Modalities for Including Afforestation and Reforestation Project Activities under the CDM

2003-02-12 Samoa on behalf of AOSIS Download PDF

Topic: Climate

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
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
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
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
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
• 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
• 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
• 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
(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
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
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
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
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