Modalities for Including Afforestation and Reforestation Project Activities under the CDM2003-02-12 Samoa on behalf of AOSIS
Samoa, on behalf of the Alliance of Small Island States (AOSIS) welcomes the opportunity to submit its views on issues related to modalities for including afforestation and reforestation project activities under the Clean Development Mechanism in the first commitment period taking account the inputs identified in paragraph 2 of the Annex to FCCC/SBSTA/2002/L.8. At the onset AOSIS notes that the consideration of these issues relates to specifically afforestation and reforestation the Clean Development Mechanism, however we believe that they have relevance to considerations under Article 6 (Joint Implementation) and that any annexes developed for the purpose of Article 12 should be used as a framework for the development of any annexes for land use, land-use change and forestry activities developed for Article 6. The following is a series of issues associated related to the modalities for including afforestation and reforestation: 1. Issues Relating to the Definition of “Forest,” “Afforestation” and “Deforestation”: AOSIS firmly believes that for the first commitment period, the definition of “forest”, “afforestation” and “reforestation” has been determined in the Annex to the Draft decision – /CMP.1 (Land use, land-use change and forestry) and that these definitions are part of the Marrakech Accord. Should there be general agreement by all Parties that the definitions are subject to further negotiations and that the Marrakech Accord is open for renegotiation, AOSIS will submit new definitions and amendments to the Annex to the Draft decision -/CMP.1 (Land use, land-use change and forestry).1 Dealing with the Unique Nature of Land Use, Land-use Change and Forestry: The development of project based activities incorporating afforestation and reforestation under the CDM (and other LULUCF activities under Article 6) requires a unique approach. This is due to a number of factors including:2 • LULUCF activities will bring about a change in land use and potentially land tenure; • The potential to displace people from their land; • The dynamic nature of living systems, which are subject to seasonal changes and various perturbations, including the impacts of climate change; • The potentially short-lived nature of some LULUCF sequestration activities; • Difficulties associated with measuring sequestered carbon; • Significant potential for environmental and social impacts; • Difficulties in setting baselines; • The potential for projects to have effects on carbon storage elsewhere; • The potentially broad scale of projects making them difficult to verify; • Accounting requirements associated with various caps and limitations; • The potential for projects to be influenced by non-direct affects e.g. nitrogen deposition, carbon fertilization etc. With these aspects in mind, AOSIS believes that a unique approach must be taken to address these issues. This approach requires the need for: • Specific annexes to be developed for each of these issues particularly in relation to non-permanence (and subsequent and accounting approaches), additionality, leakage, uncertainties, socio-economic impacts, environmental impacts (for both Article 12 and Article 6). • Special accreditation standards to be set for Operational Entities reviewing LULUCF projects. 2. Issues Relating to the Consideration of “Non-permanence” AOSIS believes that the issue of addressing non-permanence is one of the key elements in considering the eligibility of afforestation and reforestation projects under the CDM (and a fundamental issue for LULUCF activities under Article 6). There are numerous approaches that have been suggested to address the issue of nonpermanence. A number of these have been discussed in the OECD/IEA Information Paper: Forestry Projects: Permanence, Credit Accounting and Lifetime” This paper provides a useful basis for discussion, (though we would contend that there are a number of assumptions and factors not relevant to the Kyoto Protocol that we would question in this paper). Long-Term Carbon Integrity: Fundamental to the consideration of any approach to address ‘non-permanence’ is the need to be consistent with the Kyoto Protocol and in particular to provide “real, measurable and longterm benefits relating to the mitigation of climate change”. Following this obligation, all afforestation and reforestation projects must aim to sequester carbon for the natural lifetime of the trees being planted and beyond. They should aim to provide an ongoing sequestration process based on serial changes to the planted forest system. This is what we understand “LongTerm Carbon Integrity” to mean. Complications with Short Term Sequestration Afforestation and reforestation projects that involve planting trees for later extraction (timber, thinnings, and other tree fibre products etc) would have great difficulty passing the Long Term Carbon Integrity requirement.4 This is simply due to the fact that these activities would have difficulty showing real, measurable and long-term benefits relating to the mitigation of climate change.5 It is evident that some proponents of CDM and JI projects believe that they can in invest in short-term rotation forestry projects and hence obtain quick carbon credits for the project once the trees have reached the end of their maximum sequestration period. There appears to be a belief that these ‘fast sequestration projects’ also imply limited long-term liability for the sequestered carbon. This appears to be in the belief or hope that the trail of ownership of the sequestration rights will become sufficiently obscured by: • accounting complications associated with the carry over of obligations between successive commitment periods; • potential confusion, obscurity and/or poor book keeping associated with the conversion of RMUs into AAUs • potential confusion, obscurity and/ or poor book keeping associated with the maintenance of cancellation accounts • deliberate company “reflagging” or dissolution so that ownership of carbon sequestration liability is lost or difficult to track. Some proponents also appear to view short rotation forestry as a win-win situation in that carbon credits can be gained for the project as well as the economic benefits derived from the tree fibre taken from the afforestation/reforestation projects, hence providing double economic benefits. In reality this is a contradiction in accounting.6 Either the trees are grown for carbon or for fibre. Means of Achieving Long-Term Carbon Integrity: Non-permanence and hence Long-Term Carbon Integrity should be addressed by three interrelated means, with the three being applied collectively to each project proposal (they are not alternatives): • Biodiversity Restoration Measures • Local Community Agreement • Legal Use of the Land and Carbon Ownership Right • Ongoing Financial Viability • Management System Capacity • Perpetual Accounting Systems • Perpetual Liability Requirements Biodiversity Restoration Measures: Afforestation and reforestation projects that aim to recreate natural forests (that were present prior to 1989) and provide a system of management to maintain these, as forests in perpetuity would provide the best opportunity for Long-Term Carbon Integrity. Such an approach is likely to provide additional sequestration as natural regeneration takes over from the planting process. In this way, preference should be given to projects that maximise “biodiversity restoration measures”(BRMs). Apart from an increase in above ground biomass, under this “BRM” approach, soil carbon is more likely to increase.8 This approach not only provides the greatest opportunity for sequestering carbon in the long term, it also creates opportunities for linkages and synergies with other international agreements such as the Convention on Biological Diversity, the Convention to Combat Desertification and the Ramsar Convention. Local Community Agreement: Without the full legal agreement of local communities (including Indigenous Peoples) who may be affected by the project (both within and outside the project boundary), the prospect of the project remaining in perpetuity is highly unlikely. Full legal acceptance by all affected parties should be included in the Project Design Document. (Further details of social aspects are discussed later). Legal Use of the Land and Carbon Sequestration Right: Consistent with the fulfilment of local community agreements, the project should also indicate what measures are in place to ensure that the carbon is legally protected on the land. Two elements would be required: o A title of legal authority to use the land9 o A legal right to own or have rights over the sequestered carbon on that land10 Ongoing Financial Viability To ensure that a project is economically viable beyond the period of maximum sequestration, the Project Design Document would need to indicate what funding methods are to be employed to ensure the sequestration longevity of the project. A trust fund or other means of financial assurance would need to be identified within the project design.11 Management System Capacity: The project proponents would need to show in the Project Design Document that they have the management system capacity to ensure the sequestration longevity of the project. Included in the record of management system capacity would be a description of capacity to: o undertake carbon sequestration measurements and record these appropriately; o monitor environmental, social and financial aspects of the project; o capacity to assess any leakage; o undertake appropriate community consultation processes; o ensure that all legal obligations and requirements are appropriately fulfilled; o undertake measures to avoid potential emissions, e.g. pest management and fire management; o enforce restrictions on land use e.g. controlling illegal logging, grazing, etc. Kyoto Consistent Accounting: While all efforts should be made to ensure that afforestation and reforestation project sequester carbon in perpetuity, losses are likely to occur and these need to be accounted for. An appropriate accounting system needs to properly reflect obligations under the Kyoto Protocol and any relevant decisions. To do this the accounting system should have the following characteristics: • Balanced Accounting: It should ensure that any credits for enhanced carbon stocks is balanced by accounting for any subsequent losses in12: a) the project stocks or emissions of greenhouse gases, (regardless of the cause and regardless of the timeframe);13 b) the offsite stocks or emissions of greenhouse gases (regardless of the timeframe) due to leakage;14 • Not Inherit Credits: It should only account for actual credits gained from the first commitment period. It should not anticipate or inherit credit from future commitment periods;15 • Not Carry Over Credits: It should not allow credits to be transferred to future commitment periods;16 • Not Exceed Cap: The system should not create opportunities to exceed the one percent cap in the first commitment period;17 • Transparency and Verifiability: It should provide an approach that is transparent and verifiable;18 • Excludes Indirect Effects: The accounting excludes removals from elevated carbon dioxide, nitrogen deposition and the dynamic effects of age structure; Various Accounting Approaches have been considered and most are discussed in OECD & IEA20. AOSIS has developed a matrix to assess the compliance of these accounting systems with the Kyoto Protocol and relevant decisions. This is included in Annex A to this document. Conclusions from Evaluation of Accounting Approaches: It is evident that none of the suggested accounting approaches fulfil all requirements under the Kyoto Protocol and relevant decisions. The closest to meeting the requirements is the Actual Stock Change approach. However, the proposition that sequestration credits from the Actual Stock Change approach would be “permanent” is not consistent with the Kyoto Protocol. Temporary Actual Stock Change Accounting: It could be possible to develop an accounting approach using the Actual Stock Change approach and issuing ‘temporary net credits’ at the end of the first Commitment Period. These ‘temporary net credits’ would be issued on a full emission liability basis such that any subsequent losses, due to either project losses or off-site losses due to leakage, would be repaid in full. This could be called the Temporary Actual Stock Change Accounting (TASCA). To be consistent with the Kyoto Protocol and related decisions on LULUCF, TASCA credits would need to have following characteristics: (a) Perpetual or Exchange Emission Liability; (b) Emissions Liability Insurance (c) TASCA Credits not Diminish (a) Perpetuity or Exchange Emission Liability: While the credits for TASCAs would be temporary the responsibility for any subsequent emissions would be permanent. The emissions liability for TASCA credits would remain with the acquirer of these credits, even though they would be placed in a retirement or cancellation account at the end of the first Commitment Period. This liability would remain on the project land in perpetuity or if the acquirer was able to show that an equivalent amount of emissions reductions credits were acquired elsewhere to exchange for this liability. Until accounting procedures for LULUCF activities are developed for the second Commitment Period, the liability for TASCA credits could not (and possibly may not) be replaced with another sequestration project (as suggested in the Temporary Expiring Credits approach- Colombian Proposal). (b) Emissions Liability Insurance: Before TASCA credits (i.e. RMUs) are transferred to Acquiring Entity, the Acquiring Entity would need to show that it holds Emission Liability Insurance (ELB). This ELB would be in the form of an approved certificate indicating that they were holding, in reserve, an equivalent amount of emissions reduction credits equivalent to the TASCA credits being acquired. This ELB would be used to offset any emissions from project losses or off site emissions and the ELB would need to be held in perpetuity or until the TASCA credits were exchanged for equivalent emissions reductions elsewhere. (c) TASCA Credits Not Diminish: The value of the TASCA credits would not diminish over time (as implied by some other accounting approaches), though the initial sequestration rate calculation may have a discount applied to it, to incorporate measurement uncertainties (see later discussion on Measurement Uncertainties). Possible Second Commitment Period Extension: Depending on decisions relating to the second Commitment Period, it may be possible for a first Commitment Period afforestation and reforestation project to be extended. Again TASCA credits could be allocated for the sequestered carbon that has been accumulated during the Second Commitment Period. For the purpose of accounting and consistency with the Kyoto Protocol, the extension of the project would need to be considered as a new project, however verification procedures could be simplified. The extension of an existing activity would not remove any liability for TASCA credits obtained in the first Commitment Period. Effective Liability Requirements to Address Non-Permanence: Because of the considerable risks associated with LULUCF activities due to project land and off site losses of carbon stocks and greenhouse gas emissions it is necessary to establish and effective liability regime so that any subsequent losses are properly accounted for. Apart from requiring Perpetual or Exchange Liability (as discussed earlier) an effective regime would need to demonstrate clear ownership of liability. Clear Ownership of Emissions Liability Entering into a LULUCF project requires that both the potential acquirer of the RMU (as either CERs or ERUs) and the provider of the CERs must enter into a contractual arrangement that identifies who is liable for any subsequent emissions of any greenhouse gas or loss of carbons stocks. This ‘Emission Liability Contract’ contract would need to be submitted the Designated Operational Entity as part of the Project Design Document. It would seem logical that initially, the ownership of the emission liability would rest with the project developer (the host country). Once the carbon sequestration right is transferred to the acquiring entity the liability is transferred to the acquiring entity (and hence the acquiring Annex I Party.) This liability requirement should be independent of the acquisition of any RMU as there may be a delay between the start of the project and acquisition of RMU. Non-Permanence Annex: Measures to report on and address LULUCF non-permanence should be included in an Annex to a Draft Decision on including afforestation and reforestation in the Clean Development Mechanism. A similar Annex would need to be developed (with some elaborations to include considerations relating to other eligible LULUCF activities) for Joint Implementation Projects. 3. Issues Related to the Consideration of “Additionality” Addressing Additionality: The project sequestration activities must be additional to those that would have otherwise occurred and hence determining additionality requires the application of stringent baselines. Apart from the general requirements for the development of baselines21, there are critical and unique characteristics associated with LULUCF projects. The characteristics of LULUCF baselines would include: o Project-by-Project Baselines; o Limited Crediting Period; o Leakage Baseline o Good Practice Benchmarks Project-by-Project Baselines: Because of significant differences in climate, geology, aspect, hydrology, species type and other ecological processes and interactions, it would be very difficult to conceive that generic baselines for afforestation and reforestation activities (and other LULUCF activities under JI) could be developed. Each project would need its own project baseline. In order to address the unique characteristics of LULUCF, the Project Design Document would need to clearly describe the following in the context of developing project-by-project baselines: • Historical land uses, past practices and trends (prior to and after 1990) • Current land uses, legal tenures and rights on the project land; • Current estimates of carbon stocks on the project land • Future trends within the project activity sector on a national level; • Current and potential financial contributions to the project. For example, there should be an indication on how the project is not: o using ODA, o repackaging existing financed projects; o using financing based on uses of the forest products (e.g. future timber supplies); o not ‘topping-up’ existing financing • An estimate of changes in carbon stocks or greenhouse gases that would have taken place on the project land in the absence of the project; • An explanation of intent (i.e. that the project is specifically designed for sequestering carbon and not for other purposes e.g. timber production). Limited Crediting Period: While baselines may be developed to show that a project could extend beyond the first Commitment Period, the crediting period for the project would not extend beyond the first Commitment Period. This requirement is consistent with the TASCA accounting discussed earlier. Leakage Baseline: In addition to the project baseline, a Leakage Baseline would need to be developed to clearly differentiate between existing activities and potential local, national and international emissions due to leakage. The Leakage Baseline would need to be included in the Project Design Document. Assumptions used to define the baseline should be reviewed in the Monitoring Plan and undertaken at least every four years (so that adjustments can be made within each Commitment Period.) Good Practice Benchmarks: In order to ensure that individual project developers do not exaggerate the benefits of a project, the IPCC may be invited to produce Good Practice Benchmarks which could be developed for various ecosystem types and activities. These could be used as a comparison against estimates made by the project proponents. Realising that these Good Practice Benchmarks would only be relatively generic in nature and unlikely to represent real world situations, they could only be used for comparison purposes. They should not be used as a form of ‘top-down’ baseline setting. Baseline Uncertainty Annex: Measures to report on and address LULUCF baselines should be included in an Annex to a Draft Decision on including afforestation and reforestation in the Clean Development Mechanism. A similar Annex would need to be developed (with some elaborations to include considerations relating to other eligible LULUCF activities) for Joint Implementation Projects. 4. Issues Relating to the Consideration of “Leakage” Leakage in LULUCF activities has characteristics unique to this type of activity and should be treated as such. Leakage needs to be considered at the local, national and international level and is relevant for both CDM projects and JI projects.23 Various approaches can be applied to limit or avoid leakage. These include: • Involving local participants in the project design as a means of ensuring that: o people are not displaced by the project; o socio-economic benefits accrue to communities affected by the project; o that land tenure rights and traditional rights are not violated • Developing projects that are not likely to lead to market displacement Document continues. Download the PDF to see the full version.
Sub Topic: Markets and Non-Market Approaches