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© FAO 2009
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Carbon Finance for Agriculture, Forestry and Other Land-Use Sectors
About the FAO Policy Learning Programme
This programme aims at equipping high level officials from developing countries withcutting-edge knowledge and strengthening their capacity to base their decisions onsound consideration and analysis of policies and strategies both at home and in thecontext of strategic international developments.
Related resources
• See all material prepared for the FAO Policy Learning Programme
• See the FAO Policy Learning Website: http://www.fao.org/tc/policy-learning/en/
© FAO 2009
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By
of the
FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS
Resources for policy making
Christina Seeberg-Elverfeldt, Climate Change and Environment Officer,
Natural Resources Management and Environment Department
Carbon Finance – for Agriculture, Forestry and Other Land-Use Sectors
About EASYPol
The EASYPol home page is available at: www.fao.org/easypol
This presentation belongs to a set of modules which are part of the EASYPol Resource package: FAO Policy Learning Programme : Specific Policy Issues: Carbon finance
EASYPol is a multilingual repository of freely downloadable resources for policy making in agriculture, rural development and food security. The resources are the results of research and field work by policy experts at FAO. The site is maintained by FAO’s Policy Assistance Support Service, Policy and Programme Development Support Division, FAO.
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Introduction
Carbon Finance
How does it work? And how do you use it in the agriculture, forestry and other land use sectors?
Some TerminologyWhat is the Carbon Market?Requirements for Carbon ProjectsCarbon Projects and their DevelopmentAgriculture and Forestry Case Studies
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Carbon Finance
achieve a common understanding of carbon finance and the different markets and mechanisms
understand the opportunities and challenges of the carbon market
learn about the requirements and procedures how carbon projects are developed
see the reality of three case studies developed in the agriculture and forestry sector
deduct the relevance of carbon finance for agricultural policy
Objectives
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Some terminology: glossary
Abbreviation Explanation
MtCO2e Metric ton of carbon dioxide equivalent
GHG Greenhouse gas
AFOLU Agriculture, Forestry and Other Land-Use
REDD Reducing Emissions from Deforestation and Forest Degradation
A/R Afforestation and Reforestation
CDM Clean Development Mechanism
CER Certified Emission Reductions
VER Verified Emission Reductions
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Carbon market: Virtual financial place where people buy and sell carbon credits
Carbon credit: Currency for trading carbon emissions. The unit for one carbon credit is equivalent to one tonne of carbon dioxide (CO2) emissions
Carbon offset: Using carbon credits to balance the total emissions that result from a defined activity measured in carbon dioxide equivalent (CO2e)
Carbon finance means to find the lowest cost emission reduction possibilities
Some terminology: definitions
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Trading of carbon credits in- Standard unit= metric tonne CO2e = 1000 kg of CO2e- 1 tonne CO2~ 1m3 wood ~ one 30 cm diameter tree
There is no single carbon market - No global standard to measure emissions- No single agreement for emitters- Standards differ for carbon credits and are valid under different markets
Value of a carbon credit is driven by:- Legislation/Regulation- Expectation of legislation- Public awareness/commitments- Cost of reducing emissions in operational entities- Costs of projects to generate credits /offsets
What is the Carbon Market?
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Regulatory = compliance market
- Used by companies and governments that by law have to account for their GHG emissions and it is regulated by mandatory national, regional or international carbon reduction regimes
- Under cap-and-trade, a regulated entity can meet its emissions cap through allowances or offsets
- “Allowances” =“Emission rights” = right to emit a ton of CO2
- “Carbon credits”= “carbon offsets” = “project-based” from non-regulated entities that reduced emissions or sequestered carbon relative to a baseline
Kyoto Protocol: Clean Development Mechanism (CDM), Joint Implementation (JI) and the EU Trading System (ETS)
Regulatory and voluntary markets
Carbon markets 1/4
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Industrialised countries implement projects in developing countries that reduce emissions and obtain carbon credits
In the developing country a carbon offset project is established, e.g. afforestation, energy efficiency or composting project
Aim is to support sustainable development within the host country and contribute to act against global warming
Rules under CDM allow only for afforestation and reforestation (A/R) projects
Currently only 1.1% of all CDM projects, 6 projects registered and 43 projects have been submitted for validation (July 2009)
Carbon credits: Certified Emission Reductions (CER)
Clean Development Mechanism
Carbon markets 2/4
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Increasing importance for AFOLU projects: “The story behind the credits…”
Personal concern & Corporate social responsibility
Product-based: products become carbon neutral
Can be combined with payments for non-carbon ecosystem services
Carbon credits: Verified Emission Reductions (VER).
Pre-compliance market
Voluntary at first, buyers anticipate they may use credits for complying with regulatory requirements in the future
Voluntary market
Carbon markets 3/4
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Regulatory versus voluntary markets
Carbon markets 4/4
Regulatory Voluntary
Total volume in 2006 US$ 31 billion US$ 148 million
Total volume in 2007 US$ 64 billion US$ 265 million
Total volume in 2008 US$ 126 billion1 US$ 705 million2
Expected future volume US$ 1 trillion in 20073 US$ 50 billion in 20123
Offset Price range US$ 5-15 /t CO2e US$ 1.20 – 46.90/t CO2e (2008 avg. $7.34/t CO2e)2
-Strongly regulated-Strict and lengthy approval process under CDM
- Fragmented standardsQuality and price varies due to:-Additionality-Accuracy of initial and on-going monitoring-Potential for double counting-Permanence
AFOLU projects Only A/R All AFOLU projects, including REDD
1. State and Trends of the Carbon Market, World Bank May 2009; 2. Ecosystems Marketplace –State of the Voluntary Carbon Market 2009; 3. Environment Finance “A trillion dollar marketplace”, by G. Phillips and A. Razzouk, March 2009
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Standards are crucial for insuring the project and credit quality
High integrity for carbon accounting- CDM: 10 methodologies
- Voluntary market standards under development: Voluntary Carbon Standard (VCS). Methodological tool, applicable to determine the land eligibility for 1. Afforestation, Reforestation and Revegetation; 2. Agricultural Land Management; 3. Improved Forest management; 4. REDD.
To ensure community and biodiversity co-benefits- Climate, Community and Biodiversity (CCB) Standards
- Vehicle to introduce non-carbon ecosystem services
Other standards covering AFOLU are less used or less rigorous- CarbonFix, VER+, CCX, Plan Vivo, Social Carbon
Quality standards and methodologies
Requirements for Carbon Projects
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Precondition: - In-country capacity exists to successfully implement and maintain project
(government, community, local NGO, technical implementation expertise)
- Project plan is “relatively” developed and partially funded (land tenure, detailed plan of project actions, budget for overall project activities, project development funding)
Developing carbon projects…
Carbon Project Development
Precondition
1. Project Idea
2. Feasibility
3. Standard and methodology selection
4. Methodology Development
5. Project Document
6. 3rd part validation
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Project Design and Start-up Phase:1. Project Idea
-Broad carbon project type
-Define potential project area and stakeholders
-Goals for co-benefits
2. Feasibility-Perform initial eligibility screen (since when no forest; additionality)
-Define project area with exact GPS coordinates
-Create project and management plan
-Develop initial carbon cost and revenue flows
Developing carbon projects…
Carbon Project Development 1/3
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3. Standard and Methodology Selection- Selection of appropriate standard(s) given project type and
eligibility
- Selection of appropriate methodology which defines detailed carbon accounting
4. Methodology Development - If no existing methodology can be applied, a new methodology
must be developed or an existing methodology adapted
Developing carbon projects…
Carbon Project Development 2/3
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5. Project Document- Compile or acquire detailed project data (biomass inventory,
participatory rural appraisals, remote sensing analysis)
- Execute calculations according to methodology (baseline calculation, ex-ante predictions of project carbon, leakage)
- Document all information (“Project Document” (VCS) or “Project Design Document” (CDM) & Monitoring plan)
6. Third Party Validation - Submit the Project Document for Third Party Validation
Developing carbon projects…
Carbon Project Development 3/3
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Project Implementation Phase
1. Monitoring–Detailed log of all activities
–Annual monitoring of biomass
–Annual participatory appraisal
–System for stakeholder feedback at all levels
2. Calculation of Ex-post Credits–Integrate all information from monitoring
–Calculate actual gross carbon project
Carbon Project Development 1/2
1. Monitoring2. Calculation of ex-
post credits3. 3rd Party Verification
4. Issuance of credits
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3. 3rd party Verification−Submit the monitoring report for third party verification
4. Issuance of Credits−Validator submits the results of the verification to the standards’ board
−Standards’ board notifies registry to issue carbon credits
−Registry places buffer credits in the VCS reserve pool account
Implementing carbon project
Carbon Project Development 2/2
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Start-up costs need to be considered and the project implementation costs vary for different type of projects
Carbon payments usually based on actual carbon delivered
Until a project is registered, minimum of 1.5 years
Carbon Finance is an interesting option for smallholders implementing agricultural and forestry projects, but needs good planning and up-front financing
Agriculture offers opportunities for climate change mitigation & adaptation and needs to be incorporated into the climate change agreement in Copenhagen in December
see FAO Policy Brief on Agriculture and Climate Change: http://www.fao.org/forestry/foris/data/nrc/policy_brief_sbstabonn.pdf
To consider...
Challenges and key messages
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Agricultural Carbon Project on 60,000 ha in Nyanza and Western Provinces in Kenya
The project developer – the NGO “Swedish Cooperative Center-Vi Agroforestry (SCC-ViA)” –promotes the adoption of sustainable agricultural land management (cropland management & rehabilitation of degraded land) practices
BioCarbon Fund (World Bank) will purchase VER from the project developer
The project targets smallholder farmers and small-scale business entrepreneurs organized in common interest groups, primary level cooperatives, farmer groups and informal organizations
Funds flow back to the communities and farmers involved
http://www.sccportal.org/projects/Sustainable-agriculture.aspx
Agriculture
Case Studies 1/3
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Noel Kempff Mercado Climate Action Project in Bolivia
In the 1.5 mill ha of the National Park the forest is for 30 years from logging activities, and alternative income programs for communities are initiated
Government of Bolivia, the Friends of Nature Foundation (FAN), The Nature Conservancy and three energy companies (American Electric Power, PacifiCorp and BP Amoco) jointly implement US $11 million project
In 2005 it has been verified by a third party as the world´s first forest emission reduction project
http://www.noelkempff.com
REDD
Case Studies 2/3
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Biomass in Rajasthan, India – Electricity generation from mustard crop residues
Biomass-based power generation plant, mustard crop residue used as fuel
Generated electricity sold to the state grid with balance sold to third parties (large industrial customers)
Electricity will replace a mixture of coal and gas-based power generation
Implementation of the project leads to additional income and employment in the region
Project participants: Kalpataru Power Transmission Limited, Government of India and Dutch Government (purchaser of credits)
http://cdm.unfccc.int/Projects/DB/TUEV-SUED1112801052.32
Agricultural residues
Case Studies 3/3
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Carbon Finance means to find the lowest cost emission reduction possibilities
The carbon market is divided into a regulatory and a voluntary market
The Clean Development Mechanism (CDM) forms part of the regulatory market
The traded volumes on the regulatory vs voluntary market are much higher, both have increased tremendously over the last 3 years
Developing a carbon project, as well as implementing it, follows different steps until the issuance of carbon credits
Carbon projects exist in the agriculture and forestry sector, the majority of these projects are developed for the voluntary market
Conclusions
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Further readings
State and Trends of the Carbon Market, World Bank, May 2009; http://siteresources.worldbank.org/NEWS/Resources/State&Trendsformatted06May10pm.pdf
Ecosystems Marketplace – State of the Voluntary Carbon Markets 2009, May 2009; http://ecosystemmarketplace.com/documents/cms_documents/StateOfTheVoluntaryCarbonMarkets_2009.pdf
Environment Finance “A trillion dollar marketplace”, by G. Phillips and A. Razzouk, March 2009
Policy Brief: Anchoring Agriculture within a Copenhagen Agreement, FAO, May 2009; http://www.fao.org/forestry/foris/data/nrc/policy_brief_sbstabonn.pdf
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Links to guidebooks and further information
Different CDM guidebooks (Legal Issues, CDM Information and Guidebook, Wind Power and CDM, PDD Guidebook, Baseline Methodologies for CDM projects, Guidebook to Financing CDM projects): http://www.cd4cdm.org/Guidebooks.htm
A guidebook for the formulation of A/R projects under the CDM can be found under http://www.itto.int/en/technical_report/
Information for forestry and land use projects development under CDM: http://www.cdmcapacity.org/index.htm
VCS Standard: http://www.v-c-s.org/ and the tool for Methodological Issues: http://www.v-c-s.org/docs/Tool%20for%20AFOLU%20Methodological%20Issues.pdf
Link to CCB Standards: http://www.climate-standards.org/
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