MECANISMO DE MITIGACIÓN VOLUNTARIA DE EMISIONES DE GASES DE EFECTO EN COLOMBIA

Transcription

1 MECANISMO DE MITIGACIÓN VOLUNTARIA DE EMISIONES DE GASES DE EFECTO EN COLOMBIA Estándares internacionales para el mercado voluntario de carbono en Colombia (Consultoría 2B) INFORME DE RESULTADOS PRESENTADO POR: EDUARDO URIBE BOTERO Medellín, Noviembre 19 de 2010

2 Contenido Introduction The Land Use, Land-Use Change, and Forestry (LULUCF) Projects Benchmarking Between Standards Types of Standards Applicability of the Voluntary Standards in Colombia Methodology Rigor and Standard Quality Additionality requirements Baseline Requirements Secondary Benefits Acceptability and Utilization in International Markets Standard Competitiveness: Price, Cost, Risks Barriers International Experiences with the Standards Trends, Risks and Opportunities in Light of Global and Regional agreements Local Support for Verification and Certification Homologation of Standards The Standards and Colombian Regulations The Voluntary Standards and Other Sectors ANEX 1: Additional Types of Projects for the Voluntary Market Industrial Gases Methane Capture and Avoidance Energy Efficiency Renewable Energy ANEX 2: The Voluntary Standards The Voluntary Carbon Standard (VCS) VCS - AFOLU VER Chicago Climate Exchange (CCX) Regional Greenhouse Gas Initiative (RGGI) The Climate Action Reserve (CAR) The Gold Standard The Climate, Community & Biodiversity Standards (CCBS) Estándares internacionales para el mercado voluntario de carbono Página 2

3 8. The Social Carbon Standard The CarbonFix Standard Plan Vivo Standard REDD + Social and Environmental Standard The ISO Standard ANEX 3: Seminar on the Voluntary Carbon Standards Estándares internacionales para el mercado voluntario de carbono Página 3

4 Introduction There are two main global and independent carbon markets: the voluntary carbon markets and the compliance markets. The compliance markets are mandatory and are created and regulated by national, regional or international agencies 1. They operate under cap and trade systems. The voluntary carbon markets, on the other hand, operate outside of the compliance market. They enable organizations, industries, agencies, persons, etc. to voluntarily neutralize their carbon emissions by purchasing carbon offsets. Those carbons offsets, or emission reductions, may be originated either through the CDM market or through the voluntary markets. In the former case those emission reductions, or carbon offsets, are called CERs 2 and in the latter they are called VERs 3. Each CER or VER represents one ton of CO 2 e not emitted to the atmosphere, or sequestered by photosynthesis. The CDM market has a series of rigorous rules and methodologies for the development, validation, registration, verification, monitoring and implementation of projects. They include strict additionally tests 4. On the other hand, the voluntary carbon markets are not regulated. This lack of regulation and control has led, occasionally, to the generation of low quality VERs. That has been the case of VERs generated from projects that were not additional. In other words, from projects that generated emissions reductions that would have taken place anyway in the absence of the project. However, most voluntary standards have developed their own procedures and rules, including a range of standards and registries to assure their quality and additionality. As said before, the voluntary markets function outside of the compliance carbon markets. Buyers and sellers concur to the voluntary carbon markets to voluntarily purchase carbon offsets. This document provides an overview and compares the most relevant voluntary carbon offset standards of the voluntary markets. These standards are diverse in their applicability. Some are applicable only to certain types of projects (e.i: REDD 5, EE 6, RE 7, LULUCF 8 ). Others tend to favor 1 They include the Emissions Trading under Kyoto; the European Union Emission Trading Scheme (EU-ETS). They also include the Regional Greenhouse Gas Initiative (RGGI) and the Western Climate Initiative (WCI) that operates in some states of the east and west coasts of the United States, respectively. 2 Certificates of Emission Reductions (CER). 3 Voluntary Emissions Reductions (VER). 4 Tests to assure that in the absence of the economic incentives created by the CDM, the project would not have occurred. 5 Reduced Emissions from Degradation and Deforestation 6 Energy Efficiency 7 Renewable Energy 8 Land Use, Land-Use Change and Forestry. Estándares internacionales para el mercado voluntario de carbono Página 4

5 the social and biological benefits of carbon projects. Some standards exclude projects types that could cause detrimental environmental effects (e.i.: biodiversity losses caused by large hydroelectric projects). Voluntary standards are also different with respect to their goals, the price of the Carbon Offsets generated under their rules, their market share, their supporters (stakeholder), and their additionality rules. Some voluntary carbon standards seek to recognize the economic value of the social and environmental benefits that are linked with the carbon projects. In fact, in some cases, the standards require the existence of those additional benefits (co-benefits). The voluntary markets co-exist with the compliance markets 9. In consequence, the Carbon offsets of the voluntary market are frequently traded and bought in countries and regions, and by the agents, that actively participate on the compliance market. Voluntary buyers can choose to purchase carbon offsets from the CDM market (CERs) or from the voluntary offset markets (VERs). The size of the voluntary markets is small compared to the size of the compliance market. In consequence, today, the voluntary markets do not make significant contributions to the mitigation of Climate Change. However, the voluntary offset market is and will continue being a place of concurrence for those individuals or companies who want to go beyond the objectives of public Climate Change policies and regulations. 1. The Land Use, Land-Use Change, and Forestry (LULUCF) Projects The projects developed under the voluntary market can be grouped in five categories: Land Use, Land-Use Change, and Forestry (LULUCF), industrial gases, methane capture and avoidance, energy-efficiency, and renewable energy. The first one of those four categories is the one that is more relevant for the objective of this document. The other three categories are described in annex 1. The Land Use, Land-Use Change, and Forestry (LULUCF) projects are those projects that reduce GHG emissions from land use practices. They include conservation projects that avoid emissions through maintaining or increasing the carbon stocks of natural ecosystems. Among this projects are the Reduced Deforestation and Degradation (REDD) and the afforestation and reforestation projects. The LULUCF category also includes those project activities, such as low tillage or no tillage agricultural practices that conserve and increase the content of soil organic carbon. The types of projects that fall under the LULUCF category face substantial methodological challenges. In the case of the REDD projects the definition of the baseline scenario can be particularly cumbersome. Prediction of future carbon fixation, which is affected by climate conditions, can 9 The Emissions Trading under the Kyoto Protocol; the European Union Emission Trading Scheme, The Regional Greenhouse Gas Initiative (RGGI) and The Western Climate Initiative (WCI). Estándares internacionales para el mercado voluntario de carbono Página 5

6 also be quite uncertain. Leakage is another issue that quite a delicate in the case of REDD projects. This is because conservation on one region could eventually increase deforestation or wood harvesting in another region. It also has to be taken into account that carbon fixation and retention in the biomass or in the soil by LULUCF projects is temporary because trees can be burnt or destroyed, and there could be land use changes. Therefore these projects also face the issue of permanence; that is the duration of carbon storage in the tree biomass, or in the soil. While some voluntary carbon standards such as the Gold Standard avoid the challenges and difficulties of the LULUCF and REDD projects, others, aware of their inherent risks, seek to maximize their potential secondary benefits. 2. Benchmarking Between Standards En ésta, sección, de acuerdo con lo establecido en los términos de referencia, se realiza un "benchmarking" de los estándares internacionales existentes en los mercados voluntarios de carbono para proyectos forestales. 2.1 Types of Standards As indicated before, voluntary carbon standards are diverse. However, the best standards are those that have been widely accepted by traders, buyers, NGOs, financial institutions and project developers. For the purposes of this document there are two basic types of relevant standards: Full Fledge Standards are complete standards that include the following three components: Accounting Standards: They include additionality and baseline methodologies and rules to ensure that carbon reductions are indeed additional. Monitoring, Verification and Certification Standards: They are applied after validation and during the implementation of the project. They seek to assure that the ex-post quantification of CO2 reductions is accurate and that those reductions can be certified to the market. Registration and Enforcement Systems: They are public information systems designed to control the double use or sale of Carbon offsets and to track their origin and ownership. Project Design Standards (PDS): They include accounting standards and monitoring standards. However they do not include certification and registry. Therefore, once the project enters the accreditation period (the period during which credits are produced), these standards have to be complemented with a full-fledged standard in other to obtain access to certification and a registry. Estándares internacionales para el mercado voluntario de carbono Página 6

7 The following table present the classification of the standards discussed in this document. Table 1. Types of Offset Standards Full-Fledged Carbon Standards Project Design Standards Voluntary Carbon Standard (VCS); and the VCS - AFOLU VER+ Chicago Climate Exchange CCX Regional Greenhouse Gas Initiative (RGGI) The Climate Action Reserve (CAR) The Community & Biodiversity (CCBS) Climate, Standards The Gold Standard (GS) SOCIALCARBON Carbon Fix Plan Vivo Standard REDD + Social and Environmental Standard In addition, the ISO Standard which is a project accounting standard 10 is also included in this report. 2.2 Applicability of the Voluntary Standards in Colombia This section discusses the applicability of the relevant voluntary standards to Colombia and their flexibility to adapt to the Colombian projects. The following table indicates which of the standards presented in the previous section accept projects developed in Colombia. It also indicates what types of projects are accepted. A detailed description of those standards is presented in annex It regulates the quantification, reporting, and verification of GHG emissions. Estándares internacionales para el mercado voluntario de carbono Página 7

8 Table 2. Applicability of Standards Standard Includes Colombia REDD Forestation reforestation VCS yes no no Other Types of projects Industrial gases; Methane capture and avoidance; Energyefficiency, Renewable energy. VCS - AFOLU 11 yes yes yes no CCBS 15 yes yes yes no SOCIALCARBON 16 yes yes yes Industrial gases; Methane capture and avoidance; Energyefficiency, Renewable Comments It is a widely accepted standard. It is the dominant standard of the Voluntary market and will probably become a leading standard for voluntary markets. Guidelines for Afforestation, Reforestation and Revegetation (ARR) 12 ; Improved Forest Management (IFM) 13 and REDD 14 It is a complementary standard that focuses on the social and environmental co-benefits of those types of projects. It is a complementary standard used in conjunction with standards such as the VCS, or CDM. 11 The Voluntary Carbon Standard (VCS) for Agriculture, Forestry and Other Land Uses (AFOLU). 12 Eligible activities in the ARR project category consist of establishing, increasing or restoring vegetative cover through the planting, sowing or humanassisted natural regeneration of woody vegetation to increase carbon stocks in woody biomass and, in certain cases, soils. 13 Activities related to improved forest management are those implemented on forest lands managed for wood products such as saw timber, pulpwood, and fuel wood and are included in the IPCC category forests remaining as forests. 14 Reduction in the conversion of native or natural forests to non-forest land, that would be deforested in the absence of the REDD project activity, are eligible under the VCS. VCS REDD activities can be broadly categorized as 1. Avoiding planned deforestation (APD): reduces GHG emissions by stopping deforestation on forest lands that are legally authorized and documented to be converted to non-forest land. 2. Avoiding unplanned frontier deforestation and degradation (AUFDD): reduces GHG emissions by stopping deforestation/degradation of degraded to mature forests at the frontier that has been expanding historically, or will expand in the future, as a result of improved forest access. 3. Avoiding unplanned mosaic deforestation and degradation (AUMDD): reduces GHG emissions. by stopping deforestation/degradation of degraded to mature forests occurring under the mosaic configuration. 15 The Climate, Community & Biodiversity Standards. 16 The Social Carbon Methodology. MECANISMO DE MITIGACIÓN VOLUNTARIA DE EMISIONES DE GEI PARA COLOMBIA Fundación Natura Colombia Estándares internacionales para el mercado voluntario de carbono Página 8

9 Table 2. Applicability of Standards Standard Includes Colombia REDD Forestation reforestation Other Types of projects energy. Carbon Fix yes no yes no PVS 17 yes yes yes no REDD+ 18 yes yes no no Under discussion GS 19 yes no no Methane capture and avoidance; Energyefficiency, Renewable energy. VER+ no no yes CCX 20 yes no yes RGGI 22 no no yes Industrial gases; Methane capture and avoidance; Energyefficiency, Renewable energy. Industrial gases; Methane capture and avoidance; Energyefficiency, Renewable energy. Industrial gases; Methane capture and 17 Plan Vivo Standard. 18 REDD Social and Environmental Standard. 19 The Gold Standard. 20 Chicago Climate Exchange. 21 The PIZANO Reforestation Project, and the Methane Destruction Project at the Colombina Water Treatment Plant. 22 Regional Greenhouse Gas Initiative. Comments For aforestation, reforestation and agro-forestry projects. CFS methodology is based on CDM methodologies. For small LULUCF with rural communities. Community co-benefits are very high. Includes efficient charcoal stoves. Seeks to increase the social and environmental cobenefits of carbon CDM, VCS projects. Similar to CDM with additional more flexible methodologies. First voluntary cap and trade in the US. Two projects registered from Colombia 21. First mandatory cap and trade market in the US. MECANISMO DE MITIGACIÓN VOLUNTARIA DE EMISIONES DE GEI PARA COLOMBIA Fundación Natura Colombia Estándares internacionales para el mercado voluntario de carbono Página 9

10 Table 2. Applicability of Standards Standard Includes Colombia REDD Forestation reforestation CAR 23 no no yes ISO14064 yes yes yes Other Types of projects avoidance; Energyefficiency, Renewable energy. Industrial gases; Methane capture and avoidance; Energyefficiency, Renewable energy. Industrial gases; Methane capture and avoidance; Energyefficiency, Renewable energy. Comments US National offsets program. Only accepts emissions reduction projects from North America and México. This is a project accounting standard that regulates the quantification, reporting, and verification of GHG emissions. It offers general guidance for the design and development of projects but does not provide scientific methodologies. 23 The Climate Action Reserve. MECANISMO DE MITIGACIÓN VOLUNTARIA DE EMISIONES DE GEI PARA COLOMBIA Fundación Natura Colombia Estándares internacionales para el mercado voluntario de carbono Página 10

11 The table above shows that all of the voluntary standards that accept REDD projects also accept projects from Colombia (VCS AFOLU, CCBS, SOCIALCARBON, and Plan Vivo). REDD+ is still undergoing public discussions and adjustments. As indicated before, this standard is being designed to help governments, NGOs, financing agencies and other stakeholders to promote government led REDD programs and policies that generate social and biodiversity co-benefits. The VCS AFOLU has a series of methodologies for different types of REDD projects that could be suitable for the different situations of deforestation and forest degradation that are taking place in Colombia. In addition, it has a number of applicable REDD methodologies that are currently under development 24. However, as indicated before, the VCS AFOLU only accounts for carbon reductions and does not recognize the social and biodiversity cobenefits of REDD projects. Given the cultural and biological richness and diversity of Colombia s forest, its portfolio of REDD, and in general AFOLU projects, could not only generate significant amounts of emissions reductions (carbon credits) but also important social and biodiversity co-benefits. In consequence, project developers and owners should seek for additional complementary certifications that allow for the capture of the economic value of those social and biodiversity co-benefits. Two complementary available standards could be used in addition to the different options of VCS-AFOLU to capture the economic value of those additional social and environmental benefits. They are the CCBS and the SOCIALCARBON Standard. The former focuses on the promotion of sustainable development and the conservation of biodiversity in biosequestration projects; while the latter seeks, more broadly, to promote local sustainable development and the protection of the livelihoods of indigenous communities in a wide range of types of projects including hydropower, landfill, reforestation, REDD etc.. In any event, the utilization of the two available complementary standards adds significant value to biosequestration projects, including REDD, developed under other standards such as the VCS AFOLU. In addition, of the seven voluntary standards that accept other LULUCF 25 projects, four accept projects from Colombia. Two of them are full-fledge standards (VCS-AFOLU, CCX) and two are complementary standards (CCBS, SOCIALCARBON). That is to say that well managed, socially responsible, biodiversity sensitive reforestation or afforestation projects with native species in Colombia could be developed not only under the CDM standard. They could, 24 The Baseline and Monitoring Methodology for Project Activities that Reduce Emissions from Deforestation on Degrading Land (Terra Global Capital, LLC.); Methodology for Estimating Reductions of GHG Emissions from Mosaic Deforestation(Developed by World Bank, BioCarbon Fund.); Methodology for Estimating Reductions of GHG Emissions from Frontier Deforestation (the Amazonas Sustainable Foundation) 25 Land Use, Land-Use Change and Forestry (Bio-Sequestration) Estándares internacionales para el mercado voluntario de carbono Página 11

12 and perhaps should, use the two full-fledge standards mentioned before, complemented by either of those two complementary standards. The use of the complementary standards adds significant economic value to carbon credits and it is a growing tendency. In 2009, 23% of all forest projects validated to a third-party standard (3.7 MtCO 2 ) were reported as complying with the (CCBS) 2.3 Methodology Rigor and Standard Quality All voluntary standards have some basic requirements. However, the strictness with which they are demanded vary among the different standards. This section presents a description of those basic requirements, with special emphasis on the standards presented in the next table that are applicable to Colombia Table 3. Voluntary Standards Applicable in Colombia Standard REDD Forestation Reforestation Other types of projects Type of Standard VCS no no yes VCS - AFOLU 26 yes yes no Full fledged CCBS yes yes no Design SOCIALCARBON yes yes yes Design Carbon Fix no yes no Full fledged PVS 27 yes yes no Full fledged CCX no Yes yes Full fledged Gold Standard no no yes 28 Full fledged ISO yes yes yes Accounting Additionality requirements A project is additional if it would not have happen in the absence of the economic incentives (income from the sale of VERs) generated by the project. The robustness and rigor of the additionality test determines the quality of the carbon offsets. However, frequently, additionality is difficult to prove and it can be affected by subjective criteria. In addition, in most cases, the financial information used to prove additionality is private (confidential), and difficult to verify. Different standards use one or several additionality tests. The most frequently used additionality tests are: Legal Test: If the project is implemented in response to an official policy or regulation it would not be additional. For a project to be additional, a necessary condition is that the project goes beyond compliance. This, however, is not a sufficient condition and other conditions have to be met. 26 The Voluntary Carbon Standard (VCS) for Agriculture, Forestry and Other Land Uses (AFOLU). 27 Plan Vivo Standard. 28 Including efficient charcoal stoves Estándares internacionales para el mercado voluntario de carbono Página 12

13 Investment Test: If in the absence of the revenue stream expected from the sale of the carbon credits the project activity (e.i: wind power generation plant) is not financially competitive 29, then the project would be considered additional. In other words, for a project to be additional the sale of the carbon offsets should be necessary to transform the project into a financially viable option. However, the financial analysis is not always a necessary condition because although some project activities would be financially viable in the absence of the Carbon project, they would have to face other non-financial barriers Barriers Test: Often carbon projects are or include practices or technologies that are locally uncommon. They are not the business as usual way of doing things. In those cases, they frequently face non-financial barriers such as social, institutional, and technological barriers. Those barriers have to be overcome and this implies that the risk of project implementation would be higher than that of the business as usual type of project. The requirements of additionality tests tend to vary depending on the type and size of the project. In some cases the determination of additionality is quite straightforward (e.i: land fill gas flaring in places where biogas destruction is not mandatory). In some cases it can be quite cumbersome (e.i. low cost energy efficiency projects in places of high energy prices). The additionality requirements of most of the voluntary standards applicable to Colombia have been designed based on the CDM standard. Therefore they are quite rigorous and strict. The only exception would be the CCX. In this case additionality is less strict and retroactive projects have been accepted Baseline Requirements The baseline scenario is the path of CO 2 emissions that would take place, in time, in the absence of the carbon project. To estimate the contribution of a project (tones of CO 2 avoided or fixed with time), the baseline scenario (the scenario without the project) has to be compared to the scenario with the project. The difference between these two scenarios represents the size of the project in terms of the tones of CO 2 avoided or fixed by photosynthesis. In other words, it represents the number of carbon credits generated by the project. The baseline scenario has to be described ex-ante, before the beginning of the project. This scenario may be considered constant through the implementation of the project (static scenario) or may be updated periodically as external circumstances change (dynamic baseline scenario) Every time the baseline scenario is updated, the estimation of emission reductions would also have to be consequently adjusted. The baseline scenario is a hypothetical scenario that, in the presence of a project, would never take place. It is built on assumptions about the future path of events. This hypothetical scenario which will never occur cannot be validated. It is therefore crucial that the assumptions on which this baseline scenario is 29 IRR lower than that of an alternative and plausible investment. Estándares internacionales para el mercado voluntario de carbono Página 13

14 based are well justified and built over objective information. The baseline scenario must also be conservative to minimize the risk of overestimating the size of the project (the number of tones produced). The methodologies to estimate the baseline scenarios vary slightly amongst the standards relevant to Colombia. However, like the CDM, all of them strive for conservative baselines. Given the diversity of circumstances and the uncertainty under which some projects are developed, the voluntary standards are somewhat flexible and allow the project developer to propose a reasonable methodology to foresee the baseline scenario. This is particularly true in the case of REDD projects where uncertainty in relation to future deforestation trends can be quite large. It is important to observe (see annex 2) that the VCS - AFOLU 30 standard has developed several baseline and other methodologies and guidelines for the development of different types of projects relevant to Colombia. They include the following types of projects: Afforestation, Reforestation and Revegetation (ARR), Agricultural Land Management (ALM), Improved Forest Management (IFM), Reducing Emissions from Deforestation and Degradation (REDD). For this last category the VCS AFOLU has developed baseline and other methodologies for different types of sub categories: Avoiding Planned Deforestation (APD), Avoiding Unplanned Frontier Deforestation and Degradation (AUFDD), and Avoiding Unplanned mosaic Deforestation and Degradation (AUMDD). The diversity of methodologies for the different types of projects increases the credibility, acceptance and the robustness of the projects developed under those standards Secondary Benefits The voluntary market not only recognizes the economic value of carbon avoidance or of carbon sequestration. Some standards also recognize that carbon projects can generate other environmental, social and development benefits which have additional economic value. Those additional benefits (cobenefits) can be recognized by the voluntary markets with a higher price per ton of carbon. Those carbon credits registered under standards that recognize the secondary benefits of the carbon projects are known as gourmet credits. Some standards require the existence of those benefits; others do not. The VCS, the VCS - AFOLU 31 the CCX, and Carbon Fix, do not require the generation of co-benefits. They are mainly concentrated on the generation of carbon reductions. However, the CCBS, the PVS 32 and the Gold Standard do require the generation of co benefits. Therefore, the combination of standards should always be considered when the economic value of co-benefits wants to be internalized in the price of the carbon credits. 30 The Voluntary Carbon Standard (VCS) for Agriculture, Forestry and Other Land Uses (AFOLU). 31 The Voluntary Carbon Standard (VCS) for Agriculture, Forestry and Other Land Uses (AFOLU). 32 Plan Vivo Standard. Estándares internacionales para el mercado voluntario de carbono Página 14

15 2.4 Acceptability and Utilization in International Markets All of the voluntary stands that are applicable in Colombia can be traded in the international markets. However, some of them are more global and widely recognized that others. This is the case of the VCS, the VCS-AFOLU, the Gold Standard, and the CCBS that have been used throughout the world. Others such as SOCIALCARBON and Plan Vivo Standard have been developed and used more locally. The SOCIALCARBON is quite a relevant standard in Brazil, while the Plan Vivo standard was developed and has been used in México. As indicated in table 4, the average price range between standards went in 2009 from US$ 0.8 to US$ 10.9 per ton, for the CCX and the Carbon Fix Standard respectively 33. It is also worth noticing that the Plan Vivo and the Social Carbon Standards, both of which are quite demanding in relation to the generation of co-benefits, also have relatively high prices. Naturally, those standards should be preferred for gourmet projects with outstanding social and environmental co-benefits. The CCBS standard which, as indicated in table 5 is the most frequently used, also has a relatively high price (US$ 5.8) compared to the VCS (US$4.7) which does not value co-benefits. The frequency in the use of the different standards is an indication of their acceptance and applicability. As indicated in table 5 most of the registered voluntary forestry and REDD projects have been validated under the CCBS. Thus, this standard is quite acceptable and applicable. On the other hand, the lower frequency in the use of standards such as the Plan Vivo Standard or the Carbonfix does not indicate lack of acceptability. It indicates that their high co-benefit requirements would exclude most projects. The VCS AFOLU has not been frequently used. This is manly because the forestry and REDD methodologies under this standard are relatively new. However, this standard would probably become an important standard because of the various relevant methodologies that have been approved. In addition, the fact that it can be used in combination with other standards such as CCBS, would allow for the price internalization of the project s social and environmental co-benefits. Although all of the standards applicable in Colombia are useful for the production of carbon credits that can be traded internationally, a conservative approach would call for the use of the most widely used and evolved standards. In consequence the CCBS standard deserves serious consideration. In addition, and as indicated before, the VCS - AFOLU 34 has developed several baseline and other methodologies and guidelines for the development of 33 The Gold Standard (US$ 11.1) would no be applicable to forestry and REDD projects; it would only be applicable to CDM projects that use the methodology AMS II.G: Energy Efficiency Measures in Thermal Applications of Non-Renewable Biomass. 34 The Voluntary Carbon Standard (VCS) for Agriculture, Forestry and Other Land Uses (AFOLU). Estándares internacionales para el mercado voluntario de carbono Página 15

16 different types of projects. This diversity of methodologies would tend to increase the utilization and world wide acceptance of this standard. Standards such as the Plan Vivo, the Socialcarbon and Carbonfix should be considered for projects with outstanding social and environmental benefits. 2.5 Standard Competitiveness: Price, Cost, Risks A standard would be competitive if it contributes to the production of high value carbon credits at relatively low costs and risks. The costs of producing a VER can be quite viable, and largely unknown, among different project types. Therefore, the financial success of the carbon project is fundamentally dependent on their production costs per VER and their sale price. While the carbon credits from projects based on, for example, a commercial forest plantation could be quite profitable because of their low risk and low production costs, the profitability and the risks of REDD projects can be significant. The strategy to increase the profitability of these projects is to use more than one standard to be able to internalize the project s social and environmental co benefits, and to keep project costs under control. REDD and forestry projects have a type of risk that is not found in other types of projects: the non-permanence risk. This is the risk of forest destruction by fire or by future land use change. These types of risks are quite a concern among project developers and buyers of carbon credits. To mitigate those risks, some standards such as the VCS AFOLU and CCX make a reserve ( Buffer Account ) with a percentage of the credits generated by the project. The percentage of credits set aside in the Buffer Account depends on the estimated risk level of the project 35. The credits of the Buffer Account act as a guarantee. They are cancelled when carbon stocks decrease compared to the results of the previous verification. Long time projects that include sound risk mitigation strategies would be less affected with the retention of carbon credits. However, those buffer credits can be drawn from the Buffer Account as it is shown that the risks of the project have been effectively mitigated. On the other hand, the risk of the standard would depend, fundamentally, on the credibility of the standard in the international market. With the exception of the CCX, projects developed under the standards applicable in Colombia would not pose market risks. However, as indicated under section 2.4, some standards are more widely recognized and used than others. This would facilitate the international trade of the carbon credits developed under those standards. On the other hand, the costs of producing a VER are affected by several variables. Among them, the size of the project (number of hectares and number of tones of carbon produced), the availability of secondary and primary information, the local costs of labor and technical services and technologies, and the logistic costs among others. In general, the larger a project, the lower 35 For REDD projects this percentage varies between 5% and 30% Estándares internacionales para el mercado voluntario de carbono Página 16

17 the unitary cost of producing a carbon credit. This is true for all types of projects, including forestry and REDD projects. The availability of information required for the assembling of the PDD, and, in particular, of the baseline scenario can be quite relevant. In the case of reforestation projects, the availability of biometric tree growth models improves the quality of the baseline, and decreases the need to undertake intensive and costly measuring and monitoring campaigns. Similarly, the availability of reliable deforestation, social and biodiversity data facilitates the construction of robust baselines scenarios for REDD projects, and avoids the additional costs of gathering such information. Other costs associated with the processes of registration, validation and verification (transaction costs) tend to be quite similar among the different standards. Registration costs vary between US$0.05 and 0.12 per metric ton 36. Validation and verification costs vary from project to project between and Euros. Generally, these transaction costs do not determine the profitability of carbon credits. This is because their participation in the financial structure of projects is relatively low, and their relevance diminishes as project size increases. Those transaction costs usually correspond to a small fraction of the value of the carbon credits produced by the project. For projects that generate carbon credits per year or more, those transaction costs would correspond to less than 5% of the annual production of carbon credits 37. As indicated before, the profitability of a carbon project also depends on the price of the carbon credits produced. The standard used is an important variable in the formation of the price. The following table presents the average market prices for year for the voluntary standards that are applicable for Colombia. Since there is no public information as to the prices of REDD projects by standard, these prices include all types of projects under the standard. They are indicative prices and it has to be taken into account that there can be wide variations within standards. This is because of differences in prices by project type. Table 4. Price by Standards Standard Price USD/ tonne VCS 4.7 VCS - AFOLU 39 Unknown CCBS 5.8 SOCIALCARBON 7.6 Carbon Fix For the VCS and for CCX, respectively. 37 Assuming total transaction costs of dollars per year and a price of US$ 5 per ton of CO State of the Forest Carbon Markets 2009: Taking Root & Branching Out. Katherine Hamilton, Unna Chokkalingam, and Maria Bendana January 14, The Voluntary Carbon Standard (VCS) for Agriculture, Forestry and Other Land Uses (AFOLU). Estándares internacionales para el mercado voluntario de carbono Página 17

18 Standard Price USD/ tonne PVS CCX 0.8 Gold Standard 11.1 ISO As shown in the table, there is a wide price variation among the different standards. The VCS which does note recognize the value of co-benefits has a lower price because it only internalizes de economic value of carbon fixation. On the other hand, complementary standards, which internalize the economic value of social and environmental co-benefits, add significant value to carbon credits. The higher prices of the ISO can be related to the fact that carbon credits certified by this standard can be used in compliance markets such as those of Australia, Canada and Japan. The prices of VERs are, mainly, the result of the interaction between demand and supply, and they are quite independent of their production costs. In addition to their co-benefits, other project attributes such as the specific terms of the Emission Reductions Purchas Agreements (ERPA) and the particular preferences of the buyer also affect their price. 2.6 Barriers Although all of the standards presented in Table 4 in the previous section could be applied in Colombia, the standard or the combination of standards to be selected, depend on the particular characteristics and attributes of the project. The selected standard(s) should be those that maximize the economic value of the project, given its particular characteristics and attributes. As indicated throughout this document, some standards tend to place high emphasis on social co-benefits, others on environmental co-benefits, others on both: social and environmental co-benefits. Other standards do nor recognize the value of social and environmental co-benefits, and only account for CO 2 related benefits. If the standard(s) for a particular project are well chosen, that is to say, if they seek to add value to the benefits effectively generated by the project, then the project should not face any significant barrier during its certification, validation, verification and registration processes. This is because the project s characteristics and attributes would fulfill all of the standard s requirements. If, on the contrary, the standard chosen for a particular project requires attributes (for example certain co-benefits) that the project does not generate, then it would face insurmountable barriers. In conclusion, the use of the standards applicable to Colombia would not face any significant barriers if the standards are well chosen. 2.7 International Experiences with the Standards Most voluntary forestry and REDD projects have been validated under the CCBS. In several cases those projects also have followed the CDM standards 40 Plan Vivo Standard. Estándares internacionales para el mercado voluntario de carbono Página 18

19 (projects number 7,8,11,12,13,14 and 17). Two of the projects registered under the CCBS also have the VCS AFOLU standard (projects number 1 and 11); and one of them also has the Carbonfix standard (project number 15). It is interesting to observe that in one case (project number 11 in Tanzania), three standards were used: the CDM, VCS AFOLU and CCBS. In fact, this was the world s first project ever to produce carbon credits with the VCS AFOLU standard (September 2010). Frequently, the CCBS standard was used alone. In those cases, the value of the projects is mainly associated with the biodiversity and social co-benefits. Four projects have been registered under the Plan Vivo standard. As indicated in annex 2, this standard does not work in conjunction with other standards and it is used for the development of small forest restoration; agroforestry, small plantations, forest protection and management, soil conservation, agricultural improvement and REDD projects. Estándares internacionales para el mercado voluntario de carbono Página 19

20 20 The following table lists projects that have been forestry and REDD projects 41 Table 5. AFOLU and REDD Projects by Voluntary Standard Number Title Location Auditor Standards Description CCBS The Kasigau Corridor REDD Project Philippines Penablanca Sustainable Reforestation Project Madre de Dios Amazon REDD Project IFFDC Wasteland Forestation Project Forest Again Kakamega Forest Avoided Deforestation in Rainforests Located on Private Lands Costa Rica The Monte Pascoal Pau Brasil Ecological Corridor Taita Taveta, Kenya Cagayan, Philippines Madre de Dios, Peru Uttar Pradesh, Madhya Pradesh, Rajasthan, India Western Province, Kenya Costa Rica Bahia, Brazil Scientific Certification Systems (SCS) Rainforest Alliance Scientific Certification Systems (SCS) Rainforest Alliance Rainforest Alliance Rainforest Alliance VCS-AFOLU CCBS CCBS CCBS CCBS CCBS CDM Through a combination forest protection and community activities, this project is estimated to avoid the emission of over 3.5 Million metric tones of CO2e which would have been emitted due to slash and burn deforestation over the 20 year project life The project will promote forest restoration, forest and biodiversity conservation, and alternative livelihood through reforestation, enhancement planting and agro-forestry over an area of 2,943 hectares of degraded lands. The project consists on sustainable forest management in the forestry certified timber concessions Maderera Río Acre S.A.C. and Maderera Río Yaverija S.A.C. in Madre de Dios, Peru. The target of the project is a group of small Indian farmers owning less than two hectares. The project aims to assists them to promote forestation on wastelands and marginally productive lands by organizing Primary Farm Forestry Cooperatives. It also seeks to improve soil and water conservation and generate consistent employment for the rural poor. This is a 490 hectares reforestation project in Kenya that aims to provide opportunities to poor communities and to restore their traditional habitat in a threatened and biodiversity rich territory. It aims to avoid the emission of 445,563 CO 2 over a period of 40 years. This project has the objective of avoiding the deforestation of 3,816 hectares of a private tropical rain forest in Costa Rica and to prevent the emission of 1,614,887 tones of CO2 in 10 years. The project aims at the establishment of a corridor that will join two significant protected parks of Atlantic Forest of Brazil. The corridor will promote biodiversity by providing a MECANISMO DE MITIGACIÓN VOLUNTARIA DE EMISIONES DE GEI PARA COLOMBIA Fundación Natura Colombia Estándares internacionales para el mercado voluntario de carbono Página 20

21 21 Number Title Location Auditor Standards Description CCBS connection path for species living in two National Parks. The corridor will be created through a severely deforested area in the middle of the two parks. It aims to prevent the emission of tones during a 30 year period on an area of 17 hectares. This project is the first Program Activity of a series of projects that should be gathered under one Project of Activities. Reforestation of degraded Chhattisgarh, Rainforest CDM Aforestation and reforestation of 5788 hectares of degraded 8 land in Chhattisgarh, India India Alliance lands in Chhattisgarh, India. It aims to have cumulative net CCBS greenhouse gas removal of tones during a 20 year 9 The Juma Sustainable Development Reserve Project: Reducing Greenhouse Gas Emissions from Deforestation in the State of Amazonas, Brazil Amazonas, Brazil period. TÜV SÜD CCBS This Project aims to address deforestation in an area of the State of Amazonas in Brazil which is under great land use pressure. It involves the establishment of a 589,612 hectares of protected area in a region that would be deforested under current land use practices. The resources raised from the sale of carbon credits will used to assure conservation and to improve the welfare of local communities Return to Forest, Nicaragua Reforestation of degraded grasslands in Uchindile & Mapanda, Tanzania Rivas Province, Nicaragua Kilombero, Morogoro Region and Mufindi, Iringa Region, Tanzania Rainforest Alliance TÜV SÜD CCBS VCS AFOLU CCBS CDM This project aims at the restoration of the Paso del Istmo corridor and to reduce the vulnerability of local communities to extreme climate events, improving ecosystem services, and increasing the viability of threatened and endangered species. It aims to avoid the emission of tones during a 30 year period. Includes eight small to medium farms with a total area of nearly 300 hectares. This was the first VCS AFOLU validated project (June 2009) and the world s first project to issue credits using a VCS (Sept. 2010). It is a tree plantation of 10,800 hectares on degraded grasslands in the poverty stricken south-west region of Tanzania. This sustainable source of timber will take the pressure off the natural forests and will fix CO2 ( tones per year). In addition it will promote the conservation of soil, water and bio-diversity resources, and support development in communities through employment, health, education, infra-structure and income through carbon revenues. MECANISMO DE MITIGACIÓN VOLUNTARIA DE EMISIONES DE GEI PARA COLOMBIA Fundación Natura Colombia Estándares internacionales para el mercado voluntario de carbono Página 21

22 22 Number Title Location Auditor Standards Description Panama Native Species Rainforest CDM Reforestation Alliance Small-scale Reforestation for Landscape Restoration Forest Carbon Project in Quirino Province, Sierra Madre Biodiversity Corridor, Luzon, Philippines Las Lajas, Chiriquí and El Pito, Veraguas, Panama Tengchong, Yunnan, China.At the at the south of the Gaoligongshan Natural Reserve Luzon, Philippines TÜV SÜD Rainforest Alliance CCBS CDM CCBS CDM CCBS This is a commercial reforestation project with native species in degraded lands of Panama. This small scale Aforestation/Reforestation project on degraded lands (abandoned cropland and grassland) is conduce with the purpose of landscape restoration. A buffer zone between the nature reserve and the surrounded communities will be established The project also aims at increasing income and alleviate poverty of local communities. This is small scale Aforestation/Reforestation project (177 hectares). It includes 63 parcels in one of the most biologically important areas in the Philippines. It seeks to create an alternative source of income for the local community, to protect habitats, to stabilize the ecosystem functions and to help mitigate climate change Kikonda Forest Reserve Reforestation Project Reducing Carbon Emissions from Deforestation in the Ulu Masen Ecosystem Kiboga, Uganda Aceh, Indonesia TÜV SÜD Rainforest Alliance Carbonfix CCBS CCBA This is a reforestation project with native species in a poor area of Uganda. The project has set aside over 20% of its area for conservation purposes. Through this project, more than 200 people have found jobs and benefited from services such as the provision of housing, medical care or the support of local schools. Over 300 families have been reached, planting an additional trees in the surrounding area of the project. The project will use land use planning, increased monitoring, law enforcement, reforestation, restoration, and sustainable community logging on 750,000 ha of forest. It will reduce deforestation by 85% and 3,369,848 tons of CO2 emissions can be avoided each year. MECANISMO DE MITIGACIÓN VOLUNTARIA DE EMISIONES DE GEI PARA COLOMBIA Fundación Natura Colombia Estándares internacionales para el mercado voluntario de carbono Página 22

23 23 Number Title Location Auditor Standards Description Bagepalli CDM Reforestation Programme Karnataka, India TÜV SÜD CDM This is a small scale Aforestation/Reforestation project on the degraded lands of small farmers (15,339) parcels. It is 17 CCBA developed on marginal farmer s lands that have holdings of 0.2 to 1 hectare. It aims at the generation of income to those farmers from the products and from the sale of carbon credits. This project should contribute to poverty alleviation Trees for Global Benefits, Uganda Rainforest Alliance Sofala Community Carbon Mozambique Rainforest Alliance Scolel Té Mexico Rainforest Alliance Emiti Nibwo Bulora Tnzania Rainforest Alliance Plan Vivo Plan Vivo Plan Vivo Plan Vivo This Afforestation, reforestation,agroforestry projects seeks to provide long term sustained funding for the conservation of f biodiversity and the environment Uganda. In includes an area of 692 hectares and includes 514 farmers. It aims to fix 80,000 tco2 per year. This is an agroforestry, avoided deforestation and forest conservation project. It covers an area of 15,161 hectares and includes 1584 farmers. It is undertaken in the buffer zone of the Gorongosa National Park. It aims to enhance sustainable livelihoods, rehabilitate degraded forest promote biodiversity and fix carbon. This is an afforestation, reforestation, agroforestry, forest conservation and restoration Project is developed with the support of USAID. It covers an area of 7432 hectares and includes 669 farmers. This is an agroforestry, afforestation and reforestation project.. It involves planting indigenous timber species on fragmented land plots. Its aim is to diversify farm production and provide multiple benefits such as timber, firewood and medicine. It covers an area of 130 hectares and includes 24 farmers. It expects to produce 40,000 tco2 MECANISMO DE MITIGACIÓN VOLUNTARIA DE EMISIONES DE GEI PARA COLOMBIA Fundación Natura Colombia Estándares internacionales para el mercado voluntario de carbono Página 23