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USAID-CIFOR-ICRAF Project

Assessing the Implications of Climate Change for USAID Forestry Programs (2009)

5.4. The Clean Development Mechanism: Overview

Rodel D. Lasco, ICRAF

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Outline

1. CDM basics

2. Project development cycle

3. Forestry projects in CDM

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1. CDM Basics

Article 12 of the Kyoto Protocol under the UNFCCC

The purpose of the CDM shall be to assist non-Annex I Parties inachieving sustainable developmentand in contributing to theultimate objective of the Convention, and to assist Annex I Parties

in achieving compliance with their commitments.

It is the host Partys prerogative to confirm whether a CDM projectactivity assists it in achieving sustainable development.

A CDM project activity isadditionalif GHG emissions are reducedbelow those that would have occurred in the absence of theregistered CDM project activity

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Rules for the CDM

Annex I Parties are to refrain from using CERs generated fromnuclear facilitiesto meet their quantified GHG emissions reductiontargets

The eligibility of land use, land-use change and forestry projectactivities under the CDM is limited to afforestation and reforestation

(A/R) Public funding for CDM projects from Annex I Parties is not to result

in the diversion of official development assistance (ODA)and is to beseparate from and not counted towards the financial obligations of

Annex I Parties

ODA can be, and is being, used to help prepare CDM projects For example, the Danish government has used its ODA in selectcountries to help develop CDM projects. Then other non-ODA fundshave been used by Danish government and private sector to actuallybuy the carbon credits generated by the CDM project

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The CDM Market

UNEP/EcoSecurities, 2007

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Source: UNEP/EcoSecurities 2007

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2. The CDM Project Cycle (1/2)

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2. The CDM Project Cycle (2/2)

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3. CDM Forestry Projects

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Marrakech Accord

CDM Forestry is limited to:

Afforestationland unforested 50 years ago Reforestationland unforested before 1990

First commitment period (2008-2012)

Allowed at a maximum level of 1% from theassigned amount (cap)140 Mt CO2

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Afforestation

Direct human-induced conversion of land that hasnot been forested for a period of at least 50 years toforested land through planting, seeding and/or the

human-induced promotion of natural seed sources

50 years

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Reforestation

Direct human-induced conversion of non-forested landto forested land through planting, seeding and/or thehuman-induced promotion of natural seed sources, onland that was forested but that has been converted to

non-forested land For the first commitment period, reforestation activities

will be limited to reforestation occurring on those landsthat did not contain forest on 31 December 1989

1990

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How long can a CDM project last?(crediting period)

Two options:

Fixed30 years with no renewal Renewablemay be a maximum of 20 years and may be

renewed twice for a total maximum of 60 years

Need to determine if baseline is same or will be updated

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Non-permanence

Land-based systems subject to reversal by human andnatural disturbances

Addressed by concept of rental of the service

Includes two optionstemporary and long-term certifiedemission reduction units (tCER and lCER)

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Forest carbon is rental service

tCER expiring at the end of the commitment period following the onein which it was issued

In practice means lasts for 5 years at most

lCER expiring at the end of the crediting period following the one forwhich it was issued

In practice means it can last for 20-30 years and used in onecommitment period in which they were issued

Annex 1 countries using the tCER or lCER must replace or retirethem before they expire

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Additionality

ba

f e

d

c

C

B

D

t1 t2

Time

Carb

onstocks

A

AB = BaselineAC = AdditionalityAD = Leakage

abcd = gainabef = lossabcd-abef = net gain

Fixed30 years with no renewal Renewable - may be a maximum of 20 years and may be

renewed twice for a total maximum of 60 years

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Transaction costs for forestry projects

Project preparation (usually by a consultancy company): USD 60,000-180,000.

Validation (by a Designated Operational Entity or DOE): estimated at USD15,000-25,000.

Registration fee (by the Executive Board or EB): For the first 15,000 CERsprojects are charged US$0.10/CER, for anything above 15,000 they are

charged US$0.20/CER.

Monitoring costs: depending on project size and sample size needed, as wellas on monitoring methods and intensity.

On-going verification (by DOE): USD 15-25,000 per audit.

Issuance fee (by the EB): The issuance fee is as above US$0.10/CER for the

first 15,000 CERs, it is US$0.20/CER for anything above 15,000 CERs.

Adaptation levy (by the EB): 2% of the CERs generated

Taxes (by the host country): Some countries claim a share of a projects CERsin exchange for issuing a Letter of Approval that is prerequisite to registration

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Tropical forests and the carbon market

There are still very few takers of forestrycarbon projects under the so-called Kyotomarket.

It has been estimate that up to 13.6 millioncarbon credits may be available by 2012based on projects on the pipeline

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CDM Projects by scope as of 31 March 2009

0.16% from A/R

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World Bank carbon funds

Prototype Carbon Fund (PCF)

all sectors with loan component

Community Development Carbon Fund

for small scale projects

sector: energy, urban, waste, agroforestry prioritizes the LDC Contract price US$ 26-28/tC

BioCarbon Fund (BCF)

LULUCF sector

to improve people livelihoods to avoid erosion and desertification Contract price US$ 12-16/tC

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Sustainable development objectives

Enhanced environmental services

Improved soil fertility Biodiversity conservation Maintained hydrological/watershed functions

Improved livelihoods Create job opportunities Increased income and financial benefits

Secured social capital

Ascertained land titles and tenure systems Reduced conflicts over property Strengthened institution

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Barriers to CDM projects

Base financing for treeplanting lacking

High transaction cost(> US$ 200,000)

Carbon credits notsufficient to cover totalcost of project

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Thank you for your attention

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