identifying potential A/R CDM projects and project development, including the writing of project design documents (PDDs). With financing from SDC, IC initiated the Hands on A/R CDM Training Project to train forest officers and simultaneously develop PDDs for potential pilot projects to be implemented under the Mega Forestry Projects. As a result, 3 PDDs were developed to a fairly advanced stage that can be processed for registration with a little fine-tuning Reasons for slow progress in A/R CDM A/R CDM projects are susceptible to many risks (market risks, political risks, land governance, conflicts, etc.). These risks carry particular weight as initial investment costs are high (i.e. land acquisition, preparation, planting) whereas returns from carbon credits and other forest products are delayed for several years (usually, first monitoring is done after five years) or even decades. As carbon sequestration achieved with A/R activities is considered non-permanent, credits with limited lifetime are issued for A/R CDM projects (tcers/lcers). These temporary credits have to be replaced with another temporary or a permanent carbon credit on expiration. Temporary credits are not well received by markets. Prices are low and temporary credits are excluded from the EU Emission Trading Scheme (EU-ETS), currently

19 18 Natural Resource Management and Climate Change Mitigation, Adaptation and REDD+ the main market for CDM credits. It implies a considerable constraint in market opportunities for mitigation activities from the forestry sector in developing countries. Above that methodologies applied for calculation of baseline and monitoring the carbon sequestered are complex and complicated thus rendering A/R CDM projects unattractive in comparison with other CDM project types. Transaction costs for A/R CDM projects are higher than for other project types. Apart from some methodological and procedural facilitation for small-scale A/R CDM projects, transaction costs for getting emission reductions certified and carbon credits issued are independent from project size. This prevents many local A/R initiatives with significantly less than tco 2 sequestration annually from getting access to the CDM carbon market. Considering the longer cycle of afforestation / reforestation projects and limited experience with A/R CDM compared to CDM projects in other sectors, it is too early to make an accurate evaluation of the impacts of A/R CDM on poverty alleviation or in terms of its net contribution to the global mitigation portfolio 15. Even if the carbon market is active, its real development started only in 2008 with the beginning of the first commitment period. Still, some early observations are worth mentioning: 16 A/R CDM is an overregulated system that creates additional costs compared to traditionally designed forest plantations. For example, to assess a project s carbon potential, new and often complex methodologies need to be developed in the design stage of the project and the project cycle must include many actors and steps that are not yet well known locally. A/R CDM projects require, at least at the beginning, a high level of knowledge of the internationally-agreed modalities, procedures and methodologies. Since such knowledge is at present barely available in developing countries, there is often a need to engage international expertise, which further increases the project preparation costs. Most of these costs have to be paid before CDM payments are received. Because of this, many developing countries have not been in a position to use the A/R CDM even if they consider it an attractive option. 17 A/R CDM has stimulated new interest in planting trees, especially in seriously degraded areas. This can be indeed a new opportunity for the forest sector, as it can open the possibility to promote long-term activities such as restoration of forest land or tree plantations. Nonetheless, the forest sector in many countries is reacting very slowly to the opportunities provided by the CDM, and often A/R CDM activities are proposed without consideration of existing forest strategies. A/R CDM, especially of the small-scale variety, offers the possibility for poor people to get involved, particularly through the promotion of community forestry, which could have an important developmental impact in rural areas. However, for the time being, smallscale A/R projects have proven to be largely out of reach for local communities, given the complexity in the design of the projects, the legal requirements with respect to property rights on land, carbon pools and carbon credits, and the transaction costs involved in project preparation. Thus, to date, almost all existing A/R CDM projects have targeted either publicly-owned reforestation areas or plantations promoted on privately owned land. In conclusion, mitigation activities in the forestry sector under the CDM have been limited to date. Opportunities to increase these activities include alternative approaches for addressing non-permanency, simplifying procedures, developing certainty over future commitments, reducing transaction costs, and building confidence and capacity among potential buyers, investors and project participants (Robledo et al. 2008). 15 The reason for this is mainly the lack of overall agreement by Parties on how to deal with LULUCF. 16 These observations are based on the authors experiences with the A/R CDM in Latin America, Asia and Africa 17 Some bi- and multilateral development agencies have reacted to this fact and are funding capacity building for the preparation of A/R CDM projects, mainly through workshops, tools development and model project development.

20 Part II: Forest and Carbon Sequestration Options for forestry other than A/R CDM Energy CDM and biofuels In addition to A/R CDM, Pakistan has the option of mitigation activities also in the industrial and the energy sector, for example hydro-power, solar energy or the use of bio-energy, e.g. from energy plantations. Currently, Pakistan is facing challenges in the availability of energy particularly electricity and natural gas. The natural gas supplies are continuously declining and even some of the smaller industries are supplementing their energy needs with fuelwood. Also in the rural and mountainous areas wood is the primary source of energy. A recently concluded study estimated that 84% of the forest loss in mountain forests is due to fuel demands of the population living in those areas 18. The household sector is the largest single energy consuming sector in the country. Because of rapid population growth; it is also the most rapidly growing sector in terms of demand and modern fuels. This growth has placed a tremendous stress on commercial fuels supply structure resulting in electric power cuts, natural gas rationing, fuel shortages which has forced the country to resort to high imports of commercial fuels with massive capital investments. Therefore in spite of these modern substitutes (electricity, gas), majority of the rural masses still heavily rely upon biofuels such as fuel wood, cow-dung and crop residues. In such a scenario energy CDM could be a viable option for Pakistan to incentivize energy plantations, promotion of renewable energy supplies (solar energy, wind energy and biogas) in the country. Figure 5: Forest sector mitigation strategies need to be assessed with regard to their impacts on carbon storage in forest ecosystems on sustainable harvest rates and on net GHG emissions across all sectors. Source: IPCC fourth assessment report Climate Change 2007, Working Group III: Mitigation of Climate Change ( Biofuels provide an option for low carbon energy, as the emitted carbon dioxide is in a closed cycle and thus do not lead to a change in the atmospheric GHG. The CO 2 emitted from the combustion of energy-wood for example is sequestered by the tree that is re-growing in the forest and taken up again in terrestrial carbon stocks. How far the biofules can be beneficial depends on the context. Trees remove CO 2 from the atmosphere, sequester C and stock up carbon pools. How to combine Afforestation / Reforestation and Bio-energy in a single project without having double accounting of C? There is yet no methodology developed that combines for A/R and biofuels. The existing methodologies in Biomass (CDM Energy) include Grid-connected electricity generation from biomass residues, avoidance of methane production from biomass through composting and avoidance of methane production from decay of biomass through controlled combustion. Small-scale methodologies allow a wide range of biofuel activities (e.g. biogas digesters reducing both, methane emissions and emissions from fossil fuel use AMS-I.C.)

21 20 Natural Resource Management and Climate Change Mitigation, Adaptation and REDD+ In case of biofuels, oil gained from seeds of Pongamia pinnata (Sukh Chain) plantations in the scrub and marginal lands is also a viable option for Pakistan to supplement its energy needs and earn carbon credits. Growing biofuels in Pakistan on farmlands can directly compete with the food production and reduced food production cannot be afforded. Growing Sukh chain on lands that are not being used for agriculture can supplement the energy needs of the country without compromising the food security. Box 1.5: Pongamia pinnata (Sukh Chain) It is a hardy tree that mines water for its needs from 10 meter depths without competing with other crops. It grows all over the country, from the coastline to the hill slopes. It needs very little care and cattle do not browse it. It has rich leathery evergreen foliage that is wonderful manure. From year-3 it yields pods and seed production is at mature average of 160 kg per tree per year from year-10, through to its life of 100 years. Ten trees can yield 400 litres of oil, 1200 kg of fertilizer grade oil cake and 2500 kg of biomass as green manure per year. 1.7 Outlook Looking at the diversity of lands and land tenures in Pakistan the discussion does not justify the use of a single approach as being suitable rather it celebrates the use of multiple approaches applied in different contexts. For example, in the plains A/R CDM or Energy CDM both can be used for raising energy plantations particularly in Punjab and Sindh. In Punjab for instance, the government s scheme to provide land for forestry to forestry graduates can be bundled together to make CDM projects whereas in Sindh old trusted model of Hurri Plantations can be promoted for CDM projects. In Khyber-Pakhtunkhwa REDD+ could be a better option to rehabilitate the depleting natural forests whereas scrub areas and marginal lands can be used for biofuels production using Pongamia pinnata (see part III of this publication on REDD+). Pakistan is in the process of formulating National Climate Change Policy 18 whose goal is to mainstream climate change in the economically important and vulnerable sectors and steer Pakistan towards low carbon growth. It gives a pronounced place to mitigation, adaptation and climate risks reduction / preparedness. The policy recognises AFOLU potential in mitigating GHG emissions in Pakistan and calls for making use of existing financial frameworks supporting mitigation activities. It also emphasises that Pakistan should make use of all options (CDM, REDD+, Adaptation) offered under the UNFCCC. A final draft of the policy is yet to be seen, however at the moment what lacks in the policy is a clear prioritization of options in various situations / sectors. Moreover it does not provide guidance when to choose which option for certain desired results. Some of the recommendations seem to be rather generalized and not supported with climate change trends. There is a little emphasis on need for coordinated mechanism between various players. The consultation process on the policy is currently on, and it is hoped that a set of specific recommendations for different sectors will be included in the policy which will be helpful for future actions in climate change. 18 Ministry of Environment draft December, 2010

22 Part II: Forest and Carbon Sequestration 21 Hurri Plantations in Sindh, Pakistan Hurri is block plantation of Acacia nilotica, a leguminous species of which a plantation was raised in lower Sindh province in Southern Pakistan. The practice of growing Hurri was introduced by British colonizers who needed fuel wood for their flotilla ships in second half of the nineteenth century in this part of the western sub-continent. Today Hurri plantations are raised over thousands of acres in lower Sindh districts of Hyderabad, Nawabshah, Sanghar and parts of Thatta and Dadu. Though trained foresters see Hurri-raising as a lonesome, fruitless practice since the species is not commercially important, the farmers see it essentially as part of farming system which helps maintain soil fertility. It involves rotating an agricultural crop followed by growing Hurri and supplementing it with livestock rearing to recycle the nutrients. The English colonizers provided tax incentives for this kind of low external input agriculture. However, such a truly integrated and sustainable agriculture has been severely affected by grow more food campaigns and policies over the last several decades, principally after the geographical partition of the sub-continent. This results in gradually doing away from Hurri and simply focus on raising food crops in routine agriculture. Methods of plantation Farmers have essentially two methods of Hurri raising. One is growing Hurri as a pure forest crop and the other is raising it in agro-forestry model with mostly cotton in summer and oil seed crops in winter (in some cases sugarcane). Summer planting with cotton gives the best results. Acacia seed is planted alongside cotton following the drill cropping pattern. This allows farmers to take the cash crop of cotton (which under current record international prices can give a return of Rs.150,000 per acre) and after harvesting it, they retain the acacia plants and remove cotton twigs in winter months of December and January. The intercropping method also allows the farmers to raise Hurri without putting frontal capital costs. The cotton crop also works as a nurse crop for Acacia saplings during initial months. Economics and returns from Hurri Due to general wood and fuel-wood shortage, the wood prices (mining timber, furniture timber, construction wood and fuel wood) are extremely high. This provides a very good incentive to wood producers like Hurri farmers. Normally a well-tended Hurri after four to five years can generate approximately Pak Rs.200,000 to 300,000 per acre. However, for farmers the real return is bringing fertility back to the depleted soil. Source: Aijaz Nizamani, 2010

23 22 Natural Resource Management and Climate Change Mitigation, Adaptation and REDD+ Annex-1 Frequently asked questions 1. What is the difference between a PC-1, Project Document and PDD? A regular Project Document (in case of the Government of Pakistan called PC-1) is a standard development project proposal through which finances are made available for a development scheme. An afforestation / reforestation project under GoP s Megaforestry projects also started with the development of a PC-1 document for making funds available for the development of an A/R CDM project from the public sector funds. Once the funds are allocated for a project the areas to be planted are assessed on different eligibility criteria for an A/R CDM project and a Project Idea Note (PIN) is developed. Then an A/R CDM project design document is developed on a specific format (PDD Format) approved by CDM Executive Board. 2. Who funds the implementation of A/R CDM project? There are two types of costs involved in the A/R CDM Project: 1) The design, implementation and maintenance cost i.e. the cost of planting or forest development and 2) the transaction cost, i.e. the cost of developing, validating and registering the project and the cost for regular monitoring, verification of emission reductions and issuance of carbon credits. The implementation and maintenance costs have to be borne by the implementers either using public funds or private funds. In return they get the carbon credits. The implementation must be additional, i.e. it must be triggered by the prospect of getting carbon credits for achieved emission reductions. Therefore Overseas Development Assistance (ODA) funds cannot be used for this purpose. While ODA funds can t be used for project implementation and acquisition of carbon credits, they can be used for facilitating certain CDM project activities, e.g. financing project identification, PDD development, validation and registration. ODA contribution seems particularly relevant for enabling A/R CDM projects, where transaction costs and investment risks are significantly higher than in other sectors. In case of the GoPs Mega forestry Project both, transaction costs and implementation costs are financed by the Mega forestry Projects who get the carbon credits in return. 3. How long does it take to develop a PDD? Developing a PDD is time-consuming as it involves not only desk-work but involves consultation of a variety of stakeholders, social and environmental impact analysis, collection of data for baseline determination and demonstration of additionality, marking of exact project boundaries, etc. Depending on the circumstances, a PDD can be developed in a year. In practice however, development of projects usually takes much more time, as people involved in project development are inexperienced. The average time required for A/R CDM project development under World Bank s BioCarbon Fund was 3.9 years before 2007 and 1.4 years after Reduction of time required is due to simplified methodologies and increased experience of staff. Additionally to the development of the PDD, time required for project validation and registration is about 1.5 years. 4. How to start CDM project development? Identify activities: lands available for afforestation, suitable A/R CDM methodology, involvement of stakeholders, drafting project idea combining CC mitigation and sustainable development targets (including adaptation to climate change, disaster risk reduction, poverty reduction, etc). 20 The World Bank (2010), The BioCarbon Fund Experience:

24 Part II: Forest and Carbon Sequestration 23 Check barriers, requirements: Identify the barriers that prevent this project from implementation under given conditions and how CDM registration will provide incentive to overcome these barriers. What types of incentives are required? Also look into the requirements identified by the DNA for A/R CDM projects and address these requirements. Estimate emission reductions / carbon sequestration: Draft baseline scenario. Estimation of baseline GHG emissions / sequestration under the baseline and the project scenario. Emission reductions attributed to the project activity are the net baseline emissions minus the net project emissions minus leakage. Calculate financial viability: estimate expected revenues from selling carbon credits. Are they sufficient to cover transaction costs (many projects are too small) and incentives required to overcome the implementation barriers? As A/R CDM is long-term investment, consideration of time and interest rates is important. Analysis can be done using econometric indicators such as net present value (NPV) and / or internal rate of return (IRR). Develop Project Idea Note (PIN): use A/R CDM PDD format for drafting the project idea, considering stakeholder involvement, institutions, project activities, sharing of incentives, etc. (see below, contents of a PDD). Contact potential buyers for investment, project developers for PDD development and consultancy. 5. What are the contents of a PDD? A PDD contains information on the following topics: - General description of the project activity o project participants, ownership o location, geographical boundary o technical description of the planned activity o measures intended to minimize leakage o project timing, crediting period - Application of an approved methodology for o the determination of the baseline o demonstrating the additionality of the project o the establishment of a monitoring plan for emission reductions (measuring baseline, project and leakage emissions) o the ex-ante estimation of emission reductions - Environmental and socio-economic impacts o description of positive and negative impacts o environmental and / or social impact analysis when there are negative impacts considered to be significant - Stakeholders comments o consultation of local stakeholders (participation), comments from NGOs

25 24 Natural Resource Management and Climate Change Mitigation, Adaptation and REDD+ 6. Can all reforestation projects qualify for CDM? No, the project has to be additional. This means, that the project is not business as usual and it will only be realized with incentive from CDM registration. Further, to be eligible for A/R CDM, projects have to be implemented on areas which were Non-forest at project start and also on December 31, 1989, according to the definition of forest for that country. Small-Scale A/R CDM projects are to be developed or implemented by low-income communities. Adverse social or environmental impacts of the project activity can undermine the chance for successful validation and registration. To be able to use a certain baseline and monitoring methodology, a project has to fulfil further methodology-specific application criteria. Many A/R CDM methodologies do not allow for a shift of activities (e.g. agricultural activities) caused by the project. 7. Which species can be planted? There is no restriction for species within the A/R CDM. Project developers have to plan their forest systems (plantations, agro-forestry systems, etc.) in a way that these become forest under the definition of forest under the CDM of the host country. In the case of Pakistan trees have to be higher than 3 meters. According to the specific conditions in a site, this criterion excludes species that don t grow over 3 meters high by maturity. A lot of discussion has taken place regarding the use of leguminous species in the A/R CDM. Reason for this discussion is the fact that these species have the ability to fix nitrogen and thereby emit nitrous oxide (N 2 O) while growing. Since the Global Warming Potential of N 2 O is very high (310 times more effective than CO 2 ), already the emission of small quantities of this gas could counterbalance the CO 2 sequestered due to the A/R CDM project activity. However, after years of discussion, the CDM Executive Board provided a clarification in which emissions from N 2 O from N-fixing trees (as leguminous species) are considered insignificant in the A/R CDM project activities and may therefore be neglected in the A/R baseline and monitoring methodologies (CDM-EB 44th meeting). When selecting species for A/R CDM activities, social and environmental aspects should be considered. With regard to social aspects, the goods and services provided by the project to the beneficiaries are important criteria for species selection. The understanding of potential environmental impacts of selected species includes impacts on biodiversity, soil fertility, water availability and retention, slope stabilization, etc. In the PDD project participants need to demonstrate that there is no negative socio-economic or environmental impact coming from the project. If such a negative impact is found in a first evaluation, an in-depth socioeconomic and / or environmental assessment needs to be done following the respective legislation in the host country and a strategy for counteracting negative impacts need to be included and monitored. Although consideration of social and environmental impacts of species selection is a soft pre-condition for A/R CDM (stakeholder consultations, social and environmental impact analysis), it can become an important asset for selling credits on the market. 8. What is the project cycle for A/R CDM project? Figure 6 below explains the project cycle for A/R CDM project. The colour coding shows the responsibility of the party e.g. project is designed by the project proponent approved by the Designated National Authority (DNA) and validated by the Designated Operational Entity (DOE) and registered by the CDM Executive Board. Regular monitoring is the responsibility of the project proponent whereas verification and certification is done by the Designated Operational Entity (DOE) and CERs are issued by the CDM Executive Board.

26 Part II: Forest and Carbon Sequestration Continuous Cycle Fig 6: CDM project cycle CDM project starts with designing of project which ideally takes 1-2 years depending on the available information and data and the complexity of the project which is followed by validation by the DOE on the basis of which it is registered by the DNA and CDM Executive Board. The project monitoring is a continuous process in the project cycle and is carried out by the project proponents in line with the proposed monitoring cycle in the PDD. Verification of the carbon stocks is carried out by the DOE and on the basis of their certification the CERs are issued by the Executive Board. 9. Can we cut trees in an A/R CDM Project? In an A/R CDM project the project proponents can harvest the trees during the crediting period of 30 years or 40 years (with renewal after 20 years) as foreseen in the management plan proposed by the PDD. Even rotation forestry is possible. Fluctuations in the carbon stocks due to forest management should be reflected by monitoring. Though harvesting should be planned after the verification by the DOE. 10. When do we get the credits? Often, monitoring of carbon stocks is done in a 5-year interval. After the verification of plantation, monitoring and calculation of emission reductions, the DOE submits its report to the CDM Executive Board who then issues the CER certificates which the project proponents can sell to buyers in the developed countries. 11. Who pays for the credits? Governments or private sector entities in the developed countries buy the credits from the project implementers in the developing countries. There are two types of markets for carbon trading: Compliance markets, with buyers acquiring credits for compliance with committed targets (e.g. CDM Market, EU-ETS). Voluntary markets, with buyers acquiring credits for voluntary compensation of emissions (e.g. climate neutral holidays for private, label for climate neutral products, etc).

27 26 Natural Resource Management and Climate Change Mitigation, Adaptation and REDD+ a. CDM Market CDM is a market based instrument under the Kyoto Protocol of UNFCCC that assists developing countries in sustainable development while at the same time contributing to the ultimate objective of the Convention, reducing GHG emissions for stabilizing the earth s climate. In this mechanism the developed countries support project activities that reduce GHG emissions in the developing countries in return for Certified Emission Reductions (CERs) / Carbon Credits. The CERs generated by such project activities can be used by developed countries as credits to meet their emission targets under the Protocol. After the issuance of CERs, these are recorded in the registry maintained by the CDM Executive Board to be shown against the owners (of the CERs). The owners can approach buyers from developed countries through CDM Bazar or other such forums and then sell their CERs. b. Voluntary Markets Voluntary markets include the following markets developed outside the Kyoto market with their own mechanisms and standards. These markets are for voluntary emission reductions and are often more flexible as compared to the CDM. Some of the voluntary markets are: The Chicago Climate Exchange (CCX) The voluntary Over-the-Counter (OTC) offset market Government Voluntary Offset Programmes Japan s Keidanren Voluntary Action Plan on the Environment The US EPA Climate Leaders The Canadian GHG Clean Start Registry Australia s Greenhouse Challenge Plus Voluntary market standards that are particularly relevant for AFOLU mitigation activities are the Voluntary Carbon Standard (VCS) and the Climate, Community and Biodiversity Standard (CCBS). The VCS provides methodologies for a wide range of AFOLU mitigation options not included in CDM, such as carbon stock enhancement in agricultural soils, reduced emissions from deforestation and forest degradation, improved forest management, etc. The CCBS allows validating community and biodiversity co-benefits of AFOLU projects. Such co-benefits can be valued by voluntary markets, where price is often not the only criterion and communication of project activities is important (for example a company offsetting their emissions and communicating that to staff and clients).

28 Part II: Forest and Carbon Sequestration 27 Workshop Presentations 1 2 3

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