Forestry Projects under Clean Development Mechanism

By

Lokesh Chandra Dube

Lead Assessor, Carbon and Energy Services, TUV India Private Limited E-mail: lokesh@tuv-nord.com; lokesh.env@gmail.com

Climate Change Climate change is one of the most critical global challenges faced in the 21st century. Mitigation of Climate change refers to a human intervention to maintain greenhouse gases to a level that is not harmful for the planet. There can be two ways of maintaining green house gas concentrations in atmosphere, either we reduce emissions at the source (preventive measure) or we increase removals by the sinks (curative measure). There are three important stocks of carbon dioxide on earth- atmosphere, oceans and forests. Forests and oceans are sinks for atmospheric CO2 and can store it for longer periods. There could be a number of mitigation measures that can reduce emissions at source or can increase removals by sinks. Climate change was recognized as a dangerous challenge in early 1980s. International climate change negotiations started in early 1990s that initiated full fledged carbon market by early years of this century. International Climate Change regime can be categorized into three sections- that dealing with Science of climate change- IPCC (Intergovernmental Panel on Climate Change), that with policy UNFCCC

(United Nations Framework Convention on Climate Change) and with the market (compliance and voluntary structures). Carbon Market Kyoto Protocol (KP) provides Annex I parties three financial mechanisms of flexibility to achieve their emission reduction targets. The carbon credits generated by these three mechanisms i.e. Certified Emission Reductions (CERs) from Clean Development Mechanism (CDM), Emission Reduction Units (ERUs) from Joint Implementation (JI) and Assigned Amount Units (AAUs) from Emission Trade (ET) collectively shape the Kyoto Type Compliance Market. Compliance/ Regulatory Market is named so

because the carbon credits under this structure are used to meet compliance of certain international (like KP) or national/ sub-national regulations of governments/ private bodies. Non Kyoto Type compliance market includes the national or sub-national legislations that mandate emitters achieving emission reduction. In recent years a new structure has emerged as Voluntary Carbon Market (VCM). The aim of voluntary carbon market is to reduce or completely offset the emission footprints of activities, products and services of a company or organization. Companies disclose their carbon footprints and offset emissions by purchasing Voluntary Emission Reductions (VERs) to achieve Carbon Neutrality (CN). Kyoto Protocol is by far one of the most important milestones on the road to tackle climate change and implement mitigation mechanisms. The Protocol is a legally binding instrument under the UNFCCC that came into force on 16th February 2005. India ratified Kyoto in August 2002. The protocol requires developed countries to reduce their GHG emission levels by at least 5% against the baseline levels of 1990. A 5 year time frame from 2008-2012 has been stipulated. The storyline After Kyoto protocol was adapted in 1997 attempts were made to finalize the modalities of its flexibility mechanisms. Modalities and Procedures for CDM project activities were adopted in 2001. Yet, the consensus could not be achieved on Modalities and Procedures for Afforestation and Reforestation (A/R or AR) CDM project activities. The same were adopted in COP-9 held at Milan in 2003. It was envisaged that treatment of sinks in CDM would be tricky and the same proved to be true as no methodology for AR sector could be finalized till 2005. First forestry project to be registered under AR CDM was in China which received nod from the CDM executive board for registration in 2006. In India first registration was witnessed in 2009 with the registration of Sirsa (Haryana) small scale AR CDM project. In late 2011 first ever issuance from an AR CDM project took place in Brazil with the issuance of 4,072,355 temporary CERs (t-CERs). No Long term CERs (l-CERs) are issued so far. No issuance is achieved till date from any registered AR CDM project in India. However, ITC social forestry project has been submitted to UNFCCC with request for issuance. If successful, it would be first global issuance of l-CER and first issuance in AR sector from India. CDM process In order to register a CDM project, project participant (PP) is required to prepare a Project design document (PDD) using a CDM baseline and monitoring methodology approved by CDM Executive Board. The PP may take help from a consultant. Template of PDD is also fixed by the CDM EB. In case 2

no approved methodology pertaining to projects conditions is available, the project participants can develop and propose their own methodology for approval. Designated Operational Entity (DOE) is an independent body accredited by UNFCCC for validating and verifying CDM projects on its behalf. There are a number of companies acting as DOE in A/R sector in India including TV NORD, TV SD, BVCH and ICFRE to name a few. PDD is webhosted for a 30 days global stakeholder comments period (45 days for large scale AR projects) by the DOE contracted by the PP for validation. The DOE also conducts a site visit and interview with key personnel and local stakeholders. In case any non-conformity is observed against UNFCCC stipulated requirement the auditor raises findings and upon successful closure of all the findings, final validation report is submitted by the validator to UNFCCC with request for registration. Upon multiple checks at UNFCCC project is finally registered. After registration the PP can get the verification done for the project activity. A monitoring report is prepared by PP which entails actual carbon sequestered by the trees using data collected from the field. Data collection in field is done using approved monitoring plan contained in registered PDD. In case any deviation/revision from monitoring plan is detected, the same need to be approved by CDM EB before issuance of credits. The monitoring report is subjected to verification exercise by the verifying DOE contracted by the PP. After successful closure of all the queries from PP, the DOE submits its verification report to the UNFCCC with request for issuance. After checks at UNFCCC the credits (t- or l-CERs) are finally issued by CDM registry at UNFCCC. These CERs are sold either upfront or on the spot using trading platforms like European Climate Exchange. Issues and Pitfalls There are quite a few issues related to AR CDM, which need to be taken care of during project development phase or conceptualization phase. Baseline Determination: The most important step in starting with an AR CDM project is determining the baseline, i.e, estimating the removals that would have resulted from the most probable scenario in absence of the project activity. The analysis to short list the most probable scenario shall follow the guidelines provided by UNFCCC in the form of tools. These tools are the outcome of gradual experience gained by the UNFCCC EB combined with inputs by experts from different spheres of industry. A baseline shall determine the amount of baseline removals that would have occurred as a normal course of action. The baseline shall be developed in a very transparent manner, and employ any statistical or analytical analysis required to reach a level of confidence. This shall be ensured by the DOE validating the project.

A baseline should be developed by using either an existing methodology or developing a new one. The list of approved methodologies is available publically on the UNFCCC website. Additionality: The most widely discussed issue relating to CDM projects is additionality. Projects have their additionality questioned during validation and prior to their final approval by the UNFCCC CDM EB. A project is said to be additional if it is above and beyond the business-as-usual scenario. The same must be proved methodologically using the tools for additionality assessment made available by the UNFCCC. The additionality can be based on investment analysis and/or barrier analysis, i.e., barriers which hinder the implementation of the project but not that of the baseline scenario. An investment analysis ascertains the financial attractiveness of project in comparison to the baseline scenario. All this information is represented in the PDD and is audited by the DOE during validation. Sustainable Development Aspects: All CDM projects need to be sustainable. The criteria for sustainability are as per the guidelines specified by the host party Designated National Authority (DNA). Assessment of sustainability is an integral part of the HCA process. For example, for Indian CDM projects the DNA, i.e., Ministry of Environment and Forests (MoEF) ensures that the project has positive sustainable implications after it is implemented. These could reflect in social, economic or technological aspects related to the project activity. The Stakeholder consultation carried out during project implementation phase further ensures that the local population is aware of the project activity and its impacts on their livelihood. A GHG mitigation project requires calculation of emission reduction achieved due to the planned or undertaken project activity. Emission removals are calculated as: Net anthropogenic GHG removals by sinks from the project activity = Removals by sinks in project scenario Baseline removals (Project emissions + Leakage) Baseline removals is the amount of CO2 sequestration that would have occurred in absence of the project activity while project activity removals are those associated with the implementation of the project. Leakage pertains to the emissions that occur due to the implementation of project but outside the project boundary e.g. transport of seedlings to the project site. The said activity would result in emissions due to diesel combustion in transport vehicles. This is attributable to the project activity but is outside the project boundary.

Land eligibility in Afforestation and Reforestation- Forest sink is a curative measure to control enhanced greenhouse effect. Thus, in forestry sector emission reductions are calculated in different way from other sectors of preventive measures like those in energy sector. Emission reductions are calculated in terms of net removals which are on verification converted to non permanent credits. Project proponents need to demonstrate that land chosen for Afforestation/Reforestation is eligible for CDM. In other words they have to demonstrate that there was no forest on the land before inception of the project and 50 years prior (Afforestation) or on 31 December 1989 (Reforestation). Forest is defined by host country. India defines forest as a minimum area of land with 0.05 ha, with minimum tree crown cover of 15% and minimum tree height of 2 m. Inclusion of Palm trees and bamboo is not yet communicated by Indian DNA. This demonstration can be done using remote sensing data such as satellite imagery or aerial photographs with ground truthing. The limiting factor in this case is that good resolution data for the said time may not be available for the project area. The other alternative of demonstrating land eligibility is using government land records (e.g. cadastre). In this case the limiting factor would be availability of authentic land records with complete information which can determine pre-project land use and status of vegetation. Last option suggested for land eligibility by the CDM Executive Board is a Participatory Rural Appraisal (PRA) as long as it is done with the prevalent host country practices. In such case the independence and expertise of the agency undertaking PRA exercise would be under the scanner of the validating DOE. Forestry based Climate Change Mitigation Activities eligible in first commitment period of Kyoto Protocol (2008-12) in Land Use Land Use Change and Forestry (LULUCF) sector are Afforestation and Reforestation. Reforestation activities will be limited to those lands that did not contain forest as on 31 December 1989. Afforestation is done on the land which did not contain forest for last fifty years.

There could be two types of A/R CDM project activities; 1. Small Scale A/R project activities where the threshold limit of net anthropogenic GHG removals by sinks is of 16,000 tonnes of CO2 per year and to be developed or implemented by low income communities. 2. Large Scale A/R project activities which have no threshold limit of net anthropogenic GHG removals by sinks.

As compared to other sectors of CDM projects, Afforestation and Reforestation (A/R) sector was moving slow; though a pick up is noted in the last two years. There are a number of factors which attribute to relatively small number of A/R projects coming up under CDM. These include, among others:

Non permanent (expiring) nature of A/R CDM credits (t- and l- CERs) Carbon credits generated from A/R CDM projects are called t-CERs (temporary CERs) and lCERs (long term CERs). These CERs, unlike CERs from other CDM project types are not permanent and expire. t-CERs are the total amount of carbon dioxide sequestered (net baseline) since the project start. These are issued periodically and expire at the end of the commitment period subsequent to the period in which they were issued. They can be used in the commitment period for which they were issued. l-CERs are the amount of carbon dioxide sequestered (net baseline) since the last issuance (or project start, for first issuance). They can be used in the commitment period for which they were issued and expire at the end of the crediting period (20, 30, 40 or 60 years) for which they were issued. They cannot be carried over to subsequent periods. When trees are harvested (called reversal) l-CERs expire. Expired credits need to be replaced by same kind of non permanent forestry credit or permanent energy credits.

Complexity of A/R CDM methodologies and lack of experts in developing countries: There are twelve large scale and seven small scale A/R methodologies approved by the CDM Executive Board (EB). These methodologies require specific set of skills and background to understand them. In developing countries still limited availability of people involved in CDM advisory/ audit having expertise in A/R CDM.

Limitation of A/R CDM on low/ no productivity lands: Almost all A/R methodologies require that activities implemented only on degraded land would qualify. Degraded land was however not defined. Later, CDM EB approved a Tool for the identification of degraded or degrading lands for consideration in implementing CDM A/R project activities.

EUs decision on not purchasing t or l-CERs: A review of linking directive of the EU ETS in 2006 has again decided not to purchase forestry based expiring credits for a period up to 2012 and beyond till further decision.

Low price of t and l-CERs: There is low demand of A/R credits in the CDM market and due to non permanent nature their prices likely to be offered are very low. High transaction cost also forms a hindrance as it requires lots of efforts in terms of evidences and experts consultation.

Lack of awareness in plantation raisers and farmers: 6

In developing countries pla n antation raiser and farm h rs holders are generally not aw ware of benef of fits A/R A CDM and have limited access to res d d sources.

ry M Voluntar Carbon Market: Voluntary Carbon Ma y arket has dev veloped considerably in t past few years as an alternative t the the to Complian Market. Voluntary ma nce V arket conside less comp ers plex and less expensive w ways to handl the le issue of n non-permanen than the current appr nce roach of temp porary credit under the CDM. In Ve ts erified Carbon St tandard (AFO OLU) and Car rbonFix Stand dard, two maj voluntary standards for forestry it is done jor r s by setting a buffer rese g erve based on its assessmen of potentia risks of carb loss. nt al bon

Figure1:Structureo ofthevoluntary ycarbonmarket t

Observati ions from vol luntary carbon market sug ggest that fore estry has always accounted for a good share in the mar (roughly one third) co rket ompared to Ky yoto markets. It is clear th the volunta carbon ma . hat ary arkets play a crit tical role in fi inancing sequ uestration proj jects. The salability for fores VERs dep stry pends upon th following f he factors: 1. St tandard: VER verified on robust and t standards are preferred Rs n two s d. 2. Ty of projec The most valuable VERs are those from mixed plantation of native speci on Type ct: f ies de egraded land. . 3. Su ustainable an community co-benefits: The higher t social pos nd y the sitive impact and benefits to the co ommunity ge enerated by the project, the more attractive it is. Climate Community and , y Biodiversity st B tandards play a vital role in certifying project against these benefits. n t

4. Vintage: This indicates the year in which the reductions were achieved, and for which the VERs have been issued. Recent vintages are preferred.

Large portion of LULUCF based opportunities including soil carbon sequestration, forest conservation; revegetation and avoided deforestation are attractive prospects to encourage sustainable development in developing economies. These activities are ironically excluded from CDM in the regulatory markets at least for the first commitment period, but, Voluntary Carbon Market (VCM) gives opportunity for these activities too. The potential community benefits and economical cost are resulting in additional demand from public and private buyers. This demand can be fulfilled by the retail offset market by adapting a wide range of forestry based climate change mitigation options. Voluntary Standards in forestry sector include Verified Carbon Standard, Climate Community and Biodiversity Standard, CarbonFix Standard, Plan Vivo etc.

Sequestration Potential It is nearly impossible to generalize the carbon sequestration by different forest types/ species. It depends upon the environmental conditions of plantation site, plantation planning and the genetic properties of plant material used. Conservative and generalized benchmarking estimates based on global default values from IPCC for net GHG removals by sink for some common species are mentioned in the table below.

Species Acacia nilotica Albizzia lebbeck Azadirachta indica Casuarina equisetifolia Dalbergia sissoo Eucalyptus deglupta Eucalyptus tereticornis Gmelina arborea Jatropha carcus Populus spp

Common name in India Babool Kala Siris Neem Bull-oak Sheesham Eucalyptus Eucalyptus Khmar Ratanjot Poplar

Net removals (t CO2 e/ha/yr) 20 9 8 15 12 32 19 36 15 20

Syzygium cumini Tectona grandis

Jamun Teak

12 18

Conclusion
India has a waste landmass classified as degraded land that can be cultured for plantation activities with the help of CDM. Government forest departments and corporate houses can go for large scale AR projects whereas farmers have a great potential in small scale AR CDM projects. In order to minimize the transaction costs it is important to make consortium of farmers that acts as a PP. Successful demonstration of implementation of such a model is evident from the Sirsa (Haryana) project and is also being implemented in Odisha by PACL, NABARD and GIZ. This will lead to the deduction in costs to the project developer and /or promoter and make the A/R activities attractive for them as well as for local stakeholders. The LULUCF projects under small scale CDM category seek certain exclusive fulfilments for meeting ultimate goal of sustainable development.