Cincs Carbon Sequestration Introduction
This document was uploaded by user and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this DMCA report form. Report DMCA
Overview
Download & View Cincs Carbon Sequestration Introduction as PDF for free.
More details
- Words: 13,714
- Pages: 34
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
June 2008
The world is showing increasing concern about the threat of global warming, substantiated by over a decade of scientific examination. The state of the environment and the consequences of climate change increasingly drive policy, impact consumer behavior, underlie shareholder actions, and inform corporate decisions. This document is put forth by CINCS, LLC. CINCS is a technology services company focused on global monitoring, accounting and verification systems for emerging environmental markets. CINCS provides geo‐spatial technology solutions for carbon accounting and environmental monitoring. ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
1
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
This document is Copyright of CINCS ®, LLC, 2008, and contains data and opinions compiled by CINCS. CINCS is not liable for information or data herein that changes daily with market trends or the study of climate change. Credits Research and text: Stephen J. Donofrio, Mark Chapman, Daniel Buckley, Plinio Ribeiro Design and printing: Stephen J. Donofrio, Mark Chapman Picture on front page: Mark Chapman New York, NY USA 2008 CINCS, LLC CINCS, LLC is a technology services and consulting company focused on innovative global monitoring, accounting and verification systems for emerging environmental services markets. CINCS can apply emerging technologies to global environmental questions and issues, and also provide these accurate and rigorous measuring and monitoring technologies to better understand land use changes, natural resources and environmental markets. The development of environmental markets worldwide, such as carbon, requires assurances and verification for buyers and sellers of emissions reductions from land use carbon offset projects. Headquartered in New York, CINCS can offer remote sensing products and technologies to aid in these verifications.
C2008, CINCS, LLC 561 Broadway, Suite 6A New York, NY 10012 United States of America Telephone: +1.212.925.8106 [email protected] www.cincs.com ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
2
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
Table of Contents Acronyms ...................................................................................................................................................... 5 1.0
A Global Warming Introduction ....................................................................................................... 6
1.1
What is global warming? ............................................................................................................... 6
1.2
What are the effects of global warming? ..................................................................................... 6
1.3
How are greenhouse gas concentrations affected by human activity? ........................................ 7
1.4
What about Greenhouse Gas Emissions from Land Use Activities? ............................................. 8
1.5
What technological solutions exist to mitigate global warming? ................................................. 8
2.0
Carbon Sequestration .................................................................................................................... 10
2.1
What is carbon sequestration? ................................................................................................... 10
2.2.
What is vegetative carbon sequestration? ................................................................................. 10
2.3
What is the potential for vegetative carbon sequestration in terrestrial ecosystems? ............. 11
3.0 Overview of Land Use, Land‐Use Change & Forestry (LULUCF) Projects and the Global Carbon Markets ....................................................................................................................................................... 13 3.1
What significance does the Kyoto Protocol have for emitters of greenhouse gases? ............... 13
3.2 Are Land Use, Land‐Use Change and Forestry (LULUCF) offset credits accepted by the Kyoto Protocol? ................................................................................................................................................. 13 3.3 Why have LULUCF projects not maintained strong activity and approval in the Kyoto‐compliant trading mechanism? ............................................................................................................................... 14 3.4
What non‐Kyoto markets accept land use, land‐use change and forestry offset credits? ......... 15
3.5
Is there active support for high‐quality LULUCF project emission reductions? ......................... 15
Saving Tropical Rainforests with Reduced Emissions from Deforestation and Degradation (RED) 3.6 Project Activities ..................................................................................................................................... 16 4.0
Land Use, Land‐Use Change & Forestry (LULUCF) Projects and the Kyoto Protocol ................... 17
4.1 What is the scope of LULUCF within the Clean Development Mechanism (CDM) of the Kyoto Protocol? ................................................................................................................................................. 17 4.2
What is the CDM Project Cycle? ................................................................................................. 17
4.2.1
Project Documentation: Project Idea Note, Letter of Expression, Letter of Intent ............ 18
4.2.2
Project Design & the Project Design Document (PDD) ....................................................... 18
4.2.3
Emissions Reduction Purchase Agreements ....................................................................... 18
4.2.4
Project Validation ................................................................................................................ 19
4.2.5
Monitoring Project for Verification and Certification ......................................................... 19
4.2.6
CDM Executive Board (EB) Verification and Certification ................................................... 20 ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
3
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
4.3
LULUCF Costs and Risks under the CDM ..................................................................................... 20
4.3.1
Transaction costs ................................................................................................................ 20
4.3.2
Gauging Performance: Temporary CER vs. long‐term CER ................................................. 21
4.3.3
CDM & forestry risks ........................................................................................................... 21
4.3.4
Forestry credit prices .......................................................................................................... 22
4.3.4
Prices and Risk ..................................................................................................................... 23
LULUCF Costs and Risks under the CDM ..................................................................................... 23
4.4
4.4.1
Foresty credit buyers in the CDM market ........................................................................... 23
4.4.2
Market demand for forestry offsets ................................................................................... 24
4.4.3
Successful Commercialization Checklist (from CATIE guidebook) ...................................... 25
5.0
Greenhouse Gas Disclosure and Reporting Frameworks .............................................................. 26
5.1 What are some of the Voluntary Greenhouse Gas Disclosure and Reporting Frameworks that exist today? ............................................................................................................................................. 26 5.1.1
Carbon Disclosure Project ................................................................................................... 26
5.1.2
Program 1605b ................................................................................................................... 26
5.1.3
Eastern Climate Registry ..................................................................................................... 26
6.0
Overcoming Vegetative Carbon Sequestration Project Inhibitors ............................................... 28
6.1
What are the concerns of quantifying GHG offset benefits from forestry projects? ................. 28
6.2
What are the inhibitors associated with promoting vegetative carbon sequestration projects? 28
6.3 What processes and technologies exist to overcome some carbon sequestration project measuring and monitoring inhibitors? ................................................................................................... 30 6.3.1 6.3.2 6.3.3
On‐the‐ground measuring and monitoring ........................................................................ 30 Aerial photography as measuring and monitoring ................................................................. 30 Satellite remote sensing ...................................................................................................... 30
6.4 What carbon accounting research contributions have been made by the Food and Agriculture Organization? .......................................................................................................................................... 31
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
4
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
Acronyms AAU BAU CER CCX CDM CH4 CO2 CO2e CSR EO ERU EU ETS GHG GIS GPS GWP IPCC lCER NAP NOx N2O REC SF6 SOx SRI tCER UNFCCC VER
Assigned Amount Unit Business As Usual Certified Emission Reduction Chicago Climate Exchange Clean Development Mechanism (Kyoto Protocol) Methane Carbon Dioxide Carbon Dioxide Equivalent Corporate Social Responsibility Earth Observation Emission Reduction Unit European Union Emissions Trading Scheme Greenhouse Gas Geographic Information System Global Positioning System Global Warming Potential Intergovernmental Panel on Climate Change Long‐term Certified Emission Reduction National Allocation Plan Nitrogen Oxides (nitrous oxide + nitrogen dioxide) Nitrous Oxide Renewable Energy Credit Sulfuric Hexafluoride Sulfur Oxides (sulfur dioxide + sulfur trioxide) Socially Responsible Investing Temporary Certified Emission Reduction United Nations Framework on Climate Change Voluntary Emission Reduction
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
5
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
1.0 A Global Warming Introduction Over the past two decades, there’s been an outpouring of research and debate over global warming, which scientists call climate change. A broad consensus has now formed: Climate change is real, well under way, and is an enormous potential threat. The good news is that a range of viable solutions exists, including land use and forestry approaches that can reduce the existence of greenhouse gases in the atmosphere and help us adapt to coming changes. This paper gives a brief overview the science behind climate change and then turns to look more closely at Land Use, Land‐Use Change and Forestry Projects (LULUCF).
1.1
What is global warming? Over the last 10,000 years, Earth’s thermostat has been set to an average surface temperature of around 57°F. However, the Earth’s average planetary temperature has been rising; an effect called global warming or climate change. This change in climate is attributed to an enhanced greenhouse effect, or in other words, increased trapping of the sun’s rays inside Earth’s lower atmosphere due to a build‐up of “greenhouse gases”. Greenhouse gases such as carbon dioxide (CO2), methane (CH4), nitrous oxides (NOx), and sulfuric oxides (SOx) form a pervious blanket around the Earth reaching a distance of 100km (60 miles) from its surface. These gases, particularly CO2, play a critical role in maintaining the complex and delicate balance of Earth’s thermostat and in sustaining life throughout our history. They aid the planet in maintaining a homeostatic surface climate by keeping a portion of the sun’s rays close to the Earth rather than allowing them all to escape. Despite this important role, these greenhouse gases are also waste products of the fossil fuels that almost every person on the planet uses for heat, transport, and other energy requirements, which are rapidly increasing the proportion of greenhouse gases in the atmosphere.i As these concentrations increase and exceed Earth’s ability to control it within bounds, the amount of solar radiation and warmth kept close to the Earth, and hence temperature, also increases.
1.2
What are the effects of global warming? Climate change has already caused and is expected to continue causing a wide array of changes. Changes to climate and weather may deprive key agricultural regions of rain and lead to more severe storms, could contribute to broad‐based destruction of natural habitats and the extinction of speciesii, could lead to rising sea levels that will threaten coast development, and potentially induce serious changes upon global climate regulators such as thermohaline current (Fig. 1), the jet stream and the Arctic and Antarctic icecaps.iii ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
6
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
Figure 1: Solar Radiation and Generalized model of thermohaline circulation; “Global Conveyor Belt”iv
These shifts have already caused floods and droughts in certain regions, which have left people starving and malnourished, thus global warming threatens all species connected to and dependent on the planet. Climate change particularly impacts the lives of the poor as they lack the resources the industrialized world has to deal with its ramifications.
1.3
How are greenhouse gas concentrations affected by human activity? There is undeniable evidence that greenhouse gas (GHG) emissions from human activities are contributing to global warming and having increasingly harmful effects on the environment. The overwhelming consensus among scientists is that GHG concentrations are increasing as a result of the combustion of fossil fuels, industrial manufacturing, agricultural practices and other anthropogenic activities. Since the beginning of the industrial revolution, atmospheric concentrations of carbon dioxide have increased nearly 30%, methane concentrations have more than doubled, and nitrous oxide concentrations have risen by about 15%.v Although the situation is serious, we can reduce and mitigate emissions through a variety of approaches.
Figure 2: Global Carbon Dioxide Emissions by Type and Region
vi
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
7
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
Humans do not only have the potential to increase the existence of greenhouse gasses, but we have opportunities to reduce and remove them as well. The concentration of greenhouse gasses can be mitigated by, 1) removing greenhouse gases currently in the atmosphere and 2) reducing future greenhouse gas emissions. According to internationally acclaimed scientist Tim Flannery in his recent book The Weather Makers, climate change is a serious and immediate cause for concern. Flannery suggests investments in renewable power sources and technological engineering solutions as a means to counter‐act the increase in greenhouse gas emissions, in addition to offering an insightful analysis of the carbon emission regulations such as the Kyoto Protocol.
1.4
What about Greenhouse Gas Emissions from Land Use Activities? Land use related activities such as tropical deforestation and forest fires are the second‐largest source of GHG emissions after the burning of fossil fuels. Tropical deforestation is one of the most critical environmental problems faced by many developing countries.vii Table 1 summarizes the main sources of GHGs with respect to land use activities. Of the 7.5 billion tons of annual carbon emissions estimated to be released by humans to the atmosphere, 1.5 to 1.8 billion tons come from forest‐related sourcesviii, primarily from deforestation in the tropical regions of Central and South America, Africa, and Asia.ix
Table 1: Land Use Related sources of Greenhouse Gases
x
1.5
What technological solutions exist to mitigate global warming? Since the 1980’s, industry and scientists have been working to create new sources of renewable energy, such as wind and solar, improve efficiency and research engineering solutions such as carbon sequestration, which would allow for the continued use of fossil fuels without causing the climate harm.xi ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
8
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
However, challenges of implementation, scale, and cost have limited the growth of clean energy and other engineered solutions. Along with these approaches, scientists have been exploring the potential of forests, agricultural land and other forestry project to act as carbon sinks. While vegetative carbon sequestration is a natural process, new technology, such as geographic information systems (GIS), global positioning systems (GPS) and earth observation (EO) satellites has made possible the measuring and monitoring of carbon stocks and flux. By using a combination of remote observation and on‐the‐ground measurement, we can provide scientifically accurate and verifiable data on the amount of carbon being absorbed by a project. This adds an exciting and cost‐effective tool to combat climate change and provide a host of other positive benefits, such as reducing air pollution and flooding and enhancing natural habitat. Other technological means by which the presence of greenhouse gases in the atmosphere may be reduced are considered fuel‐switching projects, whereby hydroelectric, wind, biomass and a number of other renewable energy technologies are implemented to offset current or future fossil fuel power generation in eco‐friendly manners.
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
9
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
2.0 Carbon Sequestration 2.1
What is carbon sequestration?
Carbon sequestration is the uptake and long‐term storage of carbon in the terrestrial biosphere (i.e. rocks and sediments, swamps, wetlands, forests and their soils, grassland and agriculture) or in the oceans. As a result of this storage, the amount of CO2 contributing to the greenhouse effect will decrease. Carbon sequestration can be achieved through natural processes by maintaining or enhancing forests, farmlands, open spaces or ocean habitats. Engineered approaches are also being developed to sequester carbon, such as carbon capture and geological storage (CCS).xii
Figure 3: A simplified carbon cycle diagram
2.2.
What is vegetative carbon sequestration?
Vegetative carbon sequestration is the removal of CO2 from the atmosphere by agricultural and forestry practices, primarily through photosynthesis, the absorption and subsequent storage of CO2 occurring in plants and organic matter. Agricultural and forestry lands that absorb CO2 are referred to as vegetative “sinks”.xiii The UNFCCC defines a sink as “any process, activity or mechanism that removes a greenhouse gas, an aerosol or a precursor of a greenhouse gas from the atmosphere”.xiv In turn, through the process of respiration of the living biomass and the decomposition of dead organic matter in soils, CO2 is returned to the atmosphere. As a result, net sequestration of this type only occurs when the amount of photosynthesis taking place exceeds the total amount of plant and soil respiration. xv Points of carbon storage, or pools, can take the form of “living, aboveground biomass (e.g., trees and shrubs), products with a long, useful life created from biomass (e.g., lumber), living biomass in soils (e.g., roots and microorganisms), or recalcitrant organic and inorganic carbon in soils and deeper subsurface environments”.xvi Trees make up much larger carbon reservoirs than herbaceous plants. Sequestration in ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
10
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
trees occurs while a stand of trees is growing and lessens significantly as the stand reaches maturity. As a consequence, the non‐renewed growing of trees to sequester carbon would result in a one‐time benefit over a limited periodxvii, while growing trees for an energy substitute to fossil fuels and harvesting them periodically before they mature leads to a continuous offset benefit.xviii Soils have a large potential for carbon sequestration. In fact, global carbon content in soils is three times larger than in plants and animals, twice the amount in the atmosphere and a third of the carbon found in fossil fuels. Specifically, the carbon stored in soil organic matter depends on the balance between the annual input of dead plant material and the annual loss of organic matter through decomposition. When ecosystems reach maturity, the carbon content in soils remains constant, although the actual amount varies among ecosystems. Such variation occurs in very large amounts of carbon content in peatlands, where anoxia slows respiration rates, and very small amounts in hot, dry areas where respiration proceeds rapidly and inputs of organic matter are scarce.xix Physical disruption of soils (i.e. cultivation, draining, etc) accelerates soil respiration, causing carbon to be added to the atmosphere, while practices aimed at increasing productivity (i.e. application of fertilizers) are likely to create a carbon sink.xx
2.3
What is the potential for vegetative carbon sequestration in terrestrial ecosystems?
The IPCC Third Assessment Report of 2003 estimates that nearly 100 billion tons of carbon could be sequestered through forest preservation, tree planting and improved agricultural management over the next 50 years. This would offset 10‐20% of the world's projected fossil fuel emissions.xxi Over 300 million tonnes of carbon could be sequestered each year from activities in Annex I countries. However, the potential sequestration is much larger in non‐Annex I countries.xxii Table 2 summarizes the estimates for carbon sequestration in both Annex I and Non‐Annex I countries (the quantities for articles 3.3 and 3.4 cannot be summed since they may apply for the same area).xxiii Table 3 presents this same potential on a country basis. Table 2: Estimates of carbon sequestration through LULUCF activities by 2010 (Mt C/y)
Activities Article 3.3 ‐ Reduced deforestation ‐ Afforestation and reforestation Article 3.4 ‐ Croplands (e.g. reduced tillage, erosion control) ‐ Forests (e.g. enhanced regeneration, facilitation) ‐ Grazing lands (e.g. herd, fire and wood management) ‐ Agro forests (e.g. management of trees in agriculture) ‐ Urban land (e.g. tree, waste and wood products man.) ‐ Deforested land to agro forest instead of pasturelcrop ‐ Severely degraded land to crop, grass or forest land ‐ Cropland to grassland Total for Article 3.4
Annex I 60 (0‐90) 26 (7‐46) 75 101 69 12 1 0 1 24 300
Non‐Annex I 1,698 373 (190‐538) 50 69 168 14 1 391 3 14 710xxiv
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
11
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
Table 3: IPCC estimates of the global potential for carbon sequestration by 'forestation' and agro forestry between 1995 and 2050)
Region/ Country
Land available (Million ha)
Planting rate (Million ha/yr)
Carbon sequestered (GtC)
Canada
28.3
1.14
1.11
Nordic
0.4
0.01
0.03
Former Soviet
66.5
1.66
1.76
USA
21.0
0.70
3.36
Europe
7.7
0.31
0.96
China
62.5
2.5
1.70
Asia
12.5
0.5
2.19
Africa
1.9
0.07
0.44
America
4.6
0.18
1.02
Australia
4.3
0.12
0.67
New Zealand
5.0
0.10
1.70
Trop. America
40.8
0.74
9.68
Trop. Africa
31.6
0.58
3.53
Trop. Asia
57.7
1.05
9.53
Total
344.8
9.66
37.68 xxv
High Latitudes
Mid Latitudes
Low Latitudes
Tropical forests ‐ According to estimates by the United Nation’s Food and Agriculture Organization, in 2005 some 4 billion ha or about 30% of the earth’s land surface is forested, of which over 2.1 billion ha are in tropical regions. In addition, the area of degraded tropical forests where vegetative sequestration might be usefully undertaken totals some 1,344 billion ha (64% of 2.1 billion ha). xxvi Estimates are that a net gain of 729 Gtons of CO2 is possible in tropical regions over a 50 year period. However, it must be noted that without successful programs to facilitate vegetative sequestration, carbon will continue to be emitted in tropical regions at the preset rate of about 1.1 Gton per‐annum. xxvii United States ‐ U.S. forests and croplands currently sequester over 600 Mtons of CO2 equivalent, after accounting for both gains and losses in carbon. This current amount of sequestration in forests and croplands offsets approximately 12% of total U.S. CO2 emissions from the energy, transportation and industrial sectors.xxviii European Union ‐ If the processes of afforestation and reforestationxxix continue at the present rate, it may result in a sequestration potential of approximately 3.84 Mt C/yr. (14 Mt CO2 eq/yr) during the first commitment period. In case of a sustained afforestation trend and taking into account an extended EU of 25 Member States, a technical sequestration potential of 34 Mt C/yr (125 Mt CO2 eq) could be reached in the long term.xxx ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
12
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
3.0 Overview of Land Use, Land‐Use Change & Forestry (LULUCF) Projects and the Global Carbon Markets
3.1
What significance does the Kyoto Protocol have for emitters of greenhouse gases? The Kyoto Protocol is an agreement between 166 countriesxxxi adopted on December 11th, 1997 and entered into force on February 16th, 2005. It stipulates that participant bodies must collectively achieve emissions levels at 5% below recorded levels in December of 1989 by the year 2012.xxxii The United Nations Framework Convention on Climate Change has established the Clean Development Mechanism (CDM) which is an arrangement under the Kyoto Protocol whereby industrialized Annex II countriesxxxiii with a ratified commitment to greenhouse gas reductionsxxxiv may invest in emission reduction or carbon sequestration projects in developing countries (non‐Annex I) rather than invest in higher cost emission reduction endeavors in their own countries in order to meet their Kyoto compliance requirements.
3.2
Are Land Use, Land‐Use Change and Forestry (LULUCF) offset credits accepted by the Kyoto Protocol?
Article 3.3 of the Kyoto Protocol contains the following agreement to include afforestation, reforestation and deforestation:
'The net changes in greenhouse gas emissions from sources and removals by sinks resulting from direct human‐induced land use change and forestry activities, limited to afforestation, reforestation and deforestation since 1990, measured as verifiable changes in stocks in each commitment period, shall be used to meet the commitments [in 2008‐2012] in the Article of each Party.’ The terms afforestation, reforestation and deforestation are defined as follows:
• Afforestation refers to the direct human‐induced conversion of land that has not been forested for a period of at least 50 years, to forested land through planting, seeding and/or the human‐induced promotion of natural seed sources.xxxv • Reforestation is the direct human‐induced conversion of non‐forested land to forested land through planting, seeding and/or human‐induced promotion of natural seed sources, on land that was forested but has been converted to non‐forest land. For the first commitment period [2008‐ 2012], reforestation activities will be limited to reforestation occurring on those lands that did not contain forest on 31 December, 1989.xxxvi • Deforestation is the direct human‐induced conversion of forested land to non forested land.xxxvii This action results in a net loss of carbon in the terrestrial stock since most alternative land uses have a lower potential for carbon sequestration than forests.xxxviii The Marrakesh Accords (COP 7, 2001) and the Montreal COP 11 (2005) clarified the tree planting activities eligible under Article 3.3 as follows:xxxix • The activity must have begun after December 31st, 1989 and resulted in the deliberate human‐ induced conversion of non‐forested land –typically abandoned farmland‐ into forest. ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
13
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
• Forest is defined as any land area covering at least 0.05‐1.0 hectares that has at least 10‐30% tree crown cover, with trees that have the potential to reach 2‐5 m height at maturity. • Land is eligible for afforestation if it is at least 0.05‐1.0 hectares in size and has less than 10‐30% tree crown cover, with trees that have the potential to reach 2‐5 m height at maturity, prior to planting. Article 3.4 of the Kyoto Protocol opened the possibility to include additional Land Use, Land‐Use Change and Forestry activities:
'The Conference of Parties... shall...decide upon modalities, rules and guidelines as to how and which additional human‐induced activities related to changes in greenhouse gas emissions and removals in the agricultural soil and land use change and forestry categories shall be added to, or subtracted from, the assigned amount for Parties included in Annex I [the reduction targets], taking into account uncertainties, transparency in reporting, verifiability, the methodological work of the IPCC...'xl
The Bonn Agreement formulated at the 6th Conference of the Parties to the UNFCCC in July 2001 clarified the implementation of Article 3.4 in the context of defining agricultural and forestry terminology as well as noted eligible project activities. Eligible activities include cropland management, grazing land management and revegetationxli, provided these activities are human‐induced, have occurred since December 31st, 1989 and are within each Parties individual cap of each management activity type. In addition, the Marrakech Accords established legally‐binding guidelines for reporting and accounting for agricultural carbon sinks.xlii Incremental carbon sequestration from managed forests can be accounted for and used to meet a country’s commitments, however, no additional credits are so farxliii provided for carbon that is precluded from being emitted by avoided deforestation measures (conservation of an existing forest area that is protected to prevent its loss resulting in carbon emissions) since no change in stock has occurred. Additionally, if a forest is destroyed (i.e. by a fire) and carbon is released, emission debits are generated on the grounds of occurred deforestationxliv. Another important issue is the extent to which carbon sequestered by forest management activities, defined under Article 3.4., could be counted toward the target carbon reduction. The agreed cap was 15% of current carbon sequestration totals attributable to forest management. For Japan, Canada, and Russia, the cap was adjusted upward. A country could choose not to use LULUCF activities to obtain carbon credits, while also not being held accountable for emissions that might occur on those lands either. xlv
3.3
Why have LULUCF projects not maintained strong activity and approval in the Kyoto‐ compliant trading mechanism?
Although emissions offsets from LULUCF projects in the form of CERs are permissible for use in meeting national emissions reduction quotas under the Kyoto regime, they are not accepted in the European Union Emissions Trading Scheme. The EU ETS has not permitted the trading of LULUCF CERs as a precautionary measure hedging against decreased investment in projects that generate CERs through energy efficiency and fuel‐switching measures.xlvi Kyoto signatory countries may still implement forestry activities in the form of afforestation and reforestation projects, however the amount of emissions reduction claimed by such activities are only eligible for covering 1% of each signatories emissions reduction quota. The European Union Emissions Trading Scheme (EU ETS) denies market access to certified and voluntary Land Use, Land‐Use Change and Forestry (LULUCF) emission reductions. The Kyoto Protocol itself ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
14
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
authorizes only afforestation and reforestation activities for the generation of LULUCF emission reductions, completely excluding categories such as soil carbon storage, sustainable forest management and avoided deforestation. Even in their currently‐eligible categories, LULUCF assets have been singled out to require particularly complex methodologies, with ten large scale and three small scale methodologies having been approved so far. Although buyers (especially in retail markets) often express a preference for agro forestry projects that show actual community benefits, the market share held by these projects has been relatively modest due to regulatory complexity and limited market access in the EU. The LULUCF‐based share of transactions has experienced a regular decline in the carbon market. Although LULUCF projects represented 41% of the tons of emission reductions sold between 1996 and 1999, their share declined to just 7% in 2003, 3% in 2004 and 1% in 2005. The shares are expected to stay small as large‐scale transactions reducing industrial gases such as HFC‐23 or nitrous oxide take a greater presence. The smaller number of LULUCF transactions are mostly due to low demand that stems from the confined attention paid to LULUCF activities in the Kyoto Protocol and other emission reduction regimes. Market imbalances, therefore, create opportunities in other trading mechanisms, namely the voluntary market in the US.
3.4
What non‐Kyoto markets accept land use, land‐use change and forestry offset credits?
The Voluntary Carbon Market (VCM) “involve(s) the trading of allowances created by voluntary emission reduction commitments and/or of credits from voluntary investments in emissions reductions projects – emission reduction credits generated by projects voluntarily undertaken to reduce greenhouse gas emissions below a project baseline level.”xlvii This voluntary market plays a significant role in climate change mitigation, advancing societal awareness of climate change and the impacts of consumer behavior, while allowing for forestry and other offset projects to be implemented outside of conventional Clean Development Mechanism trading floors.xlviiiThe emission offsets generated by LULUCF projects not utilized toward compliance quotas of the Kyoto Protocol are verified by independent agents but are not certified by a regulatory authority, which prevents them from being used as a compliance instrument. These offsets are commonly referred to as Verified Emission Reductions (VERs) and carry a possibility, but not a guarantee, that governments will allow them to be used to comply with future emission reduction requirements by becoming Certified Emission Reductions (CERs) or Emission Reduction Units (ERUs).xlix In the US, trading of voluntary emissions reduction units is prominent on the Chicago Climate Exchange (CCX), where LULUCF projects, including forest management and forest conservation, are eligible. The voluntary nature of this trading mechanism foster strict project requirements are less than under the Kyoto Protocol flexible mechanisms and this market is likely to see expansion. Prices for tradable emission allowances on the CCX are at around $US5.70 currentlyl, being the highest price since the market was set up. The CCX is the hub for the US voluntary market and a major determinant of prices for voluntary carbon offset credits in the US as well as globally.
3.5
Is there active support for high‐quality LULUCF project emission reductions? An objective of the World Bank’s BioCarbon Fund is to “test and demonstrate how LULUCF activities can generate high‐quality emission reductions with environmental and livelihood benefits that can be measured, monitored and certified, and stand the test of time”li. Many other organizations continue to promote LULUCF activities with a similar goal: successful demonstration of these types of project activities ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
15
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
as significant to the growth of the carbon market, and that current rules and regulations under the Kyoto Protocol and the EU ETS exclude a large portion of the developing world from gaining access to the carbon market. The World Bank is presently the largest buyer of forestry credits generated through the Clean Development Mechanism, with the BioCarbon Fund having assembled a portfolio of candidate projects that are projected to deliver up to 22 million carbon credits. Adjustments to that projected volume to account for the risk of project underperformance reveal expectations that the BioCarbon Fund could produce approximately 6 million carbon credits from their portfolio. The LULUCF market volume not already committed to can be provided by other potential government and industry buyers with their increased engagement stimulated by projects’ emission generation security and subsequent market acceptance. The interest stimulated by Tranche One of the BioCarbon Fund among private and public sector participants, host countries, and carbon market experts has prompted the Bank to propose Tranche Two. It is the logical next step following the realization of the fund’s first projects.
3.6
Saving Tropical Rainforests with Reduced Emissions from Deforestation and Degradation (REDD) Project Activities According to the IPCC, 15% to 25% of global annual greenhouse gas (GHG) emissions come from deforestation of tropical forests, with most of the forest destruction taking place in less‐developed countries. The idea of Reduction Emission from Deforestation and Degradation credits (REDD) is to “create a competing economic value for standing forests vs. clear cutting, cattle ranching, or other agricultural uses.” By doing that, it monetizes the carbon that is now stocked in the forest and that emission reduction can be traded in regular carbon markets. Emissions from deforestation and degradation have been ignored by the regulatory carbon markets. The Kyoto Protocol and its CDM mechanism does include REDD as an accepted project activity to combat climate change, however, the December 2007 Conference of Parties 13 (COP 13) in Bali requested that the Subsidiary Body for Scientific and Technical Advice (SBSTA) “undertake a programme of work on methodological issues related to a range of policy approaches and positive incentives for reducing emissions from deforestation and forest degradation in developing countries.” It is expected that the outcome of this “programme of work” will be the inclusion of a REDD mechanism into the international climate change agreement to succeed the Kyoto Protocol of 2008‐2012. On the other hand, REDD is welcome within the voluntary carbon markets, with support from the Climate, Community and Biodiversity Alliance (CCBA), the Voluntary Carbon Standard (VCS) and the Chicago Climate Exchange (CCX). Pushing the development of REDD mechanism are governments, non‐ governmental organizations and private sector entities, whom are working together to develop pilot projects that will demonstrate the viability of REDD projects. Experiences, information and data collected from these projects will be used to inform policy makers and encourage carbon markets worldwide to include REDD.
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
16
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
4.0 Land Use, Land‐Use Change & Forestry (LULUCF) Projects and the Kyoto Protocol 4.1
What is the scope of LULUCF within the Clean Development Mechanism (CDM) of the Kyoto Protocol? Under the first commitment period for the Kyoto Protocol, Annex I parties may satisfy only five percent of their targeted GHG reductions through the use of CDM forestry projects and the CERs they generate. The treaty allows only reforestation or afforestation of degraded lands, conversion of formerly agricultural land to sustainable forestry projects, and some commercial projects. Initial development of LULUCF projects under the CDM for commercialization in the Kyoto markets has been slowed by political, technical, and financial concerns over project monitoring and baseline establishment, permanence of vegetative carbon sequestration, and questions about leakage, lack of additionality, and socioeconomic co‐benefits. With only one forestry CDM project fully validated, registered and commercialized so far, interest has piqued more recently with the acceptance of additional reforestation/afforestation methodologies by the CDM EB.
4.2
What is the CDM Project Cycle?
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
17
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
4.2.1
Project Documentation: Project Idea Note, Letter of Expression, Letter of Intent
The CDM cycle begins when a Project Idea Note (PIN), summarizing the basic structure of the project, is submitted for approval of the host country, who will then issue a letter of endorsement (LOE) or letter of no objection. The LOE serves as a confirmation to proceed with the outlined designed of the forestry project. Furthermore, a prospective buyer will issue a letter of intent (LOI), which along with the LOE, which will be taken into account in the project design phase. 4.2.2
Project Design & the Project Design Document (PDD)
The project design phase does not begin until host country endorsement of the PIN is assured. Developers then further define the project, estimate the GHG removals as a result of the activity, perform a feasibility analysis and finally solicit and identify partners in order to develop a working plan. The formal outline of the project is fixed in the project design document (PPD) that developers submit to the CDM for project approval. Submitted PDDs include the following:
Among the documents for submission should be a description of the methodology used for calculate the project and the estimated GHG removal potential of the sink. Most projects select previously accepted methodologies in order to expedite (to the extent that is possible) the approval process. Project methodology write‐ups are scientific and engineering documents that outline, among other things, boundary definition, eligibility (whether soil carbon or underbrush count in CO2 removal) and inventory design. Since very few methodologies have been approved so far, the vast majority of the projects select a CDM‐preferred methodology in order to help assure verification. 4.2.3
Emissions Reduction Purchase Agreements
At any time in the CDM project cycle, a party may establish emissions reduction purchasing agreements (ERPAs). The project developer and credit buyer might want to sign an ERPA as soon as possible because, unlike the LOI, the ERPA is a legally‐binding agreement. Moreover, the ERPA is often necessary at an earlier project stage in order to generate CER revenues in order to attract further capital to implement or complete the project.
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
18
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
Before the project may be validated by the CDM designated operational authority (DOE), the host country must approve of the project by issuing a letter of approval (LOA). The way in which a country carries out the approval and validation process may differ depending on the salient domestic laws. Yet many host country approvals occur concurrently with DOE validation, as many nations look to the DOE to provide proof that the project conforms to the particulars of the Kyoto Protocol. 4.2.4
Project Validation
In order to validate and eventually register the project, third‐party, accredited, and independent certifiers – vetted by the CDM EB – known as designated operational entity. The DOE analysis of the PDD and other relevant documents tests several criteria.
Once the DOE has received the LOA from the host country, it may complete validation of the project. The PDD will be made publicly available over the internet, followed by a forty‐five day public comment period. At the end of this time, the DOE will decide whether or not the activity will receive a positive validation. Registration of the project triggers the implementation of the project. A validated project document is published by the DOE, with the hopes that an activity may be registered within eight weeks of submission. 4.2.5
Monitoring Project for Verification and Certification
Implementation of the project requires that monitoring commence as well. Periodical monitoring may be performed by the project developers or farmed out to specialized forestry agencies or carbon inventory firms.
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
19
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
4.2.6
CDM Executive Board (EB) Verification and Certification
The final step before any CERs may be issued is an audit of the implementation and monitoring of the activity. Again, a DOE must verify the project and will generally be a different DOE from the validation phase.
CDM LULUCF projects are verified every five years, or once per Kyoto commitment period. Verification may occur at any time during the first five years of the project, yet must be carried out on a five‐year cycle thereafter. A special consideration for LULUCF initiatives is that verification cannot occur at peaks in the carbon stocks. Forestry verification under the CDM requires that verification cannot consistently occur right before periods of harvesting, if such an activity is allowed under the PDD. The CDM EB publishes a verification report with their findings. Successful projects are formally issued CERs that correspond to the GHG removal figures found under verification.
4.3
LULUCF Costs and Risks under the CDM 4.3.1
Transaction costs
Given the complex process through which LULUCF projects must pass to gain certification, the transaction costs are generally quite high when registering a forestry project in the CDM. Several subcontractors may be hired simply to complete the verification phase. In an attempt to encourage smaller‐scale projects, those initiatives that garner fewer than 8000 CERs are subject to different procedures and requirements.
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
20
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
4.3.2
Gauging Performance: Temporary CER vs. long‐term CER
One more decision must be made by the project developer before the credits generated by the forestry project can be purchased on a Kyoto market. Because LULUCF projects bear the special risk of carbon sequestration reversal – that is, their carbon removal is only permanent so long as that vegetation remains intact, unburned, and unharvested – the CDM requires an audit every five years to gauge the forest’s carbon removal performance. In order to address the unique characteristics of vegetative carbon sequestration, the CDM created subcategories of CERs in order to allow project developers to choose the market option that works best for their project. Temporary CERs (tCERs) are issued each commitment period (every five years) and account for the total amount of carbon sequestered since the project start date. These credits expire at the end of the commitment period for which they are issued and must be replaced (based on a carbon audit) by an AAU, a permanent CER, ERU, RMU or another tCER. Since the entire carbon stock is verified every five years and credits are re‐issued according to that calculation, tCERs are lower risk than lCERs; loss of carbon removal does not require replacement. Long‐term CERs (lCERs) are issued once at the beginning of the project and are valid until the end of the project’s unique crediting period (usually 20 years, but may be as long as 55 years). A carbon audit and re‐ verification still takes place every five years, as in the case of tCERs, yet that process calculates the incremental loss or gain in carbon removal since the last commitment period. The decrease in carbon removal due to silviculture, forest fire, or other loss, causes the lCERs to expire. Those expiring lCERs that have been traded prior to expiring trigger a liability that project developers must address through carbon replacement and the acquisition of AAUs, CERs, ERUs, or RMUs. An expiring lCER cannot be replaced by a tCER or another lCER. The decision to sell tCERs or lCERs will be often be dictated, at least in part, by the potential buyers of the project credits. Long‐term CERs currently account for nearly two‐thirds of the market, as they more adequately address issues of non‐permanence. Recent market activity suggests that tCERs are increasingly popular, due to their financial flexibility and their lack of a liability. With many Kyoto parties looking to plug holes in their compliance targets through the credit markets, tCERs provide a short‐term solution for the imminent 2012 Kyoto goals assessments. Moreover, since tCERs assure compliance for the current commitment period and lCERs for the project’s entire crediting period, tCER prices will be lower; a price the seller absorbs for the lack of risk in a tCER project and the shorter period of time for which compliance has been purchased. It is that fluctuation in price that makes tCERs attractive because their commercialization can be timed with periods of high prices. Essentially, after every fifth year as verification is carried out, the entire block of tCERs can be re‐commercialized, provided that there is no net loss of carbon stock. This plays as somewhat of a disadvantage of tCERs, as they incur issuance fees every five years, whereas lCERs credits are paid for upfront, and only marginal increases in the carbon stock generate more credits and more fees. Therefore, lCER projects must be well‐capitalized, as upfront costs are high and the majority of revenues come at the beginning stages of the project. TCER projects accrue higher issuance fees in total, yet due to the mandatory expiration of the tCERs at the end of the commitment period, income is more evenly distributed as tCERs are verified every five years and their credits commercialized. 4.3.3
CDM & forestry risks
The inherent risks of CDM forestry projects are borne out in the debate between generating tCERs or lCERs. The uncertainties surrounding forestry projects in general, even if they eventually yield competitive rates of return, are clearly prohibitive for many developers. Forestry projects, whether in the CDM or voluntary markets, must contend with: ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
21
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
lii
The nascent bureaucracy known as the CDM also adds a layer of risk and uncertainty that project developers and potential buyers must take into account. Not only is the permanence of the forest’s carbon removals in question; so is the permanence of the CDM itself and any post‐Kyoto (2012) regime for CERs. The current lag time for registering forestry projects in the CDM not only delays implementation and return on investment, it throws the conclusion of the registration process itself in doubt. There are a number of hurdles, from host country approval, validation, registration, verification, CER issuance. Any failure in this chain and the project collapses. Since the CDM is still being constructed, the ability to trade credits is not automatic. Both the investing and the host country must have valid CER accounts, and many nations, particularly in the developing world, are still without any registry at all. The international transaction log and individual international registries are supposed to be completed by 2008. There are also eligibility requirements for countries to meet in order to trade CERs although most nations are expected to fulfill those requirements. 4.3.4
Forestry credit prices
The major purchaser of forestry credits is currently the World Bank. The BioCarbon Fund purchases these CERs under a different set of guidelines than the normal Kyoto markets and only later are they transferred into the Kyoto credits. So while the largest purchaser of forestry credits is operating somewhat outside of the normal Kyoto boundaries, its average price paid per ton CO2e – from $3.75 to $4.35 per ton with a $3 default price floor. Since the purchase of either tCERs or lCERs buys only temporary compliance – that is, both tCERs and lCERs must be replaced eventually by CERs, ERUs, or EUAs – their prices will be lower than the “permanent” type of credit. It follows that the purchase of temporary credits ensures that the buyer will increase its future purchase of carbon credits, since that tCER or lCER must eventually be replaced by a recognized permanent credit. The decision to buy a permanent versus a temporary credit will reflect not only the buyer’s compliance needs but also the expected relative replacement prices. A buyer will purchase an expiring credit so long as its price is less than the difference between the current price of a permanent credit and the net present value of any expected price of a permanent credit in the future. Under these conditions, the prices of CERs will increase with longer expiration times (as with lCERs) or higher discount rates. Therefore, the value of a temporary CER is inversely correlated with the value of permanent CERs. ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
22
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
4.3.4
Prices and Risk
The risks in developing forestry projects in order to generate carbon credits have been detailed in sections above. CDM forestry projects face additional risks in that no CERs are issued – or are even guaranteed to be issued – when the project’s contract (ERPA) is signed. Carbon credits generated through the CDM carry much higher risk, and therefore a lower price, than the most secure brand of credit, the EUAs in the European market. Representing the right to emit one ton of CO2, EUAs carry minimal risk since they avoid the pitfalls of a CDM project. These projects must absorb performance, monitoring, validation, and verification risks, some of which are out of the project developers’ hands as the DOE and DNA carry their own unique risks. In order to minimize risk and drive up forestry CER prices, developers have engaged in a number of actions in order to hedge against CDM‐ and forestry‐related risk. • Approval of quality standards: Although forestry projects in the compliance market are likely less risky than those in the voluntary markets, and LULUCF project entails significantly more risk with little sector standardization. The CDM‐approved methodologies lend credibility to one step in the process. A set sector‐wide standards and guidelines, from project design to credit issuance, would help cut risk and raise credit prices. These best practices can also lead to socioeconomic co‐benefits likely to improve public image and even increase credit prices. The popularity of the Climate, Community and Biodiversity Alliance standards proves that such quality assurances are marketable. • Insurance: A credible investment firm or bank can offer good protection for forestry project risk, as European insurance firms have covered CDM‐related risks in terms of credit verification and issuance. Traditional risks to the project’s carbon stock from fire or other disasters can be purchased through standard fire insurance policies. • Portfolio management: Those who purchase or managed carbon credits stemming from forestry projects would be wise to bundle these credits in a larger portfolio of less risky credit sources in order to balance out the LULUCF risks. Major carbon credit purchasers have seen high CER prices for their forestry projects because the larger, sounder portfolio tact helps protect delivery of credits to the buyer.
4.4
LULUCF Costs and Risks under the CDM 4.4.1
Forestry credit buyers in the CDM market
Purchasers of carbon credit from LULUCF in the CDM markets are looking to carbon credits in order to meet compliance targets. Governments and industry are a large proportion of these buyers. Yet forestry projects can be directed and developed to produce a number of social and environmental co‐benefits that are attractive to credit purchasers who have concerns beyond compliance to consider. Buyer preferences often also cite the location of the project to be a major factor in their consideration, as a number of governments and funds (and some industry) look to direct investment in least‐developed nations. Although several countries will look to carbon credits as a significant source of Kyoto compliance, transaction costs and bureaucratic hurdles may be too high for direct purchase by some states. The presence of major trading companies in CDM forestry markets may be a sign that further market potential
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
23
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
exists for these funds to act as bundlers of projects, helping to ensure project implementation (some buyers will assist the CDM process), higher credit prices, and lower project risk. Japan The Japanese government made plans to significantly cut emissions under the Kyoto Protocol. Yet it plans on achieving its carbon reductions in the long‐term through energy efficiency and conservation programs. Thus, the government in the short‐run will need to make us of all of Kyoto’s mechanisms to cover for its compliance gaps. Japan has introduced a national emissions trading platform that is voluntary, but will likely pick up speed as Japan nears the end of the commitment period. Over the next five years, it is likely that Japan will be over 200 million carbon credits short of full compliance with their Kyoto targets. Other estimates has place Japan’s shortfall at around 725 million credits. It is clear that Japan will need to make significant use of purchasing allowances and carbon credits as part of its strategy to comply with Kyoto. Canada Canada’s national emissions reduction scheme for the largest, end‐of‐pipe polluters is called Plan Green and will commence in early 2008. It will allow compliance via technology transfer and reduction, emissions allowances trading and carbon credit purchase and development in accordance with the Kyoto mechanisms like CDM. Even with the measures in place since the adoption of the protocol and Plan Green’s emissions reduction contribution, Canada will likely need to acquire credits to ensure compliance, so many analysts consider Canada a credit buyer. Before the conservative Harper government took power, some research suggested Canada would be about one billion credits short of compliance by 2012. However, with the “wait‐and‐see” approach of the new Canadian administration, Plan Green may not be fully implemented and the government’s aggressiveness in its future compliance attempts is uncertain. European Union The Emissions Trading Scheme (ETS) in Europe is the major credit market for carbon. While the initial phase of the ETS allows for the transfer of flexible Kyoto mechanisms into the system through the linking directive. However, forestry projects, even CDM LULUCF projects, are not valid for counting against each state’s ETS target. A decision on forestry projects will be made soon for implementation in Phase II, expected by the end of 2008. The ETS requires states to achieve 60% reductions by means other than trading EUAs. Smaller and relatively poorer European nations cannot rely on domestic reduction programs like those in Germany and the UK, so some EU states, such as Spain or Italy, may be credit buyers, given that LULUCF projects are admitted by the ETS when the regime is reorganized in 2008. There is strong support for including some forestry projects in future versions of the ETS. 4.4.2
Market demand for forestry offsets
There still exists great crediting potential for increasing the number of LULUCF projects in the Kyoto markets, especially with significant support for including certain forestry practices in the post‐2012 Kyoto landscape, as well as in the EU ETS. Crucial to expanding the market share of forestry carbon credits will be educating buyers about the special benefits and risks of investing in LULUCF projects. Price expectations on permanent versus expiring CERs varies by sector; carbon funds see non‐permanence LULUCF credits to be the main issue for its lower relative price, while industry sources are more concerned with explicit risks to the project in the form of fires or disasters. The obligation to replace lost credits constrains the popularity of LULUCF projects, however with better methodologies, standards, and
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
24
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
monitoring, the risks and uncertainties of forestry credits should decrease as the market becomes more mature; there is simply too much potential credit demand to ignore LULUCF crediting in the future. Current market demand is driven by the BioCarbon Fund of the World Bank, which buys up a majority of available forestry credits in the Kyoto markets. Individual states will begin to test their own domestic forestry credit trading schemes before they can enter the international markets; Japan is expected to roll out such a program soon as their demand for credits to meet 2012 targets is rising. Governments in the EU will also need to define standards and policies for forestry projects as the call for LULUCF inclusion in the EU ETS grows. Critical to ensuring the growth of the LULUCF credit market is the adoption of pro‐forestry initiatives into CDM for the second commitment period. There is no market activity, save for some projects funded by the World Bank, that extends past 2012, as uncertainty over the validity of forestry credits in a post‐2012 regime chokes out investment. While such uncertainly is stifling investment beyond 2012, the possibility that new streams of forestry credits, from avoided deforestation and forest conservation, may be added to the CDM and adopted and utilized by Japan, Canada and the EU ETS is generating excitement at what can be achieved for the future of the forestry credit market. 4.4.3
Successful Commercialization Checklist
Forestry projects have many variables that will affect the success or failure to effectively commercialize credits from LULUCF. Projects that achieve credit issuance:
liii
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
25
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
5.0 Greenhouse Gas Disclosure and Reporting Frameworks 5.1
What are some of the Voluntary Greenhouse Gas Disclosure and Reporting Frameworks that exist today?
5.1.1
Carbon Disclosure Project
The Carbon Disclosure Project “provides a secretariat for the world's largest institutional investor collaboration on the business implications of climate change”. Representing a process whereby many institutional investors collectively sign a single global request for disclosure of information on Greenhouse Gas (GHG) emissions, the Carbon Disclosure Project has acquired than 1,000 large corporations reports on their emissions.liv The Carbon Disclosure Project has most‐recently made public its 4th reporting phase with documentation in corporate, country and regional categories form 2006. 5.1.2
Program 1605b
The department of Energy’s Program 1605b is a voluntary greenhouse gas (GHG) registry created as part of the Energy Policy Act of 1992, whereby companies could record their voluntary reductions of GHG emissions with pressure on enhanced measurement accuracy, reliability, verifiability of the data reported, and standards set forth in such programs as the European Union Emissions Trading Scheme (EU ETS). Abatement strategies on the power supply side include fuel switching from high to low carbon fuel sources, nuclear and hydroelectric power plant availability improvement, greater plant efficiency, increases in low‐ or zero‐emitting generation capacity, decreases in high‐emitting capacity, and withdrawal of high‐emitting plants. Demand side management projects are intended to improve the end‐ use energy efficiency of both stationary and mobile sources in the industrial, commercial, residential, agricultural, and transportation sectors. Carbon sequestration projects report carbon fixing through afforestation and reforestation.lv Individuals, organizations, small businesses, and large corporations are encouraged to report under Program 1605b. Over 450 of the latter two categories have reported to date. 5.1.3
Eastern Climate Registry
With ten Northeast and Mid‐Atlantic States agreeing to participate in the Regional Greenhouse Gas Initiative, the Eastern Climate Registry has formed “to provide a GHG emissions platform to support state voluntary and mandatory GHG reporting programs and to provide the technical platform for state and regional climate change initiatives”.lvi The program’s goal is to ensure the use of common GHG accounting standards, and that consistent data reporting and accounting methodologies be able to function across policy and program differences. The primary goals of the program are noted as: • Development of a software platform to support GHG emissions reporting and allowance tracking in the region; • Establishment of the guidelines and procedures of the regional voluntary GHG reporting program; and • Determination of how the Eastern Climate Registry should be linked with other GHG registry programs in the U.S. and abroad.lvii
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
26
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
Companies are encouraged to supply their GHG emissions data for demonstration of environmental leadership, carbon‐related risk management, increased operational efficiency, and documentation of early action. Other Western and Mid‐Western states have developed their own reporting initiatives and are collaborating with the Eastern Climate Registry as well as.
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
27
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
6.0 Overcoming Vegetative Carbon Sequestration Project Inhibitors
6.1
What are the concerns of quantifying GHG offset benefits from forestry projects? The key concerns for the quantification of GHG offset benefits derived from forestry projects are as follows: • Establishing baselines to set a standard against which the GHG benefits of the project can be evaluated (e.g., often the level of GHG emissions or carbon sequestration that would occur in the absence of project implementation).lviii • Identifying leakage for the unanticipated decrease or increase in GHG benefits outside of the project's accounting boundary as a result of project activities.lix • Addressing duration (also referred to as reversibility or permanence) to account for the fact that the benefits of carbon sequestration in agriculture and forestry are partially or completely reversible.lx • Monitoring and verifying GHG benefits to ensure that a forestry or agricultural project is achieving real and credible results.
6.2
What are the inhibitors associated with promoting vegetative carbon sequestration projects? One of the primary stumbling blocks to developing vegetative carbon sequestration is that project measurement and monitoring is often too expensive. In most projects dealing with afforestation and reforestation, ample on‐the‐ground GIS, GPS and manual labor resources for measuring and monitoring are available; however, satellite alternatives offer huge improvements in cost and speed. Remote sensing technology is easier to use, can survey a broader area and can obtain higher resolution data ‐‐ although any digital models and observations must be cross reference with on‐the‐ground assessments. Aerial photography remains an alternative to on‐the‐ground measuring and monitoring practices but only where access to land tracts can be achieved with smaller, low‐flying planes. The benefits of on‐the‐ground and aerial photography project activity measuring and monitoring are discussed in section 4.3. With regard to CO2, net emissions between the atmosphere and land surfaces are inferred from changes in carbon stocks (i.e. amount of carbon in soils and in vegetation).lxi The carbon content of a soil sample can be determined with a high degree of precision; however, the challenge lies in the detection of changes in terrestrial carbon at large scales (i.e. fields and larger areas).lxii Areas containing soils under observation would require comprehensive and detailed soil maps, with estimates of soil carbon for each soil type and also including measurements of the rate of change in soil carbon when the respective land use undergoes change. This information does not exist in most countries, where there are also lacks in land use‐change statistics that are needed because of the long timescale of soil carbon changes.lxiii In countries where afforestation and deforestation do exist, it is essential to rely on spatially explicit maps of the forest areas under consideration. Areas of forests defined in terms of canopy cover may be quantified using remotely‐sensed imagery. Forest areas defined by their specific land designation, however, require ground sampling or the use of maps.lxiv Models can be used to provide reasonable estimates of carbon stocks, offering one way of overcoming some of the carbon measuring limitations. For these modeled estimations to be accepted, though, the ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
28
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
model must be 1) accepted by the scientific community; 2) include parameters that reflect the local conditions; and 3) tested against data that represent those local conditions. Obtaining the input data for their validation and calibration is often difficult, depending on each model’s level of sophistication. Also, it must be kept in mind that model results are only estimates that cannot be substituted for real data.lxv Table 4 summarizes the issues mentioned as well as other characteristics of LULUCF data that make the measurement and monitoring of emissions from these types of projects challenging.
Table 4: Characteristics of LULUCF data
- emissions are comparably low (especially N2O and CH4) compared to the size of the storage pools - temporal and spatial variability is large
fluxes (direct
- the system boders are difficult to determine due to the complexity of physiologically active
emissions/removals)
ecosystem compartments - measurements of direct emissions are very cost intensive - uncertainties are especially high when estimating direct fluxes - not all biomass pools are accounted for in measurements (ground vegetation, coarse roots, etc.), and the pool sizes cannot be directly determined from regular inventories - biomass carbon stocks are mostly (indirectly) assessed using models (BEF) (even direct biomasss measurements use models for representative sampling) - soil carbon stocks can only be assessed from concentration measurements using pedotransfer rules or measurements of bulk density
carbon storage (in
- many countries lack the necessary infrastructure to conduct large scale measurements of
biomass and soils)
the estimation parameters needed to detemine forest biomass (e.g. representative forest inventories) - national inventories are often staggered (e.g. different regions are completed in different years) and often have ca. 10 yr return intervals ("periodic inventories vs. annual inventories) - small differences in carbon stocks from large storage pools are difficult to detect - basic assumption: fluxes are equal to changes in carbon stocks in biomass and soils - disturbances reflect spontaneous events changing emission rates/defaults and can offset regional sink effects
source/sink capacity of
- silvo-genetical cycles/forest stand developments have to be considered before long-term
forests
averages can be derived (emissions/removal rates) - non-linear development of C-stocks during stand development has to be considered because of positive and negative feedback mechanisms (e.g. effects of clear cutting) - non-steady state/direction of net fluxes can change over time. There is an upper, though mostly unknown treshold as the limit for the maximum biomass storage capacity - forest harvest is not necessarily a net surce due to storage of carbon in forest products - forest harvest might change the source/sink behavior in the UNFCCC reporting category 5A - present and future CO2 fluxes are affected by changes in land use (past land-use activities
management effects
always have to be considered) - carbon pool compartments react differently (e.g. different lag times for response reaction) after implemented management measures - there are little or no data available for ARD - spatial and temporal variability in terrestrial ecosystems is high
additional uncertainties related to definitions and annual accounting
- lack of direrct measured data for the baseline for projects in most countries - lack of infrasturcture to assess lands with activities under the articles 3.3. and 3.4 of the Kyoto Protocol - uncertainties in base year emissions for net-net accounting
lxvi
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
29
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
6.3
What processes and technologies exist to overcome some carbon sequestration project measuring and monitoring inhibitors?
6.3.1
On‐the‐ground measuring and monitoring
The techniques and methods used for sampling and precisely measuring individual carbon pools are based on commonly accepted principles of forest inventory, soil sampling, and ecological surveys. Techniques to measure soil carbon and the carbon pool in living tree biomass, understory and herbaceous plants, roots, fine and coarse litter are also abundant. However, the fact that standard methods have not been universally applied to all projects generates difficulties in comparing results across different LULUCF project activities.lxvii For the spatial and temporal quantification of the rates and limits of carbon accumulation in soil systems, belowground sensors can be used (i.e. miniaturized nuclear magnetic resonance imaging devices). Such measurements should account for (i) soil carbon, water, and nutrients as a function of depth; (ii) biomass (roots and microbial community) imaging; and (iii) porosity or soil structural changes.lxviii Permanent sample plots are considered to be a statistically superior means for evaluating changes in forest carbon pools because they allow for efficient assessments of changes in carbon stocks over time and for verification of a project’s reported carbon benefits. These field methods with extensive permanent plots may however be expensive to implement and maintain in certain isolated areas.lxix 6.3.2
Aerial photography as measuring and monitoring
Aerial photographs taken from low‐flying airplanes can provide a useful means to monitor LULUCF projects. An advancement in this area couples dual‐camera videography with a pulse laser profiler, data recorders, and differential GPS mounted on a single‐engine airplane. This system can produce indices of crown density, number of trees per unit area, and tree height, while also identifying the extent of gaps which could be especially useful for projects that are monitoring small‐scale logging disturbance in protected forests.lxx 6.3.3
Satellite remote sensing
Satellite imagery is one of the low‐cost carbon measuring alternatives. This method is accurate and can operate on a huge.lxxi Satellite remote sensing may be used to:
• identify initial areas of different land‐cover types, including forests; • determine the extent, rates of change, and locations of activities that result in forest clearing and regrowth or other activities; • identify other natural and human‐induced changes in terrestrial ecosystems; and • provide parameters for models that calculate the net exchanges of gases between terrestrial ecosystems and the atmosphere These data could be used as a primary information resource for countries reporting sources and sinks of carbon or for verification.lxxii In the last 10 years, great progress has been made by the scientific community in simulating the exchanges of carbon (and other material) between terrestrial ecosystems and the atmosphere. Many of the models used in these simulations require remotely‐sensed data to establish areas of land‐cover type to which different attributes (e.g., production efficiency, surface roughness, albedo) are assigned.lxxiii ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
30
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
6.4
Satellite data from mainly from the National Oceanic & Atmospheric Administration were initially used to generate maps of global land and forest cover, with the capability to also be used to track and monitor changes in forest cover at the national level. Utilizing a more detailed analysis, sources and sinks of carbon from forest clearing and regrowth can also be estimated. This analysis requires 1) repeated measurements of forest clearing over large areas, 2) precise spatial and temporal scale analyses to document regrowth, and 3) existing data on carbon pool fluctuations that are associated with changes in land cover. Data from high‐resolution satellites such as NASA’s Landsat and the Centre National d’Etudes Spatiales’ SPOT have been used to regularly measure regional clearing of forests and subsequent regrowth. Since revegetation may occur rapidly in cleared areas, annual measurements make it easier to detect the clearing of land areas that begin to regrow quickly.lxxiv One of the complications associated with even high‐resolution satellites is that they may fail to distinguish clearing and regrowth from other land cover changes, such as harvests or natural disturbances such as fire, insects, and storms. Still, very high‐ resolution data from GeoEye’s commercial IKONOS II satellite can be utilized in determining the actual activities on the ground that have led to forest clearing.lxxv The costs associated with employing remote‐sensing data vary greatly on a per‐hectare basis contingent upon the actual sensor and the year in which the data are originally acquired. The most recent data from NASA’s Landsat‐7 are less expensive since the system is now operated as a public resource. Conversely, SPOT data are more expensive since they have a greater detail of spatial resolution, however they do not provide global coverage. Table 5 (after section 5.4) provides and overview of the advantages and disadvantages of forestry monitoring techniques.
What carbon accounting research contributions have been made by the Food and Agriculture Organization? In addition to its primary efforts to defeat global hunger, The United Nations’ Food and Agriculture Organization (FAO) “is also a source of knowledge and information. We help developing countries and countries in transition modernize and improve agriculture, forestry and fisheries practices and ensure good nutrition for all”.lxxvi The FAO’s Global Terrestrial Observing System (GTOS) is a program designed for the observing, modeling and analyzing terrestrial ecosystems in support of sustainable development. This program facilitates access to terrestrial ecosystems in an effort to assist researchers and policy makers in detecting and managing global and regional environmental change.lxxvii This information is provided free of charge, however most of FAO’s work in this area is in the research or testing phase. The overarching goals of GTOS’ Terrestrial Carbon Observations (TCO) “are to better identify the potential end users, and their requirements; organize and coordinate reliable data and information on carbon; and link the science community with potential users”.lxxviii The TCO consider existing, satellite, and terrestrial ecosystem data from local, regional and global scales while providing the spatial and temporal distribution information of terrestrial carbon sources and sinks. The new mission of TCO “is to focus on specific products, such as: an operational database system; validated and parameterized models; manuals, standard methodologies and related documentation; productivity estimates; and the creation of a common forum for scientists and stakeholders interested in carbon accounting”. lxxix The objective of GTOS’ SIBERIA‐II, applied to 200 million ha North Eastern Europe, is to demonstrate the viability of full carbon accounting on a regional basis using the environmental tools and systems presently available. The tools and systems employed include a diverse set of multi‐sensor instruments, detailed databases of field information and some of the worlds most advanced climate models. In total, these provisions will account for fluxes between the land and the atmosphere as SIBERIA‐II develops a combined monitoring system to yield estimates of carbon sources, sinks and pools at multiple spatial and temporal scales for relevant application in land use policy and resource management. ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
31
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
Table 5: Advantages and disadvantages of forestry monitoring techniques
Techniques
Advantages
Disadvantages
Relatively quick and inexpensive. Useful for baseline Modeling
development. Can be used for bioenergy projects. Most useful as a complement to other
Relies on highly simplified assumptions. Need to be calibrated with onsite data.
methods Time and knowledge needed to transform spectral classifications Provides relatively rapid regional- into accurate land use or landSatellite remote sensing
scale assessments of land cover, cover classifications. Access to land use, and green vegetation
high-quality imagery may not be
biomass. Useful for monitoring
available during certain seasons or
leakage.
due to sun angles. Has not been used to measure carbon. Can be quite expensive.
Complements satellite remote Aerial
sensing. Useful for monitoring
photography
leakage. Less expensive than
In test phase.
satellite remote sensing. Useful for determining what was actually implemented in project and fo tracking fate of wood Field/site measurements
products. Flexible in selection of methods and precision. Peer reviewed and field tested
May be more expensive than other methods
systems available. Using control plots can calculate net carbon sequestration.
lxxx
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
32
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
Bibliography i Flannery, Tim. The Weather Makers. Melbourne, Australia: Text Publishing Company. 2005. ii WWF has listed the Polar Bear as the first animal to be on the “endangered species” list due to climate change iii Flannery, Tim. The Weather Makers…supra note 1. iv Climate Variability. NASA Oceanography. http://science.hq.nasa.gov/oceans/system/climate.html v http://www.epa.gov vi Marland, G., T.A. Boden, and R. J. Andres. 2003. "Global, Regional, and National CO2 Emissions." In Trends: A Compendium of Data on Global Change. Carbon Dioxide Information Analysis Center, Oak Ridge National Laboratory, U.S. Department of Energy, Oak Ridge, Tenn., U.S.A. vii http://www.rcfa-cfan.org/english/issues.13.html viii Ibid ix IPCC (2000); IPCC Special Report: Land Use, Land-Use Change, and Forestry x Ciesla, W. 1995. “Climate change, forests and forest management”. FAO Forestry Paper 126, Food and Agriculture Organization of the United Nations, Rome, p.128 xi Flannery, Tim. The Weather Makers…supra note 1. xii http://cdiac2.esd.ornl.gov/index.html xiii http://www.epa.gov/sequestration/ xiv http://unfccc.int/methods_and_science/lulucf/items/1084.php xv http://www.sd-commission.org.uk/panel-sd/position/co2/anna.htm xvi http://csite.ornl.gov/ xvii http://www.epa.gov/sequestration/ xviii http://www.sd-commission.org.uk/panel-sd/position/co2/main.htm xix http://www.sd-commission.org.uk/panel-sd/position/co2/anna.htm xx http://www.sd-commission.org.uk/panel-sd/position/co2/anna.htm xxi IPCC Third Assessment Report, 2003. xxii Kolshus, H.H. 2001. Carbon sequestration in sinks: an overview of potential costs. CICERO Working Paper 2001: 11. xxiii See section 3.3 of this document for a definition of the activities included in Articles 3.3 and 3.4 of the Kyoto Protocol xxiv Missfeldt, F. and E. Haites, 2001. The Potential Contribution of Sinks to Meeting Kyoto Protocol Commitments. In Environmental Science and Policy, 4(6), pp. 269-292. Noble, I. and R.J. Scholes, 2001. Sinks and the Kyoto Protocol. Climate Policy 1 (2001), pp. 5-25. (cited in: Kolshus, H.H. 2001. Carbon sequestration in sinks: an overview of potential costs. CICERO Working Paper 2001: 11.) xxv Intergovernmental Panel on Climate Change (IPCC). 1997,Greenhouse Gas Inventory Reporting Instructions. Volumes 1, 2 and 3. IPCC Technical Support Unit, Hadley Centre, Meteorological Office, Bracknell, UK xxvi FAO forestry situation report for 2005 (FAO forestry paper 147) xxvii Leake, J.E. 2006. Rehabilitation of tropical and subtropical regions as a means of bio sequestration of Carbon. Draft for review. xxviii http://www.epa.gov/sequestration/ xxix See section 3.3. of this document for a definition of afforestation and reforestation xxx ECCP - Working Group on Forest Sinks FINAL REPORT. Conclusions and recommendations regarding forest related sinks & climate change mitigation xxxi See Appendix 2.1 for a list of Annex I & Annex II countries xxxii “The 1997 Kyoto Protocol shares the Convention’s objective, principles and institutions, but significantly strengthens the Convention by committing Annex I Parties to individual, legally-binding targets to limit or reduce their greenhouse gas emissions. Only Parties to the Convention that have also become Parties to the Protocol (i.e. by ratifying, accepting, approving, or acceding to it) will be bound by the Protocol’s commitments. 165 countries have ratified the Protocol to date. Of these, 35 countries and the EEC are required to reduce greenhouse gas emissions below levels specified for each of them in the treaty. The individual targets for Annex I Parties are listed in the Kyoto Protocol’s Annex B. These add up to a total cut in greenhouse-gas emissions of at least 5% from 1990 levels in the commitment period 2008-2012.” The Provisions of the Kyoto Protocol and its Rulebook, from http://unfccc.int/kyoto_protocol/items/2830.php xxxiii See Appendix 2.1 for a list of Annex I & Annex II countries xxxiv Note: The United States of America are Annex II countries that have not adopted the Kyoto Protocol xxxv UN FCCC/CP/2001/13/Add.1, English, p. 58 xxxvi Ibid xxxvii Ibid xxxviii Sedjo, R. 2006 Forest and Biological Carbon sinks after Kyoto. Resources for the Future and Weathervane, Background paper. xxxix Ibid xl Kyoto Protocol to the UNFCCC http://unfccc.int/resource/docs/convkp/kpeng.html xli Cropland management is the system of practices on land on which agricultural crops are grown and on land that is set aside or temporarily not being used for crop production; grazing land management is the system of practices on land used for livestock production aimed at manipulating the amount and type of vegetation and livestock produced; and revegetation is a direct human-induced activity to increase carbon stocks on sites through the establishment of vegetation that covers a minimum area of
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
33
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
0.05 hectares and does not meet the definitions of afforestation and reforestation (European Climate Change Programme (ECCP): Working Group Sinks Related to Agricultural Soils Final Report) xlii European Climate Change Programme (ECCP): Working Group Sinks Related to Agricultural Soils Final Report xliii See section 3.6 on REED credits xliv Sedjo, R. 2006 Forest and Biological Carbon sinks after Kyoto. Resources for the Future and Weathervane, Background paper. xlv Amano, M & Sedjo, R. 2003. Forest Carbon Sinks: European Union, Japanese and Canadian Approaches. Resources for the Future, Discussion Paper:. RFF DP 03-41. xlvi World Bank Technical Workshop, Using Forest Carbon Credits in the Carbon Market Focus on the European Emission Trading Scheme, Brussels, March 29, 2006. xlvii IETA. 2006. The Voluntary Carbon Standard. Proposed Version 2. Consultation xlviii http://www.fs.fed.us/ecosystemservices/carbon.shtml xlix http://www.eurocarbonltd.com/carbon_trading.htm l From January 2008 from link: http://www.chicagoclimatex.com/market/data/summary.jsf li Research Reports International, Inc. http://www.researchreportsintl.com/products/samples/CarbFundSamp.pdf lii Ibid liiiTill Neef and Sabine Henders, February 2007, CATIE, “Guidebook to Markets and Commercialization of Forestry CDM projects” liv Carbon Disclosure Project: http://www.cdproject.net/ lv The US Department of Energy Website: http://www.eia.doe.gov/oiaf/1605/frntvrgg.html lvi Eastern Climate Registry, Project Overview: http://www.easternclimateregistry.org/ lvii Ibid lviii For more informaiton on establishing baselines, please visit: http://www.epa.gov/sequestration/baselines.html lix For more information on how to identify leakage, please visit: http://www.epa.gov/sequestration/leakage.html lx For more information on reversibility (duration), please visit: http://www.epa.gov/sequestration/duration.html lxi lxi Paustian, K., Antle, J.M., Sheedan, J., Paul, E. 2006. Agriculture’s role in GHG mitigation. Pew Center on Global Climate Change. lxii US DOE. Carbon Sequestration in terrestrial ecosystems: (http://www.fe.doe.gov/coal_power/sequestration/reports/rd/index.html) lxiii British Government Panel on Sustainable Development (http://www.sd-commission.org.uk/panel-sd/position/co2/anna.htm) lxiv ibid lxv World Resources Institute, 2006. The Greenhouse Gas Protocol: The Land Use, Land Use Change and Forestry Guidance for GHG Project Accounting. lxvi Rypdal, K. & Baritz, R. 2002. Estimating and managing uncertainties in order to detect terrestrial greenhouse gas removals. CICERO Working Paper 2002:07 lxvii For more information on monitoring techniques, please read Chapter 2 of the IPCC special Report: Land Use, Land-Use Change, and Forestry lxviii US DOE. Carbon Sequestration in terrestrial ecosystems (http://www.fe.doe.gov/coal_power/sequestration/reports/rd/index.html) lxix Slaymayer et al. 1999. Calculating forest biomass with small format aerial photography, videography and a profiling laser (pdf available at: ftp://vis-ftp.cs.umass.edu/Papers/slaymaker/Reno99.pdf) lxx IPCC. 2000; IPCC special Report: Land Use, Land-Use Change, and Forestry lxxi Reedy, H. 2003. Feasibility Assessment of Afforestation for Carbon Sequestration (FAACS): Exploring Options for Aggregating and Selling Afforestation Carbon Credits from Small Landowners. lxxii IPCC (2000); IPCC special Report: Land Use, Land-Use Change, and Forestry lxxiii IPCC (2000); IPCC special Report: Land Use, Land-Use Change, and Forestry lxxiv Ibid lxxv Ibid lxxvi http://www.fao.org/UNFAO/about/index_en.html lxxvii http://www.fao.org/gtos/ lxxviii http://www.fao.org/gtos/tcoABT.html lxxix Ibid lxxx Vine, E., Sathaye, J. and Makundi, W. 1999.Evaluation, Reporting, Verification, and Certification of Forestry Projects for Climate Change Mitigation. Ernest Orlando Lawrence, Berkeley National Laboratory
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
34
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
June 2008
The world is showing increasing concern about the threat of global warming, substantiated by over a decade of scientific examination. The state of the environment and the consequences of climate change increasingly drive policy, impact consumer behavior, underlie shareholder actions, and inform corporate decisions. This document is put forth by CINCS, LLC. CINCS is a technology services company focused on global monitoring, accounting and verification systems for emerging environmental markets. CINCS provides geo‐spatial technology solutions for carbon accounting and environmental monitoring. ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
1
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
This document is Copyright of CINCS ®, LLC, 2008, and contains data and opinions compiled by CINCS. CINCS is not liable for information or data herein that changes daily with market trends or the study of climate change. Credits Research and text: Stephen J. Donofrio, Mark Chapman, Daniel Buckley, Plinio Ribeiro Design and printing: Stephen J. Donofrio, Mark Chapman Picture on front page: Mark Chapman New York, NY USA 2008 CINCS, LLC CINCS, LLC is a technology services and consulting company focused on innovative global monitoring, accounting and verification systems for emerging environmental services markets. CINCS can apply emerging technologies to global environmental questions and issues, and also provide these accurate and rigorous measuring and monitoring technologies to better understand land use changes, natural resources and environmental markets. The development of environmental markets worldwide, such as carbon, requires assurances and verification for buyers and sellers of emissions reductions from land use carbon offset projects. Headquartered in New York, CINCS can offer remote sensing products and technologies to aid in these verifications.
C2008, CINCS, LLC 561 Broadway, Suite 6A New York, NY 10012 United States of America Telephone: +1.212.925.8106 [email protected] www.cincs.com ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
2
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
Table of Contents Acronyms ...................................................................................................................................................... 5 1.0
A Global Warming Introduction ....................................................................................................... 6
1.1
What is global warming? ............................................................................................................... 6
1.2
What are the effects of global warming? ..................................................................................... 6
1.3
How are greenhouse gas concentrations affected by human activity? ........................................ 7
1.4
What about Greenhouse Gas Emissions from Land Use Activities? ............................................. 8
1.5
What technological solutions exist to mitigate global warming? ................................................. 8
2.0
Carbon Sequestration .................................................................................................................... 10
2.1
What is carbon sequestration? ................................................................................................... 10
2.2.
What is vegetative carbon sequestration? ................................................................................. 10
2.3
What is the potential for vegetative carbon sequestration in terrestrial ecosystems? ............. 11
3.0 Overview of Land Use, Land‐Use Change & Forestry (LULUCF) Projects and the Global Carbon Markets ....................................................................................................................................................... 13 3.1
What significance does the Kyoto Protocol have for emitters of greenhouse gases? ............... 13
3.2 Are Land Use, Land‐Use Change and Forestry (LULUCF) offset credits accepted by the Kyoto Protocol? ................................................................................................................................................. 13 3.3 Why have LULUCF projects not maintained strong activity and approval in the Kyoto‐compliant trading mechanism? ............................................................................................................................... 14 3.4
What non‐Kyoto markets accept land use, land‐use change and forestry offset credits? ......... 15
3.5
Is there active support for high‐quality LULUCF project emission reductions? ......................... 15
Saving Tropical Rainforests with Reduced Emissions from Deforestation and Degradation (RED) 3.6 Project Activities ..................................................................................................................................... 16 4.0
Land Use, Land‐Use Change & Forestry (LULUCF) Projects and the Kyoto Protocol ................... 17
4.1 What is the scope of LULUCF within the Clean Development Mechanism (CDM) of the Kyoto Protocol? ................................................................................................................................................. 17 4.2
What is the CDM Project Cycle? ................................................................................................. 17
4.2.1
Project Documentation: Project Idea Note, Letter of Expression, Letter of Intent ............ 18
4.2.2
Project Design & the Project Design Document (PDD) ....................................................... 18
4.2.3
Emissions Reduction Purchase Agreements ....................................................................... 18
4.2.4
Project Validation ................................................................................................................ 19
4.2.5
Monitoring Project for Verification and Certification ......................................................... 19
4.2.6
CDM Executive Board (EB) Verification and Certification ................................................... 20 ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
3
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
4.3
LULUCF Costs and Risks under the CDM ..................................................................................... 20
4.3.1
Transaction costs ................................................................................................................ 20
4.3.2
Gauging Performance: Temporary CER vs. long‐term CER ................................................. 21
4.3.3
CDM & forestry risks ........................................................................................................... 21
4.3.4
Forestry credit prices .......................................................................................................... 22
4.3.4
Prices and Risk ..................................................................................................................... 23
LULUCF Costs and Risks under the CDM ..................................................................................... 23
4.4
4.4.1
Foresty credit buyers in the CDM market ........................................................................... 23
4.4.2
Market demand for forestry offsets ................................................................................... 24
4.4.3
Successful Commercialization Checklist (from CATIE guidebook) ...................................... 25
5.0
Greenhouse Gas Disclosure and Reporting Frameworks .............................................................. 26
5.1 What are some of the Voluntary Greenhouse Gas Disclosure and Reporting Frameworks that exist today? ............................................................................................................................................. 26 5.1.1
Carbon Disclosure Project ................................................................................................... 26
5.1.2
Program 1605b ................................................................................................................... 26
5.1.3
Eastern Climate Registry ..................................................................................................... 26
6.0
Overcoming Vegetative Carbon Sequestration Project Inhibitors ............................................... 28
6.1
What are the concerns of quantifying GHG offset benefits from forestry projects? ................. 28
6.2
What are the inhibitors associated with promoting vegetative carbon sequestration projects? 28
6.3 What processes and technologies exist to overcome some carbon sequestration project measuring and monitoring inhibitors? ................................................................................................... 30 6.3.1 6.3.2 6.3.3
On‐the‐ground measuring and monitoring ........................................................................ 30 Aerial photography as measuring and monitoring ................................................................. 30 Satellite remote sensing ...................................................................................................... 30
6.4 What carbon accounting research contributions have been made by the Food and Agriculture Organization? .......................................................................................................................................... 31
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
4
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
Acronyms AAU BAU CER CCX CDM CH4 CO2 CO2e CSR EO ERU EU ETS GHG GIS GPS GWP IPCC lCER NAP NOx N2O REC SF6 SOx SRI tCER UNFCCC VER
Assigned Amount Unit Business As Usual Certified Emission Reduction Chicago Climate Exchange Clean Development Mechanism (Kyoto Protocol) Methane Carbon Dioxide Carbon Dioxide Equivalent Corporate Social Responsibility Earth Observation Emission Reduction Unit European Union Emissions Trading Scheme Greenhouse Gas Geographic Information System Global Positioning System Global Warming Potential Intergovernmental Panel on Climate Change Long‐term Certified Emission Reduction National Allocation Plan Nitrogen Oxides (nitrous oxide + nitrogen dioxide) Nitrous Oxide Renewable Energy Credit Sulfuric Hexafluoride Sulfur Oxides (sulfur dioxide + sulfur trioxide) Socially Responsible Investing Temporary Certified Emission Reduction United Nations Framework on Climate Change Voluntary Emission Reduction
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
5
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
1.0 A Global Warming Introduction Over the past two decades, there’s been an outpouring of research and debate over global warming, which scientists call climate change. A broad consensus has now formed: Climate change is real, well under way, and is an enormous potential threat. The good news is that a range of viable solutions exists, including land use and forestry approaches that can reduce the existence of greenhouse gases in the atmosphere and help us adapt to coming changes. This paper gives a brief overview the science behind climate change and then turns to look more closely at Land Use, Land‐Use Change and Forestry Projects (LULUCF).
1.1
What is global warming? Over the last 10,000 years, Earth’s thermostat has been set to an average surface temperature of around 57°F. However, the Earth’s average planetary temperature has been rising; an effect called global warming or climate change. This change in climate is attributed to an enhanced greenhouse effect, or in other words, increased trapping of the sun’s rays inside Earth’s lower atmosphere due to a build‐up of “greenhouse gases”. Greenhouse gases such as carbon dioxide (CO2), methane (CH4), nitrous oxides (NOx), and sulfuric oxides (SOx) form a pervious blanket around the Earth reaching a distance of 100km (60 miles) from its surface. These gases, particularly CO2, play a critical role in maintaining the complex and delicate balance of Earth’s thermostat and in sustaining life throughout our history. They aid the planet in maintaining a homeostatic surface climate by keeping a portion of the sun’s rays close to the Earth rather than allowing them all to escape. Despite this important role, these greenhouse gases are also waste products of the fossil fuels that almost every person on the planet uses for heat, transport, and other energy requirements, which are rapidly increasing the proportion of greenhouse gases in the atmosphere.i As these concentrations increase and exceed Earth’s ability to control it within bounds, the amount of solar radiation and warmth kept close to the Earth, and hence temperature, also increases.
1.2
What are the effects of global warming? Climate change has already caused and is expected to continue causing a wide array of changes. Changes to climate and weather may deprive key agricultural regions of rain and lead to more severe storms, could contribute to broad‐based destruction of natural habitats and the extinction of speciesii, could lead to rising sea levels that will threaten coast development, and potentially induce serious changes upon global climate regulators such as thermohaline current (Fig. 1), the jet stream and the Arctic and Antarctic icecaps.iii ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
6
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
Figure 1: Solar Radiation and Generalized model of thermohaline circulation; “Global Conveyor Belt”iv
These shifts have already caused floods and droughts in certain regions, which have left people starving and malnourished, thus global warming threatens all species connected to and dependent on the planet. Climate change particularly impacts the lives of the poor as they lack the resources the industrialized world has to deal with its ramifications.
1.3
How are greenhouse gas concentrations affected by human activity? There is undeniable evidence that greenhouse gas (GHG) emissions from human activities are contributing to global warming and having increasingly harmful effects on the environment. The overwhelming consensus among scientists is that GHG concentrations are increasing as a result of the combustion of fossil fuels, industrial manufacturing, agricultural practices and other anthropogenic activities. Since the beginning of the industrial revolution, atmospheric concentrations of carbon dioxide have increased nearly 30%, methane concentrations have more than doubled, and nitrous oxide concentrations have risen by about 15%.v Although the situation is serious, we can reduce and mitigate emissions through a variety of approaches.
Figure 2: Global Carbon Dioxide Emissions by Type and Region
vi
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
7
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
Humans do not only have the potential to increase the existence of greenhouse gasses, but we have opportunities to reduce and remove them as well. The concentration of greenhouse gasses can be mitigated by, 1) removing greenhouse gases currently in the atmosphere and 2) reducing future greenhouse gas emissions. According to internationally acclaimed scientist Tim Flannery in his recent book The Weather Makers, climate change is a serious and immediate cause for concern. Flannery suggests investments in renewable power sources and technological engineering solutions as a means to counter‐act the increase in greenhouse gas emissions, in addition to offering an insightful analysis of the carbon emission regulations such as the Kyoto Protocol.
1.4
What about Greenhouse Gas Emissions from Land Use Activities? Land use related activities such as tropical deforestation and forest fires are the second‐largest source of GHG emissions after the burning of fossil fuels. Tropical deforestation is one of the most critical environmental problems faced by many developing countries.vii Table 1 summarizes the main sources of GHGs with respect to land use activities. Of the 7.5 billion tons of annual carbon emissions estimated to be released by humans to the atmosphere, 1.5 to 1.8 billion tons come from forest‐related sourcesviii, primarily from deforestation in the tropical regions of Central and South America, Africa, and Asia.ix
Table 1: Land Use Related sources of Greenhouse Gases
x
1.5
What technological solutions exist to mitigate global warming? Since the 1980’s, industry and scientists have been working to create new sources of renewable energy, such as wind and solar, improve efficiency and research engineering solutions such as carbon sequestration, which would allow for the continued use of fossil fuels without causing the climate harm.xi ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
8
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
However, challenges of implementation, scale, and cost have limited the growth of clean energy and other engineered solutions. Along with these approaches, scientists have been exploring the potential of forests, agricultural land and other forestry project to act as carbon sinks. While vegetative carbon sequestration is a natural process, new technology, such as geographic information systems (GIS), global positioning systems (GPS) and earth observation (EO) satellites has made possible the measuring and monitoring of carbon stocks and flux. By using a combination of remote observation and on‐the‐ground measurement, we can provide scientifically accurate and verifiable data on the amount of carbon being absorbed by a project. This adds an exciting and cost‐effective tool to combat climate change and provide a host of other positive benefits, such as reducing air pollution and flooding and enhancing natural habitat. Other technological means by which the presence of greenhouse gases in the atmosphere may be reduced are considered fuel‐switching projects, whereby hydroelectric, wind, biomass and a number of other renewable energy technologies are implemented to offset current or future fossil fuel power generation in eco‐friendly manners.
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
9
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
2.0 Carbon Sequestration 2.1
What is carbon sequestration?
Carbon sequestration is the uptake and long‐term storage of carbon in the terrestrial biosphere (i.e. rocks and sediments, swamps, wetlands, forests and their soils, grassland and agriculture) or in the oceans. As a result of this storage, the amount of CO2 contributing to the greenhouse effect will decrease. Carbon sequestration can be achieved through natural processes by maintaining or enhancing forests, farmlands, open spaces or ocean habitats. Engineered approaches are also being developed to sequester carbon, such as carbon capture and geological storage (CCS).xii
Figure 3: A simplified carbon cycle diagram
2.2.
What is vegetative carbon sequestration?
Vegetative carbon sequestration is the removal of CO2 from the atmosphere by agricultural and forestry practices, primarily through photosynthesis, the absorption and subsequent storage of CO2 occurring in plants and organic matter. Agricultural and forestry lands that absorb CO2 are referred to as vegetative “sinks”.xiii The UNFCCC defines a sink as “any process, activity or mechanism that removes a greenhouse gas, an aerosol or a precursor of a greenhouse gas from the atmosphere”.xiv In turn, through the process of respiration of the living biomass and the decomposition of dead organic matter in soils, CO2 is returned to the atmosphere. As a result, net sequestration of this type only occurs when the amount of photosynthesis taking place exceeds the total amount of plant and soil respiration. xv Points of carbon storage, or pools, can take the form of “living, aboveground biomass (e.g., trees and shrubs), products with a long, useful life created from biomass (e.g., lumber), living biomass in soils (e.g., roots and microorganisms), or recalcitrant organic and inorganic carbon in soils and deeper subsurface environments”.xvi Trees make up much larger carbon reservoirs than herbaceous plants. Sequestration in ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
10
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
trees occurs while a stand of trees is growing and lessens significantly as the stand reaches maturity. As a consequence, the non‐renewed growing of trees to sequester carbon would result in a one‐time benefit over a limited periodxvii, while growing trees for an energy substitute to fossil fuels and harvesting them periodically before they mature leads to a continuous offset benefit.xviii Soils have a large potential for carbon sequestration. In fact, global carbon content in soils is three times larger than in plants and animals, twice the amount in the atmosphere and a third of the carbon found in fossil fuels. Specifically, the carbon stored in soil organic matter depends on the balance between the annual input of dead plant material and the annual loss of organic matter through decomposition. When ecosystems reach maturity, the carbon content in soils remains constant, although the actual amount varies among ecosystems. Such variation occurs in very large amounts of carbon content in peatlands, where anoxia slows respiration rates, and very small amounts in hot, dry areas where respiration proceeds rapidly and inputs of organic matter are scarce.xix Physical disruption of soils (i.e. cultivation, draining, etc) accelerates soil respiration, causing carbon to be added to the atmosphere, while practices aimed at increasing productivity (i.e. application of fertilizers) are likely to create a carbon sink.xx
2.3
What is the potential for vegetative carbon sequestration in terrestrial ecosystems?
The IPCC Third Assessment Report of 2003 estimates that nearly 100 billion tons of carbon could be sequestered through forest preservation, tree planting and improved agricultural management over the next 50 years. This would offset 10‐20% of the world's projected fossil fuel emissions.xxi Over 300 million tonnes of carbon could be sequestered each year from activities in Annex I countries. However, the potential sequestration is much larger in non‐Annex I countries.xxii Table 2 summarizes the estimates for carbon sequestration in both Annex I and Non‐Annex I countries (the quantities for articles 3.3 and 3.4 cannot be summed since they may apply for the same area).xxiii Table 3 presents this same potential on a country basis. Table 2: Estimates of carbon sequestration through LULUCF activities by 2010 (Mt C/y)
Activities Article 3.3 ‐ Reduced deforestation ‐ Afforestation and reforestation Article 3.4 ‐ Croplands (e.g. reduced tillage, erosion control) ‐ Forests (e.g. enhanced regeneration, facilitation) ‐ Grazing lands (e.g. herd, fire and wood management) ‐ Agro forests (e.g. management of trees in agriculture) ‐ Urban land (e.g. tree, waste and wood products man.) ‐ Deforested land to agro forest instead of pasturelcrop ‐ Severely degraded land to crop, grass or forest land ‐ Cropland to grassland Total for Article 3.4
Annex I 60 (0‐90) 26 (7‐46) 75 101 69 12 1 0 1 24 300
Non‐Annex I 1,698 373 (190‐538) 50 69 168 14 1 391 3 14 710xxiv
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
11
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
Table 3: IPCC estimates of the global potential for carbon sequestration by 'forestation' and agro forestry between 1995 and 2050)
Region/ Country
Land available (Million ha)
Planting rate (Million ha/yr)
Carbon sequestered (GtC)
Canada
28.3
1.14
1.11
Nordic
0.4
0.01
0.03
Former Soviet
66.5
1.66
1.76
USA
21.0
0.70
3.36
Europe
7.7
0.31
0.96
China
62.5
2.5
1.70
Asia
12.5
0.5
2.19
Africa
1.9
0.07
0.44
America
4.6
0.18
1.02
Australia
4.3
0.12
0.67
New Zealand
5.0
0.10
1.70
Trop. America
40.8
0.74
9.68
Trop. Africa
31.6
0.58
3.53
Trop. Asia
57.7
1.05
9.53
Total
344.8
9.66
37.68 xxv
High Latitudes
Mid Latitudes
Low Latitudes
Tropical forests ‐ According to estimates by the United Nation’s Food and Agriculture Organization, in 2005 some 4 billion ha or about 30% of the earth’s land surface is forested, of which over 2.1 billion ha are in tropical regions. In addition, the area of degraded tropical forests where vegetative sequestration might be usefully undertaken totals some 1,344 billion ha (64% of 2.1 billion ha). xxvi Estimates are that a net gain of 729 Gtons of CO2 is possible in tropical regions over a 50 year period. However, it must be noted that without successful programs to facilitate vegetative sequestration, carbon will continue to be emitted in tropical regions at the preset rate of about 1.1 Gton per‐annum. xxvii United States ‐ U.S. forests and croplands currently sequester over 600 Mtons of CO2 equivalent, after accounting for both gains and losses in carbon. This current amount of sequestration in forests and croplands offsets approximately 12% of total U.S. CO2 emissions from the energy, transportation and industrial sectors.xxviii European Union ‐ If the processes of afforestation and reforestationxxix continue at the present rate, it may result in a sequestration potential of approximately 3.84 Mt C/yr. (14 Mt CO2 eq/yr) during the first commitment period. In case of a sustained afforestation trend and taking into account an extended EU of 25 Member States, a technical sequestration potential of 34 Mt C/yr (125 Mt CO2 eq) could be reached in the long term.xxx ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
12
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
3.0 Overview of Land Use, Land‐Use Change & Forestry (LULUCF) Projects and the Global Carbon Markets
3.1
What significance does the Kyoto Protocol have for emitters of greenhouse gases? The Kyoto Protocol is an agreement between 166 countriesxxxi adopted on December 11th, 1997 and entered into force on February 16th, 2005. It stipulates that participant bodies must collectively achieve emissions levels at 5% below recorded levels in December of 1989 by the year 2012.xxxii The United Nations Framework Convention on Climate Change has established the Clean Development Mechanism (CDM) which is an arrangement under the Kyoto Protocol whereby industrialized Annex II countriesxxxiii with a ratified commitment to greenhouse gas reductionsxxxiv may invest in emission reduction or carbon sequestration projects in developing countries (non‐Annex I) rather than invest in higher cost emission reduction endeavors in their own countries in order to meet their Kyoto compliance requirements.
3.2
Are Land Use, Land‐Use Change and Forestry (LULUCF) offset credits accepted by the Kyoto Protocol?
Article 3.3 of the Kyoto Protocol contains the following agreement to include afforestation, reforestation and deforestation:
'The net changes in greenhouse gas emissions from sources and removals by sinks resulting from direct human‐induced land use change and forestry activities, limited to afforestation, reforestation and deforestation since 1990, measured as verifiable changes in stocks in each commitment period, shall be used to meet the commitments [in 2008‐2012] in the Article of each Party.’ The terms afforestation, reforestation and deforestation are defined as follows:
• Afforestation refers to the direct human‐induced conversion of land that has not been forested for a period of at least 50 years, to forested land through planting, seeding and/or the human‐induced promotion of natural seed sources.xxxv • Reforestation is the direct human‐induced conversion of non‐forested land to forested land through planting, seeding and/or human‐induced promotion of natural seed sources, on land that was forested but has been converted to non‐forest land. For the first commitment period [2008‐ 2012], reforestation activities will be limited to reforestation occurring on those lands that did not contain forest on 31 December, 1989.xxxvi • Deforestation is the direct human‐induced conversion of forested land to non forested land.xxxvii This action results in a net loss of carbon in the terrestrial stock since most alternative land uses have a lower potential for carbon sequestration than forests.xxxviii The Marrakesh Accords (COP 7, 2001) and the Montreal COP 11 (2005) clarified the tree planting activities eligible under Article 3.3 as follows:xxxix • The activity must have begun after December 31st, 1989 and resulted in the deliberate human‐ induced conversion of non‐forested land –typically abandoned farmland‐ into forest. ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
13
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
• Forest is defined as any land area covering at least 0.05‐1.0 hectares that has at least 10‐30% tree crown cover, with trees that have the potential to reach 2‐5 m height at maturity. • Land is eligible for afforestation if it is at least 0.05‐1.0 hectares in size and has less than 10‐30% tree crown cover, with trees that have the potential to reach 2‐5 m height at maturity, prior to planting. Article 3.4 of the Kyoto Protocol opened the possibility to include additional Land Use, Land‐Use Change and Forestry activities:
'The Conference of Parties... shall...decide upon modalities, rules and guidelines as to how and which additional human‐induced activities related to changes in greenhouse gas emissions and removals in the agricultural soil and land use change and forestry categories shall be added to, or subtracted from, the assigned amount for Parties included in Annex I [the reduction targets], taking into account uncertainties, transparency in reporting, verifiability, the methodological work of the IPCC...'xl
The Bonn Agreement formulated at the 6th Conference of the Parties to the UNFCCC in July 2001 clarified the implementation of Article 3.4 in the context of defining agricultural and forestry terminology as well as noted eligible project activities. Eligible activities include cropland management, grazing land management and revegetationxli, provided these activities are human‐induced, have occurred since December 31st, 1989 and are within each Parties individual cap of each management activity type. In addition, the Marrakech Accords established legally‐binding guidelines for reporting and accounting for agricultural carbon sinks.xlii Incremental carbon sequestration from managed forests can be accounted for and used to meet a country’s commitments, however, no additional credits are so farxliii provided for carbon that is precluded from being emitted by avoided deforestation measures (conservation of an existing forest area that is protected to prevent its loss resulting in carbon emissions) since no change in stock has occurred. Additionally, if a forest is destroyed (i.e. by a fire) and carbon is released, emission debits are generated on the grounds of occurred deforestationxliv. Another important issue is the extent to which carbon sequestered by forest management activities, defined under Article 3.4., could be counted toward the target carbon reduction. The agreed cap was 15% of current carbon sequestration totals attributable to forest management. For Japan, Canada, and Russia, the cap was adjusted upward. A country could choose not to use LULUCF activities to obtain carbon credits, while also not being held accountable for emissions that might occur on those lands either. xlv
3.3
Why have LULUCF projects not maintained strong activity and approval in the Kyoto‐ compliant trading mechanism?
Although emissions offsets from LULUCF projects in the form of CERs are permissible for use in meeting national emissions reduction quotas under the Kyoto regime, they are not accepted in the European Union Emissions Trading Scheme. The EU ETS has not permitted the trading of LULUCF CERs as a precautionary measure hedging against decreased investment in projects that generate CERs through energy efficiency and fuel‐switching measures.xlvi Kyoto signatory countries may still implement forestry activities in the form of afforestation and reforestation projects, however the amount of emissions reduction claimed by such activities are only eligible for covering 1% of each signatories emissions reduction quota. The European Union Emissions Trading Scheme (EU ETS) denies market access to certified and voluntary Land Use, Land‐Use Change and Forestry (LULUCF) emission reductions. The Kyoto Protocol itself ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
14
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
authorizes only afforestation and reforestation activities for the generation of LULUCF emission reductions, completely excluding categories such as soil carbon storage, sustainable forest management and avoided deforestation. Even in their currently‐eligible categories, LULUCF assets have been singled out to require particularly complex methodologies, with ten large scale and three small scale methodologies having been approved so far. Although buyers (especially in retail markets) often express a preference for agro forestry projects that show actual community benefits, the market share held by these projects has been relatively modest due to regulatory complexity and limited market access in the EU. The LULUCF‐based share of transactions has experienced a regular decline in the carbon market. Although LULUCF projects represented 41% of the tons of emission reductions sold between 1996 and 1999, their share declined to just 7% in 2003, 3% in 2004 and 1% in 2005. The shares are expected to stay small as large‐scale transactions reducing industrial gases such as HFC‐23 or nitrous oxide take a greater presence. The smaller number of LULUCF transactions are mostly due to low demand that stems from the confined attention paid to LULUCF activities in the Kyoto Protocol and other emission reduction regimes. Market imbalances, therefore, create opportunities in other trading mechanisms, namely the voluntary market in the US.
3.4
What non‐Kyoto markets accept land use, land‐use change and forestry offset credits?
The Voluntary Carbon Market (VCM) “involve(s) the trading of allowances created by voluntary emission reduction commitments and/or of credits from voluntary investments in emissions reductions projects – emission reduction credits generated by projects voluntarily undertaken to reduce greenhouse gas emissions below a project baseline level.”xlvii This voluntary market plays a significant role in climate change mitigation, advancing societal awareness of climate change and the impacts of consumer behavior, while allowing for forestry and other offset projects to be implemented outside of conventional Clean Development Mechanism trading floors.xlviiiThe emission offsets generated by LULUCF projects not utilized toward compliance quotas of the Kyoto Protocol are verified by independent agents but are not certified by a regulatory authority, which prevents them from being used as a compliance instrument. These offsets are commonly referred to as Verified Emission Reductions (VERs) and carry a possibility, but not a guarantee, that governments will allow them to be used to comply with future emission reduction requirements by becoming Certified Emission Reductions (CERs) or Emission Reduction Units (ERUs).xlix In the US, trading of voluntary emissions reduction units is prominent on the Chicago Climate Exchange (CCX), where LULUCF projects, including forest management and forest conservation, are eligible. The voluntary nature of this trading mechanism foster strict project requirements are less than under the Kyoto Protocol flexible mechanisms and this market is likely to see expansion. Prices for tradable emission allowances on the CCX are at around $US5.70 currentlyl, being the highest price since the market was set up. The CCX is the hub for the US voluntary market and a major determinant of prices for voluntary carbon offset credits in the US as well as globally.
3.5
Is there active support for high‐quality LULUCF project emission reductions? An objective of the World Bank’s BioCarbon Fund is to “test and demonstrate how LULUCF activities can generate high‐quality emission reductions with environmental and livelihood benefits that can be measured, monitored and certified, and stand the test of time”li. Many other organizations continue to promote LULUCF activities with a similar goal: successful demonstration of these types of project activities ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
15
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
as significant to the growth of the carbon market, and that current rules and regulations under the Kyoto Protocol and the EU ETS exclude a large portion of the developing world from gaining access to the carbon market. The World Bank is presently the largest buyer of forestry credits generated through the Clean Development Mechanism, with the BioCarbon Fund having assembled a portfolio of candidate projects that are projected to deliver up to 22 million carbon credits. Adjustments to that projected volume to account for the risk of project underperformance reveal expectations that the BioCarbon Fund could produce approximately 6 million carbon credits from their portfolio. The LULUCF market volume not already committed to can be provided by other potential government and industry buyers with their increased engagement stimulated by projects’ emission generation security and subsequent market acceptance. The interest stimulated by Tranche One of the BioCarbon Fund among private and public sector participants, host countries, and carbon market experts has prompted the Bank to propose Tranche Two. It is the logical next step following the realization of the fund’s first projects.
3.6
Saving Tropical Rainforests with Reduced Emissions from Deforestation and Degradation (REDD) Project Activities According to the IPCC, 15% to 25% of global annual greenhouse gas (GHG) emissions come from deforestation of tropical forests, with most of the forest destruction taking place in less‐developed countries. The idea of Reduction Emission from Deforestation and Degradation credits (REDD) is to “create a competing economic value for standing forests vs. clear cutting, cattle ranching, or other agricultural uses.” By doing that, it monetizes the carbon that is now stocked in the forest and that emission reduction can be traded in regular carbon markets. Emissions from deforestation and degradation have been ignored by the regulatory carbon markets. The Kyoto Protocol and its CDM mechanism does include REDD as an accepted project activity to combat climate change, however, the December 2007 Conference of Parties 13 (COP 13) in Bali requested that the Subsidiary Body for Scientific and Technical Advice (SBSTA) “undertake a programme of work on methodological issues related to a range of policy approaches and positive incentives for reducing emissions from deforestation and forest degradation in developing countries.” It is expected that the outcome of this “programme of work” will be the inclusion of a REDD mechanism into the international climate change agreement to succeed the Kyoto Protocol of 2008‐2012. On the other hand, REDD is welcome within the voluntary carbon markets, with support from the Climate, Community and Biodiversity Alliance (CCBA), the Voluntary Carbon Standard (VCS) and the Chicago Climate Exchange (CCX). Pushing the development of REDD mechanism are governments, non‐ governmental organizations and private sector entities, whom are working together to develop pilot projects that will demonstrate the viability of REDD projects. Experiences, information and data collected from these projects will be used to inform policy makers and encourage carbon markets worldwide to include REDD.
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
16
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
4.0 Land Use, Land‐Use Change & Forestry (LULUCF) Projects and the Kyoto Protocol 4.1
What is the scope of LULUCF within the Clean Development Mechanism (CDM) of the Kyoto Protocol? Under the first commitment period for the Kyoto Protocol, Annex I parties may satisfy only five percent of their targeted GHG reductions through the use of CDM forestry projects and the CERs they generate. The treaty allows only reforestation or afforestation of degraded lands, conversion of formerly agricultural land to sustainable forestry projects, and some commercial projects. Initial development of LULUCF projects under the CDM for commercialization in the Kyoto markets has been slowed by political, technical, and financial concerns over project monitoring and baseline establishment, permanence of vegetative carbon sequestration, and questions about leakage, lack of additionality, and socioeconomic co‐benefits. With only one forestry CDM project fully validated, registered and commercialized so far, interest has piqued more recently with the acceptance of additional reforestation/afforestation methodologies by the CDM EB.
4.2
What is the CDM Project Cycle?
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
17
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
4.2.1
Project Documentation: Project Idea Note, Letter of Expression, Letter of Intent
The CDM cycle begins when a Project Idea Note (PIN), summarizing the basic structure of the project, is submitted for approval of the host country, who will then issue a letter of endorsement (LOE) or letter of no objection. The LOE serves as a confirmation to proceed with the outlined designed of the forestry project. Furthermore, a prospective buyer will issue a letter of intent (LOI), which along with the LOE, which will be taken into account in the project design phase. 4.2.2
Project Design & the Project Design Document (PDD)
The project design phase does not begin until host country endorsement of the PIN is assured. Developers then further define the project, estimate the GHG removals as a result of the activity, perform a feasibility analysis and finally solicit and identify partners in order to develop a working plan. The formal outline of the project is fixed in the project design document (PPD) that developers submit to the CDM for project approval. Submitted PDDs include the following:
Among the documents for submission should be a description of the methodology used for calculate the project and the estimated GHG removal potential of the sink. Most projects select previously accepted methodologies in order to expedite (to the extent that is possible) the approval process. Project methodology write‐ups are scientific and engineering documents that outline, among other things, boundary definition, eligibility (whether soil carbon or underbrush count in CO2 removal) and inventory design. Since very few methodologies have been approved so far, the vast majority of the projects select a CDM‐preferred methodology in order to help assure verification. 4.2.3
Emissions Reduction Purchase Agreements
At any time in the CDM project cycle, a party may establish emissions reduction purchasing agreements (ERPAs). The project developer and credit buyer might want to sign an ERPA as soon as possible because, unlike the LOI, the ERPA is a legally‐binding agreement. Moreover, the ERPA is often necessary at an earlier project stage in order to generate CER revenues in order to attract further capital to implement or complete the project.
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
18
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
Before the project may be validated by the CDM designated operational authority (DOE), the host country must approve of the project by issuing a letter of approval (LOA). The way in which a country carries out the approval and validation process may differ depending on the salient domestic laws. Yet many host country approvals occur concurrently with DOE validation, as many nations look to the DOE to provide proof that the project conforms to the particulars of the Kyoto Protocol. 4.2.4
Project Validation
In order to validate and eventually register the project, third‐party, accredited, and independent certifiers – vetted by the CDM EB – known as designated operational entity. The DOE analysis of the PDD and other relevant documents tests several criteria.
Once the DOE has received the LOA from the host country, it may complete validation of the project. The PDD will be made publicly available over the internet, followed by a forty‐five day public comment period. At the end of this time, the DOE will decide whether or not the activity will receive a positive validation. Registration of the project triggers the implementation of the project. A validated project document is published by the DOE, with the hopes that an activity may be registered within eight weeks of submission. 4.2.5
Monitoring Project for Verification and Certification
Implementation of the project requires that monitoring commence as well. Periodical monitoring may be performed by the project developers or farmed out to specialized forestry agencies or carbon inventory firms.
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
19
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
4.2.6
CDM Executive Board (EB) Verification and Certification
The final step before any CERs may be issued is an audit of the implementation and monitoring of the activity. Again, a DOE must verify the project and will generally be a different DOE from the validation phase.
CDM LULUCF projects are verified every five years, or once per Kyoto commitment period. Verification may occur at any time during the first five years of the project, yet must be carried out on a five‐year cycle thereafter. A special consideration for LULUCF initiatives is that verification cannot occur at peaks in the carbon stocks. Forestry verification under the CDM requires that verification cannot consistently occur right before periods of harvesting, if such an activity is allowed under the PDD. The CDM EB publishes a verification report with their findings. Successful projects are formally issued CERs that correspond to the GHG removal figures found under verification.
4.3
LULUCF Costs and Risks under the CDM 4.3.1
Transaction costs
Given the complex process through which LULUCF projects must pass to gain certification, the transaction costs are generally quite high when registering a forestry project in the CDM. Several subcontractors may be hired simply to complete the verification phase. In an attempt to encourage smaller‐scale projects, those initiatives that garner fewer than 8000 CERs are subject to different procedures and requirements.
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
20
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
4.3.2
Gauging Performance: Temporary CER vs. long‐term CER
One more decision must be made by the project developer before the credits generated by the forestry project can be purchased on a Kyoto market. Because LULUCF projects bear the special risk of carbon sequestration reversal – that is, their carbon removal is only permanent so long as that vegetation remains intact, unburned, and unharvested – the CDM requires an audit every five years to gauge the forest’s carbon removal performance. In order to address the unique characteristics of vegetative carbon sequestration, the CDM created subcategories of CERs in order to allow project developers to choose the market option that works best for their project. Temporary CERs (tCERs) are issued each commitment period (every five years) and account for the total amount of carbon sequestered since the project start date. These credits expire at the end of the commitment period for which they are issued and must be replaced (based on a carbon audit) by an AAU, a permanent CER, ERU, RMU or another tCER. Since the entire carbon stock is verified every five years and credits are re‐issued according to that calculation, tCERs are lower risk than lCERs; loss of carbon removal does not require replacement. Long‐term CERs (lCERs) are issued once at the beginning of the project and are valid until the end of the project’s unique crediting period (usually 20 years, but may be as long as 55 years). A carbon audit and re‐ verification still takes place every five years, as in the case of tCERs, yet that process calculates the incremental loss or gain in carbon removal since the last commitment period. The decrease in carbon removal due to silviculture, forest fire, or other loss, causes the lCERs to expire. Those expiring lCERs that have been traded prior to expiring trigger a liability that project developers must address through carbon replacement and the acquisition of AAUs, CERs, ERUs, or RMUs. An expiring lCER cannot be replaced by a tCER or another lCER. The decision to sell tCERs or lCERs will be often be dictated, at least in part, by the potential buyers of the project credits. Long‐term CERs currently account for nearly two‐thirds of the market, as they more adequately address issues of non‐permanence. Recent market activity suggests that tCERs are increasingly popular, due to their financial flexibility and their lack of a liability. With many Kyoto parties looking to plug holes in their compliance targets through the credit markets, tCERs provide a short‐term solution for the imminent 2012 Kyoto goals assessments. Moreover, since tCERs assure compliance for the current commitment period and lCERs for the project’s entire crediting period, tCER prices will be lower; a price the seller absorbs for the lack of risk in a tCER project and the shorter period of time for which compliance has been purchased. It is that fluctuation in price that makes tCERs attractive because their commercialization can be timed with periods of high prices. Essentially, after every fifth year as verification is carried out, the entire block of tCERs can be re‐commercialized, provided that there is no net loss of carbon stock. This plays as somewhat of a disadvantage of tCERs, as they incur issuance fees every five years, whereas lCERs credits are paid for upfront, and only marginal increases in the carbon stock generate more credits and more fees. Therefore, lCER projects must be well‐capitalized, as upfront costs are high and the majority of revenues come at the beginning stages of the project. TCER projects accrue higher issuance fees in total, yet due to the mandatory expiration of the tCERs at the end of the commitment period, income is more evenly distributed as tCERs are verified every five years and their credits commercialized. 4.3.3
CDM & forestry risks
The inherent risks of CDM forestry projects are borne out in the debate between generating tCERs or lCERs. The uncertainties surrounding forestry projects in general, even if they eventually yield competitive rates of return, are clearly prohibitive for many developers. Forestry projects, whether in the CDM or voluntary markets, must contend with: ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
21
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
lii
The nascent bureaucracy known as the CDM also adds a layer of risk and uncertainty that project developers and potential buyers must take into account. Not only is the permanence of the forest’s carbon removals in question; so is the permanence of the CDM itself and any post‐Kyoto (2012) regime for CERs. The current lag time for registering forestry projects in the CDM not only delays implementation and return on investment, it throws the conclusion of the registration process itself in doubt. There are a number of hurdles, from host country approval, validation, registration, verification, CER issuance. Any failure in this chain and the project collapses. Since the CDM is still being constructed, the ability to trade credits is not automatic. Both the investing and the host country must have valid CER accounts, and many nations, particularly in the developing world, are still without any registry at all. The international transaction log and individual international registries are supposed to be completed by 2008. There are also eligibility requirements for countries to meet in order to trade CERs although most nations are expected to fulfill those requirements. 4.3.4
Forestry credit prices
The major purchaser of forestry credits is currently the World Bank. The BioCarbon Fund purchases these CERs under a different set of guidelines than the normal Kyoto markets and only later are they transferred into the Kyoto credits. So while the largest purchaser of forestry credits is operating somewhat outside of the normal Kyoto boundaries, its average price paid per ton CO2e – from $3.75 to $4.35 per ton with a $3 default price floor. Since the purchase of either tCERs or lCERs buys only temporary compliance – that is, both tCERs and lCERs must be replaced eventually by CERs, ERUs, or EUAs – their prices will be lower than the “permanent” type of credit. It follows that the purchase of temporary credits ensures that the buyer will increase its future purchase of carbon credits, since that tCER or lCER must eventually be replaced by a recognized permanent credit. The decision to buy a permanent versus a temporary credit will reflect not only the buyer’s compliance needs but also the expected relative replacement prices. A buyer will purchase an expiring credit so long as its price is less than the difference between the current price of a permanent credit and the net present value of any expected price of a permanent credit in the future. Under these conditions, the prices of CERs will increase with longer expiration times (as with lCERs) or higher discount rates. Therefore, the value of a temporary CER is inversely correlated with the value of permanent CERs. ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
22
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
4.3.4
Prices and Risk
The risks in developing forestry projects in order to generate carbon credits have been detailed in sections above. CDM forestry projects face additional risks in that no CERs are issued – or are even guaranteed to be issued – when the project’s contract (ERPA) is signed. Carbon credits generated through the CDM carry much higher risk, and therefore a lower price, than the most secure brand of credit, the EUAs in the European market. Representing the right to emit one ton of CO2, EUAs carry minimal risk since they avoid the pitfalls of a CDM project. These projects must absorb performance, monitoring, validation, and verification risks, some of which are out of the project developers’ hands as the DOE and DNA carry their own unique risks. In order to minimize risk and drive up forestry CER prices, developers have engaged in a number of actions in order to hedge against CDM‐ and forestry‐related risk. • Approval of quality standards: Although forestry projects in the compliance market are likely less risky than those in the voluntary markets, and LULUCF project entails significantly more risk with little sector standardization. The CDM‐approved methodologies lend credibility to one step in the process. A set sector‐wide standards and guidelines, from project design to credit issuance, would help cut risk and raise credit prices. These best practices can also lead to socioeconomic co‐benefits likely to improve public image and even increase credit prices. The popularity of the Climate, Community and Biodiversity Alliance standards proves that such quality assurances are marketable. • Insurance: A credible investment firm or bank can offer good protection for forestry project risk, as European insurance firms have covered CDM‐related risks in terms of credit verification and issuance. Traditional risks to the project’s carbon stock from fire or other disasters can be purchased through standard fire insurance policies. • Portfolio management: Those who purchase or managed carbon credits stemming from forestry projects would be wise to bundle these credits in a larger portfolio of less risky credit sources in order to balance out the LULUCF risks. Major carbon credit purchasers have seen high CER prices for their forestry projects because the larger, sounder portfolio tact helps protect delivery of credits to the buyer.
4.4
LULUCF Costs and Risks under the CDM 4.4.1
Forestry credit buyers in the CDM market
Purchasers of carbon credit from LULUCF in the CDM markets are looking to carbon credits in order to meet compliance targets. Governments and industry are a large proportion of these buyers. Yet forestry projects can be directed and developed to produce a number of social and environmental co‐benefits that are attractive to credit purchasers who have concerns beyond compliance to consider. Buyer preferences often also cite the location of the project to be a major factor in their consideration, as a number of governments and funds (and some industry) look to direct investment in least‐developed nations. Although several countries will look to carbon credits as a significant source of Kyoto compliance, transaction costs and bureaucratic hurdles may be too high for direct purchase by some states. The presence of major trading companies in CDM forestry markets may be a sign that further market potential
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
23
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
exists for these funds to act as bundlers of projects, helping to ensure project implementation (some buyers will assist the CDM process), higher credit prices, and lower project risk. Japan The Japanese government made plans to significantly cut emissions under the Kyoto Protocol. Yet it plans on achieving its carbon reductions in the long‐term through energy efficiency and conservation programs. Thus, the government in the short‐run will need to make us of all of Kyoto’s mechanisms to cover for its compliance gaps. Japan has introduced a national emissions trading platform that is voluntary, but will likely pick up speed as Japan nears the end of the commitment period. Over the next five years, it is likely that Japan will be over 200 million carbon credits short of full compliance with their Kyoto targets. Other estimates has place Japan’s shortfall at around 725 million credits. It is clear that Japan will need to make significant use of purchasing allowances and carbon credits as part of its strategy to comply with Kyoto. Canada Canada’s national emissions reduction scheme for the largest, end‐of‐pipe polluters is called Plan Green and will commence in early 2008. It will allow compliance via technology transfer and reduction, emissions allowances trading and carbon credit purchase and development in accordance with the Kyoto mechanisms like CDM. Even with the measures in place since the adoption of the protocol and Plan Green’s emissions reduction contribution, Canada will likely need to acquire credits to ensure compliance, so many analysts consider Canada a credit buyer. Before the conservative Harper government took power, some research suggested Canada would be about one billion credits short of compliance by 2012. However, with the “wait‐and‐see” approach of the new Canadian administration, Plan Green may not be fully implemented and the government’s aggressiveness in its future compliance attempts is uncertain. European Union The Emissions Trading Scheme (ETS) in Europe is the major credit market for carbon. While the initial phase of the ETS allows for the transfer of flexible Kyoto mechanisms into the system through the linking directive. However, forestry projects, even CDM LULUCF projects, are not valid for counting against each state’s ETS target. A decision on forestry projects will be made soon for implementation in Phase II, expected by the end of 2008. The ETS requires states to achieve 60% reductions by means other than trading EUAs. Smaller and relatively poorer European nations cannot rely on domestic reduction programs like those in Germany and the UK, so some EU states, such as Spain or Italy, may be credit buyers, given that LULUCF projects are admitted by the ETS when the regime is reorganized in 2008. There is strong support for including some forestry projects in future versions of the ETS. 4.4.2
Market demand for forestry offsets
There still exists great crediting potential for increasing the number of LULUCF projects in the Kyoto markets, especially with significant support for including certain forestry practices in the post‐2012 Kyoto landscape, as well as in the EU ETS. Crucial to expanding the market share of forestry carbon credits will be educating buyers about the special benefits and risks of investing in LULUCF projects. Price expectations on permanent versus expiring CERs varies by sector; carbon funds see non‐permanence LULUCF credits to be the main issue for its lower relative price, while industry sources are more concerned with explicit risks to the project in the form of fires or disasters. The obligation to replace lost credits constrains the popularity of LULUCF projects, however with better methodologies, standards, and
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
24
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
monitoring, the risks and uncertainties of forestry credits should decrease as the market becomes more mature; there is simply too much potential credit demand to ignore LULUCF crediting in the future. Current market demand is driven by the BioCarbon Fund of the World Bank, which buys up a majority of available forestry credits in the Kyoto markets. Individual states will begin to test their own domestic forestry credit trading schemes before they can enter the international markets; Japan is expected to roll out such a program soon as their demand for credits to meet 2012 targets is rising. Governments in the EU will also need to define standards and policies for forestry projects as the call for LULUCF inclusion in the EU ETS grows. Critical to ensuring the growth of the LULUCF credit market is the adoption of pro‐forestry initiatives into CDM for the second commitment period. There is no market activity, save for some projects funded by the World Bank, that extends past 2012, as uncertainty over the validity of forestry credits in a post‐2012 regime chokes out investment. While such uncertainly is stifling investment beyond 2012, the possibility that new streams of forestry credits, from avoided deforestation and forest conservation, may be added to the CDM and adopted and utilized by Japan, Canada and the EU ETS is generating excitement at what can be achieved for the future of the forestry credit market. 4.4.3
Successful Commercialization Checklist
Forestry projects have many variables that will affect the success or failure to effectively commercialize credits from LULUCF. Projects that achieve credit issuance:
liii
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
25
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
5.0 Greenhouse Gas Disclosure and Reporting Frameworks 5.1
What are some of the Voluntary Greenhouse Gas Disclosure and Reporting Frameworks that exist today?
5.1.1
Carbon Disclosure Project
The Carbon Disclosure Project “provides a secretariat for the world's largest institutional investor collaboration on the business implications of climate change”. Representing a process whereby many institutional investors collectively sign a single global request for disclosure of information on Greenhouse Gas (GHG) emissions, the Carbon Disclosure Project has acquired than 1,000 large corporations reports on their emissions.liv The Carbon Disclosure Project has most‐recently made public its 4th reporting phase with documentation in corporate, country and regional categories form 2006. 5.1.2
Program 1605b
The department of Energy’s Program 1605b is a voluntary greenhouse gas (GHG) registry created as part of the Energy Policy Act of 1992, whereby companies could record their voluntary reductions of GHG emissions with pressure on enhanced measurement accuracy, reliability, verifiability of the data reported, and standards set forth in such programs as the European Union Emissions Trading Scheme (EU ETS). Abatement strategies on the power supply side include fuel switching from high to low carbon fuel sources, nuclear and hydroelectric power plant availability improvement, greater plant efficiency, increases in low‐ or zero‐emitting generation capacity, decreases in high‐emitting capacity, and withdrawal of high‐emitting plants. Demand side management projects are intended to improve the end‐ use energy efficiency of both stationary and mobile sources in the industrial, commercial, residential, agricultural, and transportation sectors. Carbon sequestration projects report carbon fixing through afforestation and reforestation.lv Individuals, organizations, small businesses, and large corporations are encouraged to report under Program 1605b. Over 450 of the latter two categories have reported to date. 5.1.3
Eastern Climate Registry
With ten Northeast and Mid‐Atlantic States agreeing to participate in the Regional Greenhouse Gas Initiative, the Eastern Climate Registry has formed “to provide a GHG emissions platform to support state voluntary and mandatory GHG reporting programs and to provide the technical platform for state and regional climate change initiatives”.lvi The program’s goal is to ensure the use of common GHG accounting standards, and that consistent data reporting and accounting methodologies be able to function across policy and program differences. The primary goals of the program are noted as: • Development of a software platform to support GHG emissions reporting and allowance tracking in the region; • Establishment of the guidelines and procedures of the regional voluntary GHG reporting program; and • Determination of how the Eastern Climate Registry should be linked with other GHG registry programs in the U.S. and abroad.lvii
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
26
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
Companies are encouraged to supply their GHG emissions data for demonstration of environmental leadership, carbon‐related risk management, increased operational efficiency, and documentation of early action. Other Western and Mid‐Western states have developed their own reporting initiatives and are collaborating with the Eastern Climate Registry as well as.
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
27
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
6.0 Overcoming Vegetative Carbon Sequestration Project Inhibitors
6.1
What are the concerns of quantifying GHG offset benefits from forestry projects? The key concerns for the quantification of GHG offset benefits derived from forestry projects are as follows: • Establishing baselines to set a standard against which the GHG benefits of the project can be evaluated (e.g., often the level of GHG emissions or carbon sequestration that would occur in the absence of project implementation).lviii • Identifying leakage for the unanticipated decrease or increase in GHG benefits outside of the project's accounting boundary as a result of project activities.lix • Addressing duration (also referred to as reversibility or permanence) to account for the fact that the benefits of carbon sequestration in agriculture and forestry are partially or completely reversible.lx • Monitoring and verifying GHG benefits to ensure that a forestry or agricultural project is achieving real and credible results.
6.2
What are the inhibitors associated with promoting vegetative carbon sequestration projects? One of the primary stumbling blocks to developing vegetative carbon sequestration is that project measurement and monitoring is often too expensive. In most projects dealing with afforestation and reforestation, ample on‐the‐ground GIS, GPS and manual labor resources for measuring and monitoring are available; however, satellite alternatives offer huge improvements in cost and speed. Remote sensing technology is easier to use, can survey a broader area and can obtain higher resolution data ‐‐ although any digital models and observations must be cross reference with on‐the‐ground assessments. Aerial photography remains an alternative to on‐the‐ground measuring and monitoring practices but only where access to land tracts can be achieved with smaller, low‐flying planes. The benefits of on‐the‐ground and aerial photography project activity measuring and monitoring are discussed in section 4.3. With regard to CO2, net emissions between the atmosphere and land surfaces are inferred from changes in carbon stocks (i.e. amount of carbon in soils and in vegetation).lxi The carbon content of a soil sample can be determined with a high degree of precision; however, the challenge lies in the detection of changes in terrestrial carbon at large scales (i.e. fields and larger areas).lxii Areas containing soils under observation would require comprehensive and detailed soil maps, with estimates of soil carbon for each soil type and also including measurements of the rate of change in soil carbon when the respective land use undergoes change. This information does not exist in most countries, where there are also lacks in land use‐change statistics that are needed because of the long timescale of soil carbon changes.lxiii In countries where afforestation and deforestation do exist, it is essential to rely on spatially explicit maps of the forest areas under consideration. Areas of forests defined in terms of canopy cover may be quantified using remotely‐sensed imagery. Forest areas defined by their specific land designation, however, require ground sampling or the use of maps.lxiv Models can be used to provide reasonable estimates of carbon stocks, offering one way of overcoming some of the carbon measuring limitations. For these modeled estimations to be accepted, though, the ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
28
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
model must be 1) accepted by the scientific community; 2) include parameters that reflect the local conditions; and 3) tested against data that represent those local conditions. Obtaining the input data for their validation and calibration is often difficult, depending on each model’s level of sophistication. Also, it must be kept in mind that model results are only estimates that cannot be substituted for real data.lxv Table 4 summarizes the issues mentioned as well as other characteristics of LULUCF data that make the measurement and monitoring of emissions from these types of projects challenging.
Table 4: Characteristics of LULUCF data
- emissions are comparably low (especially N2O and CH4) compared to the size of the storage pools - temporal and spatial variability is large
fluxes (direct
- the system boders are difficult to determine due to the complexity of physiologically active
emissions/removals)
ecosystem compartments - measurements of direct emissions are very cost intensive - uncertainties are especially high when estimating direct fluxes - not all biomass pools are accounted for in measurements (ground vegetation, coarse roots, etc.), and the pool sizes cannot be directly determined from regular inventories - biomass carbon stocks are mostly (indirectly) assessed using models (BEF) (even direct biomasss measurements use models for representative sampling) - soil carbon stocks can only be assessed from concentration measurements using pedotransfer rules or measurements of bulk density
carbon storage (in
- many countries lack the necessary infrastructure to conduct large scale measurements of
biomass and soils)
the estimation parameters needed to detemine forest biomass (e.g. representative forest inventories) - national inventories are often staggered (e.g. different regions are completed in different years) and often have ca. 10 yr return intervals ("periodic inventories vs. annual inventories) - small differences in carbon stocks from large storage pools are difficult to detect - basic assumption: fluxes are equal to changes in carbon stocks in biomass and soils - disturbances reflect spontaneous events changing emission rates/defaults and can offset regional sink effects
source/sink capacity of
- silvo-genetical cycles/forest stand developments have to be considered before long-term
forests
averages can be derived (emissions/removal rates) - non-linear development of C-stocks during stand development has to be considered because of positive and negative feedback mechanisms (e.g. effects of clear cutting) - non-steady state/direction of net fluxes can change over time. There is an upper, though mostly unknown treshold as the limit for the maximum biomass storage capacity - forest harvest is not necessarily a net surce due to storage of carbon in forest products - forest harvest might change the source/sink behavior in the UNFCCC reporting category 5A - present and future CO2 fluxes are affected by changes in land use (past land-use activities
management effects
always have to be considered) - carbon pool compartments react differently (e.g. different lag times for response reaction) after implemented management measures - there are little or no data available for ARD - spatial and temporal variability in terrestrial ecosystems is high
additional uncertainties related to definitions and annual accounting
- lack of direrct measured data for the baseline for projects in most countries - lack of infrasturcture to assess lands with activities under the articles 3.3. and 3.4 of the Kyoto Protocol - uncertainties in base year emissions for net-net accounting
lxvi
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
29
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
6.3
What processes and technologies exist to overcome some carbon sequestration project measuring and monitoring inhibitors?
6.3.1
On‐the‐ground measuring and monitoring
The techniques and methods used for sampling and precisely measuring individual carbon pools are based on commonly accepted principles of forest inventory, soil sampling, and ecological surveys. Techniques to measure soil carbon and the carbon pool in living tree biomass, understory and herbaceous plants, roots, fine and coarse litter are also abundant. However, the fact that standard methods have not been universally applied to all projects generates difficulties in comparing results across different LULUCF project activities.lxvii For the spatial and temporal quantification of the rates and limits of carbon accumulation in soil systems, belowground sensors can be used (i.e. miniaturized nuclear magnetic resonance imaging devices). Such measurements should account for (i) soil carbon, water, and nutrients as a function of depth; (ii) biomass (roots and microbial community) imaging; and (iii) porosity or soil structural changes.lxviii Permanent sample plots are considered to be a statistically superior means for evaluating changes in forest carbon pools because they allow for efficient assessments of changes in carbon stocks over time and for verification of a project’s reported carbon benefits. These field methods with extensive permanent plots may however be expensive to implement and maintain in certain isolated areas.lxix 6.3.2
Aerial photography as measuring and monitoring
Aerial photographs taken from low‐flying airplanes can provide a useful means to monitor LULUCF projects. An advancement in this area couples dual‐camera videography with a pulse laser profiler, data recorders, and differential GPS mounted on a single‐engine airplane. This system can produce indices of crown density, number of trees per unit area, and tree height, while also identifying the extent of gaps which could be especially useful for projects that are monitoring small‐scale logging disturbance in protected forests.lxx 6.3.3
Satellite remote sensing
Satellite imagery is one of the low‐cost carbon measuring alternatives. This method is accurate and can operate on a huge.lxxi Satellite remote sensing may be used to:
• identify initial areas of different land‐cover types, including forests; • determine the extent, rates of change, and locations of activities that result in forest clearing and regrowth or other activities; • identify other natural and human‐induced changes in terrestrial ecosystems; and • provide parameters for models that calculate the net exchanges of gases between terrestrial ecosystems and the atmosphere These data could be used as a primary information resource for countries reporting sources and sinks of carbon or for verification.lxxii In the last 10 years, great progress has been made by the scientific community in simulating the exchanges of carbon (and other material) between terrestrial ecosystems and the atmosphere. Many of the models used in these simulations require remotely‐sensed data to establish areas of land‐cover type to which different attributes (e.g., production efficiency, surface roughness, albedo) are assigned.lxxiii ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
30
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
6.4
Satellite data from mainly from the National Oceanic & Atmospheric Administration were initially used to generate maps of global land and forest cover, with the capability to also be used to track and monitor changes in forest cover at the national level. Utilizing a more detailed analysis, sources and sinks of carbon from forest clearing and regrowth can also be estimated. This analysis requires 1) repeated measurements of forest clearing over large areas, 2) precise spatial and temporal scale analyses to document regrowth, and 3) existing data on carbon pool fluctuations that are associated with changes in land cover. Data from high‐resolution satellites such as NASA’s Landsat and the Centre National d’Etudes Spatiales’ SPOT have been used to regularly measure regional clearing of forests and subsequent regrowth. Since revegetation may occur rapidly in cleared areas, annual measurements make it easier to detect the clearing of land areas that begin to regrow quickly.lxxiv One of the complications associated with even high‐resolution satellites is that they may fail to distinguish clearing and regrowth from other land cover changes, such as harvests or natural disturbances such as fire, insects, and storms. Still, very high‐ resolution data from GeoEye’s commercial IKONOS II satellite can be utilized in determining the actual activities on the ground that have led to forest clearing.lxxv The costs associated with employing remote‐sensing data vary greatly on a per‐hectare basis contingent upon the actual sensor and the year in which the data are originally acquired. The most recent data from NASA’s Landsat‐7 are less expensive since the system is now operated as a public resource. Conversely, SPOT data are more expensive since they have a greater detail of spatial resolution, however they do not provide global coverage. Table 5 (after section 5.4) provides and overview of the advantages and disadvantages of forestry monitoring techniques.
What carbon accounting research contributions have been made by the Food and Agriculture Organization? In addition to its primary efforts to defeat global hunger, The United Nations’ Food and Agriculture Organization (FAO) “is also a source of knowledge and information. We help developing countries and countries in transition modernize and improve agriculture, forestry and fisheries practices and ensure good nutrition for all”.lxxvi The FAO’s Global Terrestrial Observing System (GTOS) is a program designed for the observing, modeling and analyzing terrestrial ecosystems in support of sustainable development. This program facilitates access to terrestrial ecosystems in an effort to assist researchers and policy makers in detecting and managing global and regional environmental change.lxxvii This information is provided free of charge, however most of FAO’s work in this area is in the research or testing phase. The overarching goals of GTOS’ Terrestrial Carbon Observations (TCO) “are to better identify the potential end users, and their requirements; organize and coordinate reliable data and information on carbon; and link the science community with potential users”.lxxviii The TCO consider existing, satellite, and terrestrial ecosystem data from local, regional and global scales while providing the spatial and temporal distribution information of terrestrial carbon sources and sinks. The new mission of TCO “is to focus on specific products, such as: an operational database system; validated and parameterized models; manuals, standard methodologies and related documentation; productivity estimates; and the creation of a common forum for scientists and stakeholders interested in carbon accounting”. lxxix The objective of GTOS’ SIBERIA‐II, applied to 200 million ha North Eastern Europe, is to demonstrate the viability of full carbon accounting on a regional basis using the environmental tools and systems presently available. The tools and systems employed include a diverse set of multi‐sensor instruments, detailed databases of field information and some of the worlds most advanced climate models. In total, these provisions will account for fluxes between the land and the atmosphere as SIBERIA‐II develops a combined monitoring system to yield estimates of carbon sources, sinks and pools at multiple spatial and temporal scales for relevant application in land use policy and resource management. ®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
31
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
Table 5: Advantages and disadvantages of forestry monitoring techniques
Techniques
Advantages
Disadvantages
Relatively quick and inexpensive. Useful for baseline Modeling
development. Can be used for bioenergy projects. Most useful as a complement to other
Relies on highly simplified assumptions. Need to be calibrated with onsite data.
methods Time and knowledge needed to transform spectral classifications Provides relatively rapid regional- into accurate land use or landSatellite remote sensing
scale assessments of land cover, cover classifications. Access to land use, and green vegetation
high-quality imagery may not be
biomass. Useful for monitoring
available during certain seasons or
leakage.
due to sun angles. Has not been used to measure carbon. Can be quite expensive.
Complements satellite remote Aerial
sensing. Useful for monitoring
photography
leakage. Less expensive than
In test phase.
satellite remote sensing. Useful for determining what was actually implemented in project and fo tracking fate of wood Field/site measurements
products. Flexible in selection of methods and precision. Peer reviewed and field tested
May be more expensive than other methods
systems available. Using control plots can calculate net carbon sequestration.
lxxx
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 Tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
32
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
Bibliography i Flannery, Tim. The Weather Makers. Melbourne, Australia: Text Publishing Company. 2005. ii WWF has listed the Polar Bear as the first animal to be on the “endangered species” list due to climate change iii Flannery, Tim. The Weather Makers…supra note 1. iv Climate Variability. NASA Oceanography. http://science.hq.nasa.gov/oceans/system/climate.html v http://www.epa.gov vi Marland, G., T.A. Boden, and R. J. Andres. 2003. "Global, Regional, and National CO2 Emissions." In Trends: A Compendium of Data on Global Change. Carbon Dioxide Information Analysis Center, Oak Ridge National Laboratory, U.S. Department of Energy, Oak Ridge, Tenn., U.S.A. vii http://www.rcfa-cfan.org/english/issues.13.html viii Ibid ix IPCC (2000); IPCC Special Report: Land Use, Land-Use Change, and Forestry x Ciesla, W. 1995. “Climate change, forests and forest management”. FAO Forestry Paper 126, Food and Agriculture Organization of the United Nations, Rome, p.128 xi Flannery, Tim. The Weather Makers…supra note 1. xii http://cdiac2.esd.ornl.gov/index.html xiii http://www.epa.gov/sequestration/ xiv http://unfccc.int/methods_and_science/lulucf/items/1084.php xv http://www.sd-commission.org.uk/panel-sd/position/co2/anna.htm xvi http://csite.ornl.gov/ xvii http://www.epa.gov/sequestration/ xviii http://www.sd-commission.org.uk/panel-sd/position/co2/main.htm xix http://www.sd-commission.org.uk/panel-sd/position/co2/anna.htm xx http://www.sd-commission.org.uk/panel-sd/position/co2/anna.htm xxi IPCC Third Assessment Report, 2003. xxii Kolshus, H.H. 2001. Carbon sequestration in sinks: an overview of potential costs. CICERO Working Paper 2001: 11. xxiii See section 3.3 of this document for a definition of the activities included in Articles 3.3 and 3.4 of the Kyoto Protocol xxiv Missfeldt, F. and E. Haites, 2001. The Potential Contribution of Sinks to Meeting Kyoto Protocol Commitments. In Environmental Science and Policy, 4(6), pp. 269-292. Noble, I. and R.J. Scholes, 2001. Sinks and the Kyoto Protocol. Climate Policy 1 (2001), pp. 5-25. (cited in: Kolshus, H.H. 2001. Carbon sequestration in sinks: an overview of potential costs. CICERO Working Paper 2001: 11.) xxv Intergovernmental Panel on Climate Change (IPCC). 1997,Greenhouse Gas Inventory Reporting Instructions. Volumes 1, 2 and 3. IPCC Technical Support Unit, Hadley Centre, Meteorological Office, Bracknell, UK xxvi FAO forestry situation report for 2005 (FAO forestry paper 147) xxvii Leake, J.E. 2006. Rehabilitation of tropical and subtropical regions as a means of bio sequestration of Carbon. Draft for review. xxviii http://www.epa.gov/sequestration/ xxix See section 3.3. of this document for a definition of afforestation and reforestation xxx ECCP - Working Group on Forest Sinks FINAL REPORT. Conclusions and recommendations regarding forest related sinks & climate change mitigation xxxi See Appendix 2.1 for a list of Annex I & Annex II countries xxxii “The 1997 Kyoto Protocol shares the Convention’s objective, principles and institutions, but significantly strengthens the Convention by committing Annex I Parties to individual, legally-binding targets to limit or reduce their greenhouse gas emissions. Only Parties to the Convention that have also become Parties to the Protocol (i.e. by ratifying, accepting, approving, or acceding to it) will be bound by the Protocol’s commitments. 165 countries have ratified the Protocol to date. Of these, 35 countries and the EEC are required to reduce greenhouse gas emissions below levels specified for each of them in the treaty. The individual targets for Annex I Parties are listed in the Kyoto Protocol’s Annex B. These add up to a total cut in greenhouse-gas emissions of at least 5% from 1990 levels in the commitment period 2008-2012.” The Provisions of the Kyoto Protocol and its Rulebook, from http://unfccc.int/kyoto_protocol/items/2830.php xxxiii See Appendix 2.1 for a list of Annex I & Annex II countries xxxiv Note: The United States of America are Annex II countries that have not adopted the Kyoto Protocol xxxv UN FCCC/CP/2001/13/Add.1, English, p. 58 xxxvi Ibid xxxvii Ibid xxxviii Sedjo, R. 2006 Forest and Biological Carbon sinks after Kyoto. Resources for the Future and Weathervane, Background paper. xxxix Ibid xl Kyoto Protocol to the UNFCCC http://unfccc.int/resource/docs/convkp/kpeng.html xli Cropland management is the system of practices on land on which agricultural crops are grown and on land that is set aside or temporarily not being used for crop production; grazing land management is the system of practices on land used for livestock production aimed at manipulating the amount and type of vegetation and livestock produced; and revegetation is a direct human-induced activity to increase carbon stocks on sites through the establishment of vegetation that covers a minimum area of
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
33
A Carbon Sequestration Introduction: Climate Change, Established Frameworks and the Carbon Markets
0.05 hectares and does not meet the definitions of afforestation and reforestation (European Climate Change Programme (ECCP): Working Group Sinks Related to Agricultural Soils Final Report) xlii European Climate Change Programme (ECCP): Working Group Sinks Related to Agricultural Soils Final Report xliii See section 3.6 on REED credits xliv Sedjo, R. 2006 Forest and Biological Carbon sinks after Kyoto. Resources for the Future and Weathervane, Background paper. xlv Amano, M & Sedjo, R. 2003. Forest Carbon Sinks: European Union, Japanese and Canadian Approaches. Resources for the Future, Discussion Paper:. RFF DP 03-41. xlvi World Bank Technical Workshop, Using Forest Carbon Credits in the Carbon Market Focus on the European Emission Trading Scheme, Brussels, March 29, 2006. xlvii IETA. 2006. The Voluntary Carbon Standard. Proposed Version 2. Consultation xlviii http://www.fs.fed.us/ecosystemservices/carbon.shtml xlix http://www.eurocarbonltd.com/carbon_trading.htm l From January 2008 from link: http://www.chicagoclimatex.com/market/data/summary.jsf li Research Reports International, Inc. http://www.researchreportsintl.com/products/samples/CarbFundSamp.pdf lii Ibid liiiTill Neef and Sabine Henders, February 2007, CATIE, “Guidebook to Markets and Commercialization of Forestry CDM projects” liv Carbon Disclosure Project: http://www.cdproject.net/ lv The US Department of Energy Website: http://www.eia.doe.gov/oiaf/1605/frntvrgg.html lvi Eastern Climate Registry, Project Overview: http://www.easternclimateregistry.org/ lvii Ibid lviii For more informaiton on establishing baselines, please visit: http://www.epa.gov/sequestration/baselines.html lix For more information on how to identify leakage, please visit: http://www.epa.gov/sequestration/leakage.html lx For more information on reversibility (duration), please visit: http://www.epa.gov/sequestration/duration.html lxi lxi Paustian, K., Antle, J.M., Sheedan, J., Paul, E. 2006. Agriculture’s role in GHG mitigation. Pew Center on Global Climate Change. lxii US DOE. Carbon Sequestration in terrestrial ecosystems: (http://www.fe.doe.gov/coal_power/sequestration/reports/rd/index.html) lxiii British Government Panel on Sustainable Development (http://www.sd-commission.org.uk/panel-sd/position/co2/anna.htm) lxiv ibid lxv World Resources Institute, 2006. The Greenhouse Gas Protocol: The Land Use, Land Use Change and Forestry Guidance for GHG Project Accounting. lxvi Rypdal, K. & Baritz, R. 2002. Estimating and managing uncertainties in order to detect terrestrial greenhouse gas removals. CICERO Working Paper 2002:07 lxvii For more information on monitoring techniques, please read Chapter 2 of the IPCC special Report: Land Use, Land-Use Change, and Forestry lxviii US DOE. Carbon Sequestration in terrestrial ecosystems (http://www.fe.doe.gov/coal_power/sequestration/reports/rd/index.html) lxix Slaymayer et al. 1999. Calculating forest biomass with small format aerial photography, videography and a profiling laser (pdf available at: ftp://vis-ftp.cs.umass.edu/Papers/slaymaker/Reno99.pdf) lxx IPCC. 2000; IPCC special Report: Land Use, Land-Use Change, and Forestry lxxi Reedy, H. 2003. Feasibility Assessment of Afforestation for Carbon Sequestration (FAACS): Exploring Options for Aggregating and Selling Afforestation Carbon Credits from Small Landowners. lxxii IPCC (2000); IPCC special Report: Land Use, Land-Use Change, and Forestry lxxiii IPCC (2000); IPCC special Report: Land Use, Land-Use Change, and Forestry lxxiv Ibid lxxv Ibid lxxvi http://www.fao.org/UNFAO/about/index_en.html lxxvii http://www.fao.org/gtos/ lxxviii http://www.fao.org/gtos/tcoABT.html lxxix Ibid lxxx Vine, E., Sathaye, J. and Makundi, W. 1999.Evaluation, Reporting, Verification, and Certification of Forestry Projects for Climate Change Mitigation. Ernest Orlando Lawrence, Berkeley National Laboratory
®
CINCS • 561 Broadway, Suite 6A • New York, NY 10012 tel: +1.212.925.8106 • fax: +1.212.226.1625 • www.CINCS.com
34
Related Documents
Cincs Carbon Sequestration Introduction
December 2019 3
Cincs Carbon 101 Summary
December 2019 0
Carbon Sequestration In Dryland Soil
November 2019 11
Carbon
December 2019 49