The Link between Forest Carbon, Avoided Deforestation and IMPFs

Transcription

1 Economic Development livelihoods Protected areas Poverty reduction Biodiversity Climate Conservation Forest values Global Environmental Services The Link between Forest Carbon, Avoided Deforestation and IMPFs Initial Thoughts for the Discussion at TFD- IMPF Dialogue Pekanbaru March 07, 2007

2 Why worry about deforestation? Lost income and deteriorating livelihoods for 1.2 billion people 20% of global emissions (2 nd cause of global warming) leading Forests contain 80% of the world s biodiversity; deforestation causes loss at >0.5% per year Negative impact on hydrological functions and other forest environmental services

3 Why is Forest Carbon aspect important for Indonesia and especially for the Province of Riau Indonesia is the third biggest carbon emitter worldwide (after USA and China) Most of carbon emitted is from deforestation. Riau has one of the highest deforestation rates in the world: 5.6% Cultivation of peat soils is a major source of carbon emissions (Dutch study): Peat: 660 million tons/year Fires: 1500 million tons/year Still prime forest areas are destroyed for cheap fiber plantations despite availability of fallow land Addressing forest carbon losses could be a significant contribution of Indonesia to mitigate climate change But. Indonesia also has major opportunities to be key producer of biofuels

4 Context International Discussion on Avoided Deforestation Avoided deforestation excluded from the CDM (but not from JI) SBSTA discussions on REDD Stern Report: need for action to REDD World Bank and other organizations have experience in piloting the carbon market Prototype Carbon Fund: global pioneer since 1999 BioCarbon Fund: LULUCF pioneer since 2004 Several developing countries (Coalition of Rainforest Nations CoRN) have expressed interest in a World Bank initiative to provide financial incentives for REDD G8 countries interested in REDD Need for action + learning Consultations with countries, Coalition and various stakeholders

5 Proposed World Bank s Response The Forest Carbon Partnership Facility Prepare for a system of positive incentives post-2012 that includes REDD through Capacity building: readiness for a future system Pilot performance-based payments 1, Readiness Pilots Market Market > $1 b million $ Pilots: $200 m Readiness: 200 $50 m

6 The Forest Carbon Facility Two mechanisms: Readiness : capacity building Assessment of current forest carbon emissions Projection of emissions based on reference scenario Detailed economic analysis: what is the marginal cost of reducing deforestation and degradation? Design and implement strategy for REDD Monitoring of emission reductions Pilot Carbon Purchases

7 Price Carbon Opportunity Cost of land Pick low-hanging fruit first The Forest Carbon Facility MC per ha of forest saved $2,000 Prevent Conversion to Palm Oil $500 Prevent Conversion to Fiber Plantations $100 Control Fires Clarify Land Tenure Enforce Protected Areas 2,000,000 ha

8 Pilot Carbon Purchases Potential Approaches for Avoided Deforestation Mechanisms Several sellers Several buyers The market may not be the only way to set the price What if there is no market (competition)? G8 countries may be more interested in using ODA at first, then rely on market Brazil is opposed to a market solution Test various incentive systems in different countries with similar rigor, e.g. Costa Rica: market Brazil: ODA Congo Basin: ODA on a regional basis, certification Indonesia: Forest Industry Branch approach: Pulp, Plywood? Incentives for avoided deforestation and degradation

9 Current Market References: What Price to Pay? Europe: permit price ~ $20/t CO 2 e oneoff (EUA) Kyoto Protocol energy: ~ $15/t CO 2 e one-off (CER) Kyoto Protocol forestry (BioCarbon Fund): ~ $5/t CO 2 e one-off (tcer) with 10 years permanence

10 The Forest Carbon Partnership Facility: How It Would Work Carbon ERs IBRD, GEF, IFC, donors others Investments Investor Purchaser Readiness Fund $ 100 million Forest Carbon Facility $200 million Host Country Carbon purchase guarantee 10

11 Risks Mitigants Key Risks and Mitigants 1.Perception of pre-empting international negotiations on avoided deforestation 2.Countries feel excluded from pilots 3.Brazil (insists on ODA funding, no credit system) 4.Countries lack enabling framework 5.Country does not implement necessary measures 1.Respond to demand from countries. 2.Selection will be based on initial findings from capacity building phase. 3.Explore alternative approaches in pilot stage, proactive country dialogue. ODA funding likely. 4.Capacity building for readiness 5.Payment on delivery

12 Payment for Avoided Deforestation of Rainforests Business Case 1: Payment for Avoided Deforestation of Mixed Tropical Harwood Forest APRIL Company Riau/Sumatra Total wood consumption mill cbm/year 9 Wood from clearfelling of forests millioncbm/year 4 HarvestedVolume cbm/ha 150 Area harvested cbm/year CO2 content t/ha 75 CO2 removal t/year Potential Carbon Revenues $/t CO Potential Revenue/year

13 Using Payments for Avoided Deforestation: Company Community Partnerships Business Case 2: Using Revenues from Avoided Deforestation for Acacia Plantation on Degraded Land APRIL Company Riau/Sumatra Rotation Period Years 6 Increment cbm/year/ha 35 Plantation Costs $/6 years 700 Carbon Payment Plantation Equivalent $/t $/year $/ 6 years $ 700/ha/6years 17.5 t CO2/ha Potential Area Planted

14 The GFA Investment Impact Link Global Forest Alliance Technical Assistance $100 million (new) Capacity building, pilot initiatives, grants for analytical work, build incentives through increased market share, tax revenues, price premia, etc. Carbon Finance $200 million (new) Trustee for carbon purchases Linking buyers and sellers Reforestation + Avoided Deforestation Investments Bank investments: IBRD, IDA, IFC scale up from current $0.4 billion to $0.8 billion p.a. by 2015 Other investments by: Regional development banks, bilaterals, private, institutional investors, venture capital Amount TBD, but significant Carbon Finance: Reforestation: $75 million Avoided Deforestation: $200 million by 2012 and over $1 billion by 2015 Leveraged Impacts on the Ground Improve and sustain the livelihoods of 500 million poor, forest dependent people Conserve 5 billion tons of CO 2 Sustainably manage 300 million ha of production forests Expand protected areas network by 50 million ha

15 The GFA Work Program The World Bank Forest Strategy Harness Potential of Forests to Reduce Poverty Integrate Forests in Sustainable Economic Development Enhance Global Environmental Services Implemented by 3 GFA Work Programs Sustainable Rural Development Sustainable Forest Management and Markets Environmental Services and Innovative Financing Engaging in Core Activities (examples) Ecosystem landscape-based approaches Sustainable forest-based livelihoods Increased adoption of agroforestry by smallholders Access of local communities to markets Community/smallholder partnerships with private sector Sustainable & legal trade, independent certification Exploit domestic and export market opportunities Zoning, land tenure and land rights Protected area and forest management planning Community-based management Sustainable plantation development Forest Carbon Facility (avoided deforestation) BioCarbon Fund (mostly reforestation) Payments for environmental services Alternative financing for protected areas Supported by cross-cutting enabling and knowledge services Governed by a multistakeholder platform Forest Law Enforcement and Governance (FLEG) National and regional governance action plans and processes Program on Forests (PROFOR) Analytical Products, Toolkits and Knowledge Management, including external causes of deforestation Governed by a multi-stakeholder council (WBG, Govs, GEF, NGOs, private sector, international organizations, other) with participation of recipient countries and beneficiaries

16 Economic Development livelihoods Protected areas Poverty reduction Biodiversity Climate Conservation Forest values Global Environmental Services The Potential of Biofuels from IMPFs

17 Liquid biofuels Liquid Biofuels First generation Intermediate Second generation Oils and fats Ethanol (cane, maize) H-Bio NExBTL BTL via FT Cellulosic Biodiesel

18 Energy Security First generation biofuels Second generation biofuels Displacing 5% of gasoline and diesel worldwide would be a challenge if distributed globally, 15+% more land (100+ million hectares) Much greater potential because of ability to use wastes, residues, and nonfood crops

19 Political Economy of Liquid Biofuels Divergent groups favor liquid biofuels Agribusiness, farmers Governments: energy security, job creation, rising oil import bills, growing fuel subsidies Some environmentalists a wide range of views General public appeal of renewable fuel Complexity of interactions between energy, agriculture, environment, and macro-economy makes it difficult to see the issues clearly

20 Impact on Land and water Use Burning of forests in Indonesia and elsewhere European Parliament committee recommending a ban on palm-based biofuel Indonesia 3 rd largest CO 2 emitter after US and China if peat land emissions are included Round Table on Sustainable Palm Oil working out certification details Two-year moratorium by major soybean traders on purchase of soy from newly cleared rain forests in Brazilian Amazon, effective July 2006 Concerns over falling water tables from sugar cane production in India and elsewhere

21 Second generation biofuels: great Potential for Indonesia Almost any biomass can be used as feedstock Agricultural and forest residues (sugar cane trash, maize stover), utilizing much more of a given plant than 1 st generation Fast growing forest energy plantations on degraded lands Dedicated energy crops Organic waste (sorted municipal solid waste, waste sugar and starch, urban wood waste, forest products industry waste) Production pathways Cellulosic ethanol advanced hydrolysis and fermentation, potential for large GHG emission reduction Synthetic biofuels syngas production followed by FT (energy-intensive) for diesel, DME, alcohols, MTG. Synthetic diesel has superior quality and 100% compatibility.

22 Reduced competition to food crops Second generation biofuels: social and environmental Benefits Tortilla price in Mexico has tripled 35 % increase in palm oil prices No harm for the poor Less fertilizers Less pesticides Permanent root systems prevents erosion Much higher Carbon efficiency

23 Comparison of Different Biofuels Type of Biofuel Gross Revenue Biofuel [GJ/ha] Revenue Biofuel [l/ha] Revenue Net energie [GJ/ha] CO2- Savings [t/ha] Costs CO2 - Avoidance [ /t CO2] Biodiesel , Bioethanol ,6 2, (Lignocellulose) Bioethanol ,9 3, (Starch) Bioethanol ,2 8, (Suger) Biogas 178 k.a k.a. 113 k.a. 8 k.a. 273 k.a. (Silo maize) Biomass to Liquid (BtL) Bio-Hydrogene 160 k.a k.a. 120 k.a. k.a. k.a. k.a. k.a. Plant oil ,3 3,

24 Most common instruments: fuel tax reduction and high import tariff Location Tax reduction in US$ per liter of biofuel Ethanol Biodiesel Germany (to end-july 2006) Australia USA (credit) or 0.13 Thailand 0.65 (April 2006) São Paulo 0.30 (June 2005) *European premium gasoline in Q $0.40/liter High tariffs on ethanol to prevent subsidies from going to imports USA: $ per liter + 2.5/1.9% EU: US$0.24 / 0.13 per liter Brazil import tariff of 20% until February 2006

25 Other Feedstocks Maize to ethanol U.S. is among the lowest-cost producers of maize Total subsidy for U.S. ethanol in 2006 estimated to exceed $5 billion Cassava to ethanol Failed in Brazil: difficult to scale up (diseases, pests), no bagasse as energy source Palm oil to biodiesel Among the most efficient oil-bearing crops, cheapest production pathway for biodiesel today Rising feedstock prices due to rising demand (35% increase in palm oil price in 2006) Winter-performance problems Serious environmental sustainability concerns