The Kyoto Protocol and the Indian Natural Rubber Sector

1 THE KYOTO PROTOCOL AND THE INDIAN NATURAL RUBBER SECTOR

James Jacob Deputy Director (Plant Physiology), Rubber Research Institute of India, Rubber Board, Kottayam 686 009, Kerala, India & Liaison Officer, Plant Physiology Specialist Group, International Rubber Research and Development Board, Kuala Lumpur, Malaysia. ([email protected])

The Kyoto Protocol (signed in 1997) to the United Nations Framework Convention on Climate Change (UNFCCC, adopted in 1992) is entering into force on February 16, 2005; thanks to the much-awaited Russian ratification of the climate pact three months earlier. With the proclaimed US stand against the Protocol (2001), the rules of engagement of the Kyoto Protocol necessitated ratification by Russia to achieve the critical mass required for it to enter into force. With the Kyoto Protocol’s entry into force, the green house emission reductions restrictions imposed on the developed countries become legally binding on those countries that have ratified the Protocol. With less than 5% of the world’s population living in the USA and that country emitting about 25% of the world’s green house gases (GHGs), their non-ratification of the Kyoto Protocol has been widely criticized by the international political and scientific communities alike. The Kyoto Protocol requires the rich and industrialized countries of the world as listed in the Annex I to the UNFCCC to reduce their collective carbon dioxide emission to at least 5.2% below their 1990 emissions levels between 2008-2012, the first commitment period of the Kyoto Protocol. Developing countries like India, China, Brazil etc. and the least developed countries of the world are currently exempted from GHG emission reduction targets at least for the time being. However there is a considerable international pressure on India and China to cap their GHG emissions. Domestic actions required to meet the Kyoto compliance targets can be very expensive for the Annex I countries- both financially and politically. Therefore, the Kyoto Protocol established three market mechanisms (flexible instruments) to help the Annex I countries meet their GHG emissions reduction target cost effectively. They are: 2 International Emission Trading (IET), Joint Implementation of emission reduction projects (JI) and Clean Development Mechanism (CDM). Annex I countries can purchase Assigned Amount Units (AAU) on the basis of IET or Emission Reduction Units (ERU) on the basis of JI projects from another Annex I country. Both IET and JI can be operated only among the Annex I countries. The third mechanism, CDM encourages projects by Annex I countries (i.e., industrialized countries) in non-Annex I counties (i.e., the developing and the least developed counties) that do not have GHG emission reduction restrictions under the Protocol. The CDM aims at brining funding from Annex I countries for environment- friendly projects that are in tune with the sustainable developmental needs of the people in the non-Annex I countries in the tropics and subtropics (Article 12) that will earn the Annex I country what is called Certified Emission Reduction (CER) credits that can be used by the investing Annex I country to partially offset its Kyoto targets (Article

12.3(a)). One CER is taken as one tonne of CO2 (or its equivalent in the case of the other GHGs) that is prevented from releasing into the atmosphere (emission reduction) or removed from the atmosphere (sequestration) as a result of the CDM project over and above (additionality) the emission reduction/sequestration that would have occurred in the absence of the project (business-as-usual scenario) in the participating non Annex I country. Several analyses show that given the small marginal costs of projects implemented in developing countries under the CDM, this will be the preferred market instrument unlike JI or IET which can be operated only between developed Annex I countries. While Marrakech Accords (CoP-7, November 2001) set the framework for approval of the general modalities and procedures for the CDM projects, they did not cover sink projects (forestation/reforestation activities such as plantation agriculture). However the Subsidiary Body for Scientific and Technical Advise (SBSTA) under the Protocol was asked to develop modalities and procedures for sink project activities under the CDM. At CoP –9 held in Milan during December 2003 they were adopted as an annex to the existing CDM modalities and procedures (FCCC/SB-STA/2003/L.27). The Annex I countries can use only 1% of their 1990 GHG emissions from such CDM activities. Activities such as forest management, crop land management and grazing land management are not allowed under the CDM but they are permitted under Joint 3 Implementation project in Annex I countries. Avoided deforestation is eligible for small scale CDM project. Under the Kyoto Protocol aforestation is defined as the direct human induced conversion of land that has not been forested for a period of at least 50 years into the forested last and reforestation is limited to that land that did not contain forest as on 31st December 1989. According to the Kyoto Protocol a forest should have a minimum tree cover of 10-30 per cent, a minimum area of 0.5 to 1 ha and a minimum tree height of 2.5 ms. These are factors that limit the sink CMD potential in the natural rubber plantation sector. However, a small scale sink CDM project developed by a low income community as determined by the host countries will have a much less rigorous treatment at the hands of the CDM Executive Board which is the final authority to approve all CDM projects. A small-scale sink CDM project activity should have a GHG removal of less than

8 kt CO2/yr. All carbon pools such as above and below ground biomass, dead wood, litter and soil organic carbon should be defined. As discussed in an earlier article (Rubber Asia, March – April, 2004) natural rubber plantations have a very high carbon sequestration capacity. In addition to the carbon sequestered in the various sinks, there are several other activities associated with the primary processing of latex and rubber products manufacturing that are eligible as CDM activities. A summary of potential CDM activities in the NR sector is given in Table 1. Preparing the project development document (PDD) for the CDM project activity is crucial and requires considerable expertise and insight. An over view of the CDM project cycle showing the various steps involved in the preparation of a CDM project development document are given in table 2. The roles and responsibilities of the various parties in the CDM project cycle are given in Table 3. India is rated as one of the top CDM host countries because of our stable political and economic environment, sound infrastructure and human resources. A CDM project has to be first approved by a designated national authority in the host country which in India is the National CDM Authority (NCA) headed by the Secretary, Ministry of Environment and Forests. The NCA has nine members from six ministries and the Planning Commission. Its major function is to accord host country approval for the CDM project, which it does normally in less than two months through its single window clearance. India has perhaps the largest number of CDM projects in the pipeline with more than 25 projects approved by the NCA and 150 project documents and another 200 4 project idea notes already prepared by various project developers and project proponents. But no projects have been formulated from the NR sector as of now. India also has the largest number of methodologies submitted to the CDM Executive Board. Most of the projects have come from the private sectors on their own initiatives. Power, energy- intensive industries etc. have the highest number of projects prepared from India. They are mostly in the energy efficiency, renewable energy and fuel switching sectors. There are possibilities to develop a CDM project in these areas in the NR sector as given in Table 1. Several Indian states such as Andhra Pradesh, Maharashtra, Madhya Pradesh, West Bengal, Karnataka and Tamil Nadu have established CDM Cells to facilitate development of more CDM projects. India expects to achieve 10% share of the global CDM market and this can lead to a cash flow of several hundred million US dollars into the country. The major operators of carbon funds in the Indian CDM market are, the EEU, The World Bank, Rabo Bank, International Finance Corporation, Ecosecurities and Standard Bank London, KfW Germany and Japan Carbon Fund and the other major CDM players are the designated consultants such as Det Norske Veritas Certification Ltd., TUV Industrie Service GmbH, TUV SUD GRUPPE and Societe Generale de Surveillance UK Ltd. For several reasons CERs from sink projects do not have strong presence in the CDM market at the moment. Firstly sink project have been only very recently brought under CDM. The EEU, which is perhaps single largest block of CER buyer, is not willing to buy sink credits. Finally the modalities and procedures for sink projects are yet to be fully approved by CDM Executive Board. However it is expected that the market for sink projects will evolve. The carbon market for CDM project coming under energy efficiency, alternative/renewable energy and fossil fuel substitutions is presently very strong. The use of biomass gassifier, biogas production from latex processing effluents, potential use of natural rubber seed oil as a bio-diesel are strong cases that can attract CDM funding in the NR sector. CDM Executive Board has already approved modalities and procedures for such CDM project. Rubberized roads have been known to improve the fuel efficiency to transport fleet, which is eligible for CDM funding under energy use efficiency. The additional cost that has to be incurred in the rubberization of roads could be met from the potential CDM cash flow into the project. 5 The possibility of cultivating natural rubber as part of reforestation activity in a degraded region with the exclusive aim of supplying the rubber produced from there into the market where it will directly substitute synthetic rubber is yet another potential opportunity that is worth exploring under an ambitious CDM project. Such a project would generate CERs as a result of the carbon sequestration by the plants. In addition, the carbon dioxide equivalent of the amount of synthetic rubber displaced and the carbon dioxide equivalent of the energy that was required to synthesize that much amount of synthetic rubber will earn clean and strong CERs in the CDM market. Both in terms of the sale of the CERs and the rubber, such a project will ensure a captive and pre- determined market with due financial security from the start. In the fast changing global economic scenario, financing natural rubber cultivation from internally generated cash flows such as from CDM as discussed above needs to be explored on a priority basis

TABLE 1. CDM POTENTIAL IN THE NATURAL RUBBER SECTOR

Sector Description I. Carbon Sinks 1. Above and below ground biomass 2. Soil organic carbon 3. Harvested dry rubber II Alternative/renewable energy 1. Biomass gassifiers for drying rubber 2. Biogas production from natural rubber latex processing effluents. III. Avoided deforestation 1. Rubber wood as alternative source of timber and firewood IV. Fossil fuel substitution 1. Potential use of natural rubber seed oil as bio-diesel 2. Rubberized bitumen for road construction 3. Natural rubber as a substitute to synthetic rubbers 4. Co cultivation of Jetropha for bio-diesel with natural rubber 6 TABLE 2. OVERVIEW OF CDM PROJECT CYCLE

1. Planning a CDM  CDM project participants plan a CDM project activity project  There are several conditions in order to be registered as a CDM project activity and CDM project participants should consider those conditions form a planning stage 2. Prepare the . CDM project participants prepare the project design project design document (PDD) for a CDM project activity document (PDD)  There is the standard format for the PDD and CDM project participants must fill in all the contents as necessary 3. Getting approval . CDM project participants shall get written approvals of from host Party voluntary participation form the designated national authority and Annex I Party (DNA) of a host Party and an Annex I Party  The written approval from host Party should include confirmation by the host Party that a project activity assists it in achieving sustainable development.  The details of approval procedure is up to each Party 4. Validation and . Validation is the process of independent evaluation of a registration project activity against the requirements of the CDM on the basis of the PDD.  Validation is carried out by a designed operational entity (DOE).  There is a formal procedure for validation . Registration is the formal acceptance of a validated project as a CDM project activity.  Registration is done by the CDM Executive Board  There is a formal procedure for registration 5. Monitoring a . CDM project participants collect and archive all relevant data CDM project necessary for calculating GHG emission reductions by a CDM activity project activity, in accordance with the monitoring plan written in the PDD. 6. Verification and . Verification is the periodic independent review and ex post certification determination of the monitored GHG emission reductions  Verification is carried out by a designated operational entity (DOE).  There is a formal procedure for verification. . Certification is the written assurance by a DOE that a project activity achieved the reductions in GHG emissions as verified.  A DOE also does certification. 7. Issuance of CERs . The CDM Executive Board (EB) will issue certified emission reductions (CERs) equal to the verified amount of GHG emission reductions.  There is a formal procedure for issuance of CERs  GHG emission reductions since 2000 may be eligible to claim CERs. . Among issued CERs, 2% of those will be deducted for “the share of proceeds” to assist developing countries that are 7 particularly vulnerable to climate change. . Among issued CERs, X% of those will be deducted for “the share of proceeds” to cover administrative expenses of the CDM.  The COP upon the recommendation of the EB shall determine the level of X. 8. Distribution of . CERs will be distributed among CDM project participants CERs  The decision on the distribution of CERs from a CDM project activity shall exclusively be taken by project participants.

TABLE 3. ROLES AND RESPONSIBILITIES IN THE CDM PROJECT CYCLE

Activity Definition Responsible entity Project Development Developing a CDM project Project promoter Project Design Document Developing a CDM PDD Project promoter Validation Independent evaluation of PDD, Designated including calculations of baseline Operational Entity emissions and estimated project (DOE) emissions Host Country Approval Approval from host government – Project promoter & Mandatory host government Registration Formal acceptance of a validated Executive Board PDD Project Implementation Commissioning and operation of Project promoter and Monitoring the CDM project and measuring and recording project performance related indicators/parameters Verification Periodical independent review of Designated monitored GHG reductions Operational Entity Certification Written assurance on the actual Designated GHG reductions verified. Operational Entity Issuance of CERs Issuance of Certified Emission Executive Board Reductions (CER), based on DOE’s certification