Transcript FOCUS: MITIGATION Key concepts and quality requirements of a carbon project Louis Perroy, ClimatEkos 1 September 2011, Vientiane, Lao PDR.

FOCUS: MITIGATION
Key concepts and quality
requirements of a carbon
project
Louis Perroy, ClimatEkos
1 September 2011, Vientiane, Lao PDR
Content
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Carbon credit standards
Eligible project types for the AFOLU sector
Project timing
Additionality
Baselines
Methodology
Leakage
Permanence & Land eligibility criteria
Sustainable development criteria and Non diversion
of ODA
Content
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Carbon credit standards
Eligible project types for the AFOLU sector
Project timing
Additionality
Baselines
Methodology
Leakage
Permanence & Land eligibility criteria
Sustainable development criteria and Non diversion
of ODA
Carbon Credit Standards
Compliance market
 Kyoto Protocol Clean
Development Mechanism
– allocates carbon credits to projects
which are registered with the United
Nations
– Credit type: Certified Emission
Reductions (CERs)
– More bureaucratic, complex and
costly process
(Kyoto Protocol Joint Implementation
(JI): similar to the CDM, but can only
be applied to projects occurring in
Annex I countries, i.e. NOT in the
developing world
 not applicable to this workshop)
Voluntary market
 Characterized by multiple
standards and their
respective registries
Voluntary carbon standards
examples
The Voluntary Carbon
Standard (VCS)
The Gold Standard
The Climate, Community &
Biodiversity Standards
(CCBS)
Accepts all project types that are
supported by an approved VCS
methodology or if they are a part
of an approved GHG programme.
Renewable energy and energy
efficiency projects with
sustainable development benefits
are eligible.
Land-based bio-sequestration and
mitigation projects that also have
social and environmental cobenefits are eligible.
Overseeing body consists of a
steering committee.
Endorsed by over 49 nongovernmental organizations
worldwide.
Developed by the Climate,
Community and Biodiversity
Alliance (CCBA) & other experts.
More widely applicable, not as
rigorous as the CDM.
Very Rigorous: information going
beyond the standard requirements
for CDM or voluntary offset
projects requirements
Needs to be applied early on in
project design to ensure a robust
project design and local
community and biodiversity
benefits; No verification of carbon
offsets, nor registry. Needs to be
verified by another standard.
Credit type: Voluntary Carbon Unit
(VCU)
Credit type: Certified Emissions
Reduction (CER) and Voluntary
Emission Reduction (VER)
Depends on which standard it is
verified with (e.g. VCS).
REDUCING EMISSIONS - VER TRANSACTION
Content
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Carbon credit standards
Eligible project types for the AFOLU sector
Project timing
Additionality
Baselines
Methodology
Leakage
Permanence & Land eligibility criteria
Sustainable development criteria and Non diversion
of ODA
Eligible Project Types relevant
to AFOLU
Area
Forestry
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Is the project type
Type of project
Afforestation/reforestation
Avoided deforestation (REDD)
Sustainable forests management
Agro-forestry
andCDM/VCS?
silvo-pastoral
eligible
under the
systems
Cropland and grazing land
management
Soil conservation management
Agricultural sectors
Energy related projects in the
rural and agricultural sectors
Eligibility
CDM VCS
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N
Y
N
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N
Y
N
Y
N
Y
Fertilizer switch or management in
order to reduce N2O emissions
Y
Y
Bio-digestions and other methane
based project in the agricultural
sector
Livestock management
Biofuels Projects
Fuel switch projects (ex. coal and
biomass) contributing to the UNCCD
mandate
Small scale renewable energy
projects (ex. small hydro combined
with forestry activities for protection
of watersheds)
Energy efficiency
Y
Y
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Y
Y
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Carbon credit standards
Eligible project types for the AFOLU sector
Project timing
Additionality
Baselines
Methodology
Leakage
Permanence & Land eligibility criteria
Sustainable development criteria and Non diversion
of ODA
Project Timing
CDM Crediting Period
• Forestry Projects
• 20 years renewable
twice or 30 years
VCS Crediting Period
• Forestry Projects
• 20 years mini and 100
years maxi
• Other project types
• 10 years OR 7 years
renewable twice
• Other project types
• 10 years OR 7 Years
renewable twice
Content
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Carbon credit standards
Eligible project types for the AFOLU sector
Project timing
Additionality
Baselines
Methodology
Leakage
Permanence & Land eligibility criteria
Sustainable development criteria and Non diversion
of ODA
Additionality
‘Emission reductions must be additional to any that would
occur in the absence of the project.’
(Kyoto protocol (art. 6.1), CDM modalities and procedures (art. 43))
Interpretation:
• Show that the project is not the “business as usual” scenario …
• Demonstrate the intent to reduce GHG emissions
Reason:  Credibility and environmental integrity of the Kyoto protocol and
the voluntary market projects
• For every CER issued by the CDM Executive Board, someone will be
allowed to emit 1 additional tonne of CO2
• This additional 1t CO2 emitted must be compensated by a real,
additional t CO2 reduction in a developing country
Additionality also applies for projects in the voluntary market!
How to demonstrate
additionality
Large-scale projects –
additionality needs to be
demonstrated by taking the
project through the different
steps of the additionality tool
Small-scale projects –
additionality can be
demonstrated by showing that
the project would not occur as a
result of just one of the barriers
outlined in the additionality tool
EB 39, Annex 10
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Carbon credit standards
Eligible project types for the AFOLU sector
Project timing
Additionality
Baselines
Methodology
Leakage
Permanence & Land eligibility criteria
Sustainable development criteria and Non diversion
of ODA
Baseline
• Emission reductions must be additional – but
reductions compared to what?
“The baseline for a CDM project activity is the scenario that
reasonably represents the anthropogenic emissions by
sources of greenhouse gases that would occur in the
absence of the proposed project activity.”
(Marrakech Accord, 2001)
• Baseline development is critical to estimating credits
potential and proving additionality.
Examples of baseline
determination
Schematic baseline
representation for e.g. a
renewable energy project
Schematic baseline
representation for forestry
projects
Emissions reductions = Emissions in baseline scenario
– Emissions in project scenario
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Carbon credit standards
Eligible project types for the AFOLU sector
Project timing
Additionality
Baselines
Methodology
Leakage
Permanence & Land eligibility criteria
Sustainable development criteria and Non diversion
of ODA
UNFCCC Baseline and
Monitoring Methodologies
Methodologies:
 Rulebooks for calculating the
amount
of
carbon
credits
generated by a project
 Follow framework of the
respective carbon credit scheme,
for instance, the CDM or the VCS,
but are much more detailed
http://cdm.unfccc.int/methodologies/
In the VCS, the CDM and CCAR methodologies can be used; new,
VCS specific methodologies can also be developed
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Carbon credit standards
Eligible project types for the AFOLU sector
Project timing
Additionality
Baselines
Methodology
Leakage
Permanence & Land eligibility criteria
Sustainable development criteria and Non diversion
of ODA
Leakage
• Leakage refers to:
• Emissions arising from activities that are displaced
rather than addressed and reduced, e.g., activity
shifting to neighbouring piece of land
• Examples of leakage drivers in forestry projects
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Carbon credit standards
Eligible project types for the AFOLU sector
Project timing
Additionality
Baselines
Methodology
Leakage
Permanence & Land eligibility criteria
Sustainable development criteria and Non diversion
of ODA
Permanence (land use
projects only)
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Permanence is an issue in land use sector projects due to the risk of
biomass loss
How to ensure that the carbon reductions achieved by the sequestration of
atmospheric carbon into biomass translates to permanent benefits, and that
sequestered carbon will not eventually be released back to the
atmosphere?
• CDM: Rigorous approach. Temporary credits are issued (t-CERs and lCERs) of limited validity, that are re-issued if biomass is still in place.
• VCS: A safety “buffer” of carbon credits has to be reserved and cannot
be sold by project. The credits are used to compensate a potential loss
in biomass. Size of buffer depends on project risks.
• Portfolio approach: Several private and public sector actors use
portfolios containing a variety of carbon projects in order to spread the
risk of losses- the under-performance or non-permanence of one project
will be compensated by another project .
Land Eligibility Issues for
forestry projects
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CDM restricts activities to tree planting
Only lands that have been without forests since 1990 can be used for A/R
projects: to avoid ‘perverse incentives’
 demonstrate that project activity land was not covered with forests
in 1990 and the site is not covered with forests at the project start
Ranges for forest definition has been specified by the UN
 Minimum crown cover: 10-30%
 Minimum height at maturity of vegetation: 2-5 m
 Minimum area: 0.05-1 ha
Individual countries need to fix the forest definition as per these ranges
 VCS allows the use of lands that have been without forest for at least 10 years
at the project start
 VCS does not use these definitions: within this standard, re-vegetation with
shrubs or small trees are also eligible
Content
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Carbon credit standards
Eligible project types for the AFOLU sector
Project timing
Additionality
Baselines
Methodology
Leakage
Permanence & Land eligibility criteria
Sustainable development criteria and Non diversion
of ODA
Sustainable development
criteria and Designated
National Authority
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Assisting the host country to achieve sustainable development priorities is
one of CDM priorities
 project must satisfy sustainable development criteria of country to get
Letter of Approval (LoA)
Parties participating in the CDM shall designate a national authority for the
CDM  check http://cdm.unfccc.int/DNA/index.html to see if a
Designated National Authority (DNA) is in place.
Each host country government has developed sustainable development
criteria and sustainable development indicators.
Set of sustainable development criteria to be decided by the country, but
generally revolve around environmental, social and economic features
These criteria are not mandatory in the VCS or GS, but it is advisable to
apply them to ensure the environmental and social co-benefits of the project.
Environmental and social co-benefits need to be proved for the CCBS.
Non-Diversion of Official
Development Assistance
CDM requirement: If a carbon credit project is financed by public funds, the
purchasing of the carbon credits must not result in a diversion of ODA.
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The statement refers to the CERs generated by the project and not to the
financing of the project itself;
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CERs resulting from ODA financed projects that are provided to the donor
as a return to the public funding are seen as a diversion of ODA;
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Public funding sources for the project itself are allowed, as long as it is
clearly stated that the CERs generated by the project are not considered
as a compensation to public funding.
If ODA is used in project finance, there are several options:
• The government of the donor country confirms through a letter that the
public funding of an emission reduction project has not resulted in diversion
of ODA.
• ODA sources are used for project finance, but not for purchase of carbon
credits  separate streams of finance.
• The credits remain with local project partners (donation) and are reinvested.
Land use sector in the carbon
market
Only the minority of these are rural projects
Compliance market
Voluntary market
UNEP Risoe, 2011 and EcoSystem Marketplace, 2010
There are several opportunities, especially in forestry and sustainable land
management that can be pursued on the global carbon markets. However, market
shares of these projects stay behind the potential, especially in the compliance market
Challenges to land use sector
mitigation
Economic & structural challenges
 Often revenues are not sufficient to make the project financially
viable  low profitability, less interest from investors
WHY?
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In general low profit sector (not industrial!)
Long time to generate return on investment
Matter of scale: smaller area, fewer carbon credits
A multitude of stakeholders provide complex cases
for investment and contracts
Challenges to land use sector
mitigation (ctd)
Institutional challenges
 The CDM has treated AFOLU projects very restrictively, hence the
most important and dominant carbon market mechanism has not
offered a high level of opportunities for the sector
WHY?
 CDM Forestry: only A/R, no forest conservation
 CDM Agriculture: mainly methane reduction, little land
management, no soils management
 Very complex methodologies, difficult to develop
and follow! Very difficult to monitor and verify
 Slow administrational process: first methodology in
2005, first project in 2006
Carbon market framework
necessary changes
The following changes would need to be implemented to
the carbon market framework:
• Simplify procedures
• Lower transaction costs
• Broaden eligibility criteria for land-use, land-use change
forestry activities (e.g. including more weight for
Sustainable development criteria)
• Making avoided deforestation projects eligible
• Preferred treatment projects that combine benefits of
different conventions
How to encourage AFOLU
mitigation projects
Carbon fund:
• money assigned to build a project portfolio that is expected to deliver a
certain volume of carbon credits
Purpose of carbon funds:
• easier for buyers to pay in sum of money and receive carbon credits in
return, often at low price
• easy for sellers - large volumes being taken off
Role of carbon funds:
• Market pioneers, e,g. World Bank funds  can go into new, untapped
sectors
• Willing & able to accept higher risks
• Often promoting specific sectors, e.g. Carbon Partnership Facility
Examples of World Bank
Carbon Funds for AFOLU
BioCarbon Fund
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for projects that sequester or
conserve carbon in forest and
agro-ecosystems,
aims to deliver cost-effective
emission reductions, while
promoting biodiversity
conservation and poverty
alleviation.
Two Tranches: I from May 2004,
total capital US$53.8 million; II
since March 2007, total capital
US$ 38.1 million
Forest Partnership
Facility
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assist developing countries in
efforts to reduce emissions from
deforestation and land
degradation (REDD)
Two main aims: readyness for
REDD countries, and then pilot
incentive programs for REDD in
selected countries
Total capital US$ 300 million
Outlook for AFOLU
• Promising and important sector, also according to IPCC: “outlook for GHG
mitigation in agriculture suggests that there is significant potential” and
“forestry can make a very significant contribution to a low-cost global
mitigation portfolio that provides synergies with adaptation and sustainable
development” (AR4, 2007)
• Yet underdeveloped due to different reasons, among them lack of political
will for forestry  change of mind, more activities & investment needed.
• First steps are being done but need to intensify actions, measures and
awareness.
• Number of project types that may not work under CDM, especially in forestry
and agricultural sectors, which could be very successful on the voluntary
market.
Outlook for Agriculture
Most prominent options for mitigation are:
• Improved crop and grazing land management (e.g., nutrient use,
tillage, and residue management)
• Restoration of organic soils that are drained for crop production
• Restoration of degraded lands
Significant mitigation is possible with:
• Improved water and rice management
• Land use change (e.g., conversion of cropland to grassland)
• Agro-forestry
• Improved livestock and manure management
IPCC, 2007
Outlook for Forestry
• REDD is seen as high potential sector that will be promoted in the
coming years
• Deforestation is the single most important CO2 source in the land
use sector , with a net loss of forest area between 2000 and 2005 of
7.3 million ha/y (FAO FRA, 2005)
•  In the short term, mitigation benefits of reducing deforestation
are greater than the benefits of afforestation
Measures in the forestry sector allow for the cost-effective
reduction of emissions while often also delivering development
and biodiversity co-benefits.
Outlook for Rural Energy
• Sector that can bring very high social and environmental benefits:
always interesting for the voluntary market
• Tendency might go towards bundling of several villages /
communities with small scale activities: several hydros, windpark,
etc
• Can play important role in slowing down land degradation
Thank You!
Louis Perroy
Senior Partner and CFO
ClimatEkos
[email protected]