Forestry Projects: Permanence, Credit Accounting and Lifetime
Total Page:16
File Type:pdf, Size:1020Kb
COM/ENV/EPOC/IEA/SLT(2001)11 OECD ENVIRONMENT DIRECTORATE AND INTERNATIONAL ENERGY AGENCY FORESTRY PROJECTS: PERMANENCE, CREDIT ACCOUNTING AND LIFETIME INFORMATION PAPER Organisation for Economic Co-operation and Development 2001 International Energy Agency Organisation de Coopération et de Développement Economiques Agence internationale de l'énergie COM/ENV/EPOC/IEA/SLT(2001)11 FOREWORD This document was prepared by the OECD Secretariat in October 2001 at the request of the Annex I Expert Group on the United Nations Framework Convention on Climate Change. The Annex I Expert Group oversees development of analytical papers for the purpose of providing useful and timely input to the climate change negotiations. These papers may also be useful to national policy makers and other decision-makers. In a collaborative effort, authors work with the Annex I Expert Group to develop these papers. However, the papers do not necessarily represent the views of the OECD or the IEA, nor are they intended to prejudge the views of countries participating in the Annex I Expert Group. Rather, they are Secretariat information papers intended to inform Member countries, as well as the UNFCCC audience. The Annex I Parties or countries referred to in this document refer to those listed in Annex I to the UNFCCC (as amended at the 3rd Conference of the Parties in December 1997): Australia, Austria, Belarus, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, the European Community, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Liechtenstein, Lithuania, Luxembourg, Monaco, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Russian Federation, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom of Great Britain and Northern Ireland, and United States of America. Where this document refers to “countries” or “governments” it is also intended to include “regional economic organisations”, if appropriate. ACKNOWLEDGEMENTS This paper was prepared by Jane Ellis (OECD). The author is grateful to Cyril Loisel, Tom Jones, Jan Corfee Morlot, Jonathan Pershing, Gérard Bonnis, Jackie Jones, Ben DeAngelo and Maria Netto for their suggestions and comments. Questions and comments should be sent to: Jane Ellis OECD 2 rue André Pascal 75775 Paris Cedex 16 France Email: [email protected] Fax:+33145247876 OECD and IEA information papers for the Annex I Expert Group on the UNFCCC can be downloaded from: http://www.oecd.org/env/cc 2 COM/ENV/EPOC/IEA/SLT(2001)11 TABLE OF CONTENTS EXECUTIVE SUMMARY ...........................................................................................................................................5 1. INTRODUCTION.................................................................................................................................................8 1.1 FOREST-BASED CARBON STOCK DYNAMICS ......................................................................................8 2. PHYSICAL RISKS TO CARBON SEQUESTRATION.................................................................................11 2.1 NATURALLY-OCCURRING RISKS..........................................................................................................11 2.2 FIRE...............................................................................................................................................................12 2.3 HUMAN-INDUCED RISKS.........................................................................................................................12 3. RISK MANAGEMENT STRATEGIES ...........................................................................................................14 3.1 REDUCE THE PHYSICAL RISK OF CARBON STOCK REDUCTION OCCURRING ..........................14 3.2 MANAGE THE ECONOMIC RISKS OF CARBON STOCK REDUCTION .............................................16 3.3 MANAGE THE ENVIRONMENTAL RISK OF CARBON STOCK REDUCTION ..................................16 4. CREDIT ACCOUNTING REGIMES AND PROJECT LIFETIME.............................................................18 4.1 “PERMANENT” CREDITS BASED ON STOCK CHANGES ...................................................................18 4.2 “PERMANENT” CREDITS BASED ON TON-YEAR ACCOUNTING.....................................................22 4.3 “TEMPORARY” EMISSION CREDITS......................................................................................................23 5. EFFECT OF DIFFERENT CREDITING REGIMES/DISCOUNTING ON PROJECT VALUE .........................................................................................................................................................................27 6. CONCLUSIONS .................................................................................................................................................30 7. REFERENCES....................................................................................................................................................33 8. GLOSSARY.........................................................................................................................................................36 3 COM/ENV/EPOC/IEA/SLT(2001)11 LIST OF TABLES TABLE 1: ENVIRONMENTAL AND ECONOMIC IMPLICATIONS OF DIFFERENT CREDITING REGIMES FOR A SLOW-GROWING CDM RE/AFFORESTATION PROJECT .........................................................................................................................7 TABLE 2: EXPECTED PERCENTAGE CHANGE OF CARBON STOCKS OVER-20 YEAR PERIOD WITHIN A SPECIFIED ZONE......13 TABLE 3: CHARACTERISTICS OF DIFFERENT CREDITING REGIMES FOR A SLOW-GROWING CDM RE/AFFORESTATION 1 PROJECT ................................................................................................................................................................32 LIST OF FIGURES FIGURE 1: CARBON STORES IN 150HA OF BIRCH-OAK WOODLAND IN THE SOUTH OF SCOTLAND ....................................9 FIGURE 2: CARBON STOCKS IN PLANTATIONS, MANAGED AND UN-MANAGED FORESTS..................................................10 FIGURE 3: ACTUAL STOCK CHANGE CREDITING REGIME................................................................................................19 FIGURE 4: SIMPLIFIED AND AVERAGE CREDITING REGIMES ............................................................................................20 FIGURE 5: DELAYED FULL CREDITING AND STOCK CHANGE CREDITING WITH BUFFER ...................................................21 FIGURE 6: CAUTIOUS SIMPLIFIED CREDITING.................................................................................................................22 FIGURE 7: TON-YEAR CREDITING ...................................................................................................................................23 FIGURE 8: TEMPORARY, EXPIRING EMISSION CREDITS....................................................................................................24 FIGURE 9: RENEWABLE TEMPORARY CREDITING (IF CARBON SEQUESTERED PERMANENTLY) ........................................25 FIGURE 10: RENEWABLE TEMPORARY CREDITING (IF SOME SEQUESTRATION NOT PERMANENT)....................................26 FIGURE 11: INFLUENCE OF CARBON POOLS, CHANGING CREDITING PATTERNS AND DISCOUNT RATES ON THE VALUE OF CREDITS FROM AN AFFORESTATION PROJECT (ASSUMING USD 5/T CO2 OVER THE CREDITING LIFETIME OF THE PROJECT)................................................................................................................................................................28 4 COM/ENV/EPOC/IEA/SLT(2001)11 Executive Summary Reforestation or afforestation activities sequester atmospheric carbon and can thus help offset the environmental impact of greenhouse gas emissions. Forestry projects under the Kyoto Protocol’s Joint Implementation (JI) and Clean Development Mechanism (CDM), potentially offer an opportunity to sequester significant amounts of carbon at relatively low cost1. Carbon uptake and re-release (i.e. emissions) from forested areas is a natural part of the carbon cycle. However, there are risks that the net carbon uptake from a JI/CDM forestry project may be reduced at some point by re-release into the atmosphere, e.g. as a result of fire or pest attack. This reduction in carbon stocks is referred to here as the “permanence” issue. Re-release of carbon stored in afforestation or reforestation (A/R) CDM projects could result in reversing the climate benefits of projects, and could even increase global emissions. This paper explores different crediting regimes that could be set up to credit forestry projects. These different crediting regimes affect the crediting lifetime of a project and incentives to encourage long-term sequestration. The design of these regimes can therefore be used to manage the environmental and economic impacts of premature carbon release from a project. Decisions on credit allocation need to be taken at an international level. This paper also identifies the different physical risks to carbon stock reduction and options by which these physical risks, and associated economic risks, could be managed by project participants. This paper focuses on CO2, although forestry projects and carbon stock reduction can also impact emissions of other gases to some extent. The risks of unplanned carbon stock reduction can be significant, particularly for some project types, such as monoculture plantations, and in some locations, such as in areas at high risk of encroachment.