The BioCarbon Fund Case-study study and Lessons Monali Ranade, World Bank June 2009 Harnessing the carbon market to sustain ecosystems and alleviate poverty
Overview Introduction to the BioCarbon Fund Case Studies Moldova Soil Conservation China Pearl River Watershed Management Kenya Green belt Movement Niger and Mali Acacia Plantation Projects Beyond A/R Madagascar Biodiversity Corridor Is Everybody Happy? Transacting Carbon Asset Lessons Learned Continued Involvement
World Bank Carbon Funds & Facilities Total funds pledged = US$ 2.1 billion (16 governments, 67 firms) Prototype Carbon Fund. $180 million (closed). Multi-shareholder. Multi-purpose. Netherlands Clean Development Mechanism Facility. (closed). Netherlands Ministry of Environment. CDM energy, infrastructure and industry projects. Community Development Carbon Fund. $128.6 million (closed). Multi-shareholder. Smallscale CDM energy projects. BioCarbon Fund. $89.9 million (Tranche 1 closed @ $53.8 million; Tranche 2 open). Multishareholder. CDM and JI LULUCF projects. Italian Carbon Fund. $155.6 million (closed). Multi-shareholder (from Italy only). Multipurpose. Netherlands European Carbon Facility. (closed). Netherlands Ministry of Economic affairs. JI projects. Spanish Carbon Fund. $282.4 million (closed). Multi-shareholder (from Spain only). Multipurpose. Danish Carbon Fund. $69.4 million (closed). Multi-shareholder (from Denmark only). Multipurpose. Umbrella Carbon Facility. $737.6 million (Tranche 1 closed 2 HFC-23 destruction projects in China). Carbon Fund for Europe. $65 million. Multi-shareholder. Multi-purpose. Managed with EIB.
BioCarbon Fund Goals Improve livelihoods annual volume (MtCO 2 -eq) project-based emission reductions traded Provide access to carbon market 400 350 300 250 200 150 100 50 0 1998 1999 2000 2001 2002 2003 2004 2005 1stQ06 Remove CO 2 from atmosphere Adapt to climate change Restore ecosystems
Co-benefits BioCF wants to buy green carbon with human face Social: Improve livelihoods People receive carbon payments New job creation Additional income from alternative activities Know-how Environmental Conserve biodiversity Expand natural habitat Reconnect forest fragments Protect soil against erosion Protect savannah against fires Fight against desertification Moisture retention Stabilize radionuclides in biomass
Two Windows First Window Meet Kyoto obligations Kyoto-grade credits (tcers, lcers, ERUs) CDM: Afforestation & Reforestation JI: All LULUCF Second Window No Kyoto credits Exploration & demonstration. Rules may change after 2012 CDM: Revegetation, Forest management, Soil management
Portfolio First Window Forest restoration Community forestry Agroforestry Bioenergy plantations Timber plantations
Portfolio Second Window Forest restoration & conservation Reduced tillage Revegetation
How the Fund Works Technology Technology $ $ Finance Finance Industrialized Governments and Companies EITs and Developing Countries CO 2 Equivalent Emission Reductions CO 2 Equivalent Emission Reductions
Moldova Soil Conservation Reforestation of 20,000 ha of degraded land throughout Moldova (> 2,000 sites) Species: Mix exotics + natives. Not one site is monocultural. Enriched planting after 25-35 years with noble species. Protection + fuelwood Moldsilva (public) with community participation Project start: October 2002 ER Potential: 2012: 1 Mt CO 2 e 2017: 1.9 Mt CO 2 e Financing ($17 million): equity Methodology approved, 5 carbon pools (first to include soil carbon)
Moldova Soil Conservation
China Pearl River Watershed Management Afforest 4,000 ha in Guangxi Zhuang Autonomous Region: 2,000 ha with high biodiversity value in Huanjiang County 2,000 ha suffering from strong erosion 75% native species, 25% Eucalyptus (grown in China for 100 years) 2 forest companies + 2 villagers associations ER Potential: 2012: 0.32 Mt CO 2 e (48%) 2017: 0.66 Mt CO 2 e Associated IBRD loan First ever LULUCF project with an approved methodology First ever LULUCF project registered
China Pearl River Watershed Management Total investment cost = $ 1.9 million (in cash) O&M cost (20 years) = $10.9 million Financing: Government of Guangxi Zhuang Region Kuangyan and Fuyan forest farms, Luhuan Forestry Development Company World Bank loan Farmer cooperatives (O&M) Short-term loan (O&M)
Kenya Green Belt Movement Portfolio of Small Scale Reforestation CDM project Located in Aberdare Range and Mt. Kenya; Catchment areas of River Tana The project will reforest 2,000 ha of degraded land with mixed indigenous tree species ONLY Communities have exclusive user rights for NTFP Project is to use 20 year crediting period with the option of renewal twice (to a maximum of 60 years)
Tree Planting Activities (Courtesy of the Green Belt Movement)
Three Way Legal Agreement Forest license: for exclusive utilization of all non-timber forest products for 30 years with possibility of renewal. Forest Department Forest user group MOU: to jointly implement the project and to consider the regulations of the Forest Act 2005. Contract agreement: - forest user groups assign all carbon rights to GBM. - GBM provides tree planting support, covers part of the land rent and provides incentive payments for surviving trees and share carbon revenues. The Green Belt Movement
BioCF Achievements Comfort building: show that CDM can work for LULUCF First contracts have been signed First methodologies have been developed First projects are being validated and registered Carbon is being sequestered Capacity building Project entities have been trained, more will be trained Countries have adopted forest definitions Learning by doing Piloting activities A/R Avoided deforestation / RED Set stage for Forest Carbon Partnership Facility Soil carbon management Identifying areas of improvement in the rules
Niger Acacia Plantation Project Carbon sequestration in the roots, trunks, and branches of trees 8,800 hectares of plantation will be planted from 2006 30 rural communities, or around 800 families, will benefit Carbon sequestration expected to be 700,000 t CO 2 e by 2017 Potential $2.8 M by 2017 ($280,000 per year)
Niger Also replicated in Mali Acacia senegalensis community woodlots Private gum arabic producers/exporters acting as carbon aggregators on behalf of outgrowers communities Intercropping with cowpeas and groundnuts Model can be expanded to Sudano- Sahelian belt Project under preparation with IDA credit support Community Action Project in Niger Agricultural Competitiveness and Diversification Project in Mali
Niger Acacia Plantation Project 03/2005: Project identification: Private company sponsor submitted project proposal to WB Carbon Finance Unit 06/2005: Bank Carbon Finance Unit approved project for inclusion in the BioCarbon Fund pipeline 12/2006: Negotiate and sign ERPA: 10-year Emission Reductions Purchase Agreement with fixed price per emission reduction for 500,000 tco2 signed between BioCF and sponsor 07/2006: Construction and start-up: Project commissioning 09/2007: Validation: Project will be validated by independent auditor 12/2007: Registration: Project officially registered under the CDM (expected) 2012: Verification: First verification of emission reductions generated (expected) 01/2008: Carbon finance payment: First carbon finance payment to project owner (expected) 2017: Verification: 2 nd verification of emission reductions (expected)
Beyond A/R Pushing the Boundaries BioCarbon Fund Window 2 Tranche 1: Project-level avoided deforestation Tranche 2: Soil carbon management project development implies developing new methodology Wetland methodology and know-how Avoided deforestation (REDD) Designing the Forest Carbon Partnership Facility Requests by developing and industrialized countries Capacity building + pilot purchases Prepare ground for post 2012 In line with UNFCCC process Launch at/after CoP13?
Madagascar Biodiversity Corridor Purpose: Recreate connectivity between 2 protected areas severed by slash-and-burn agriculture One of three BioCF projects to include Avoided Deforestation Technology: Reforestation using native species Agroforestry to stabilize people Improved forest management Climate benefits: Reforestation + Agroforestry: 0.29 Mt CO 2 e before 2012 Forest management: 0.6 Mt CO 2 e by 2017 Biodiversity benefits: connectivity will double habitat for species, including Lemur Indri indri Social benefits: Diversified sources of income: carbon sales; non-timber forest products (Raventsara essential oil); agroforestry products Stakeholder consultations leading to project site selection
Madagascar Biodiversity Corridor Management of non-permanence risk: Incentive to sustain project achievements through payments on delivery up to 2017, maybe longer with other buyers Conservation International interested in long-term action, not short-term benefits Issuance of lcers with 5-year renewal subject to verification/certification Financing: World Bank IDA grant Conservation International Protected Area Management Committee First-of-a-kind: Actors of degradation have never been compensated for modifying their land-use practices in Madagascar. This is a real shift in paradigm in natural resource management, with potential of making ODA more effective.
Is Everybody Happy? Some cultures oppose commodification of land, but Supply > Demand! Some countries prefer to reduce emissions from energy and industry The two are necessary and complementary (80-20%) Projects are voluntary: seller and buyer sign a contract Safeguards Do No Harm World Bank Safeguard policies: Host Country and government of buying country must approve project Project must be validated by independent entity Project must be registered by CDM Executive Board Seek multiple benefits Do Good Cooperation with IUCN Climate, Community and Biodiversity Alliance standards
Payment Schedule On delivery, not in advance: annual payments (in accordance with Monitoring Plan) upon receipt of a verification report that a certain number of tons of CO 2 have been sequestered = Verified Emission Reductions (VERs) Other resources must be found to cover the investment cost BioCF will pay for VERs even if project is not registered by the market regulator If project entity requested an advance payment Proof would have to be given that there is no alternative Would be limited to max 25% of the ERPA value Price per ton would be discounted to reflect the risk of non-delivery Bank guarantee would be requested No upfront payment has been granted for any of the 20 BioCF projects cleared
Cost Recovery 100% of project preparation costs prefinanced by the BioCF will be charged back to projects in the form of withholdings from ER payments Negotiated item Costs capped in the Letter of Intent and ERPA If BioCF also prefinances implementation costs (supervision and certification), these will also be charged back (subject to negotiation)
A/R s s Potential pre-2012 Very small volume <1% of total CERs and ERUs A small fraction of the cap (1% of 1990 emissions) Reasons Rules came late Some rules are not conducive / clear Demand restricted: exclusion from EU ETS deterred private sector from buying Trees grow slowly What can still be done before 2012? Very little that can change the 2012 outcome But changes adopted now will pave way for post-2012
Some Lessons Learned LULUCF projects are neither easy nor cheap to prepare People and land are impacted Sustainability conditions must be built in, which takes times LULUCF credits may be cheaper given buyers market Biological carbon sequestration takes time Growth rates are not linear A small delay at the beginning of the project translates in higher ER loss before 2012 or even 2017 No more than 50-60% of BioCF needs before 2012 Need to buy beyond 2012 Financing is a big constraint Carbon paid on delivery Suggestions to A/R Working Group Turn-around times are too short Periods of inactivity on the side of the A/R WG Staff up for the future More interaction with developers would clear up problems and save time Submission of new methodologies consisting of variations of approved methodologies or additional modules : faster processing Methodologies and Tools Difficult to develop; difficult to understand New Tool for Afforestation and Reforestation Approved Methodologies (TARAM)
Rationale for Continued Involvement Improved land use is part of the solution to climate change (deforestation causes 20% of CO 2 emissions) Important for sustainable development Open carbon market to rural communities (excluded if CDM restricted to energy & infrastructure) Inform debate (initially too ideological, not enough based on facts) Create synergies among Conventions (money channeled through UNFCCC can foster sister conventions) Close fit with World Bank s traditional work UNCCD
www.carbonfinance.org www.biocarbonfund.org ebaroudy@worldbank.org