Exploring the Possibilities of Carbon Projects in the Tropical Peat Lands Of

PLANT RESEARCH INTERNATIONAL M WAG EN IN G EN Exploringth e possibilities of carbon projectsi n thetropica l peat lands of Central Kalimantan Gerdien Meijerink1, Mart-Jan Schelhaas2, Suwido Limin3 & Jan Verhagen4 1 LEI,Wageninge n UR 2 Alterra,Wageninge nU R 3 CIMTROP,Centr e for International Cooperation inManagemen t of Tropical Peatland University of Palangka Raya,Centra l Kalimantan,Indonesi a Kampus UNPARTunjun gNyah o PalangkaRay a KalimantanTengah ,Indonesi a 4 Plant Research International, Wageningen UR CIMTROP mm mm Plant Research International B.V., Wageningen January 2004 Report 73 © 2004 Wageningen, Plant Research International B.V. All rights reserved. Nopar t of this publication may be reproduced, stored ina retrieval system or transmitted, inan y form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of Plant Research International B.V. Copies of this report can be ordered from the (first) author. The costs are € 50 per copy (including handlingan d administration costs), for which an invoice will beincluded . Cover photo courtesy Henk Wösten (Alterra) Plant Research International B.V. Address Droevendaalsesteeg 1, Wageningen, The Netherlands P.O. Box 16, 6700 AA Wageningen, The Netherlands Tel. +31 3174 7 700 0 Fax +31317 4180 94 E-mail [email protected] Internet http://www.plant.wur.nl Table of contents page Executive summary 1 Glossary 3 1. Introduction 7 2. The Clean Development Mechanism 9 3. Central Kalimantan 11 3.1 Population andemploymen t 11 3.2 Current landus e andpossibl e land use options 11 3.3 Land use andcarbo n 13 3.4 Problems with cultivation of deep peatlands 15 3.5 Risks 16 4. Thefinancia l system 17 4.1 Definition of the C02 market 17 4.1.1 Demandfo r C02 reduction 17 4.1.2 Supplyo f C02 reduction 18 4.2 Examples of Emission Trading Schemes 18 4.3 Examples of project-based programs 19 4.3.1 Emission Reduction Unit Procurement Tender (ERUPT) 19 4.3.2 Prototype Carbon Fund(PCF ) 20 4.3.3 Finnish CDM/JIPilo t Programme 20 4.3.4 USInitiativ e onJoin t Implementation (USUI) 20 4.3.5 The Climate Trust (Oregon) 20 4.3.6 Activities Implemented Jointly Pilot Phase (AU) 21 4.3.7 Pilot Emissions Reduction Trading Project (PERT,Ontario ) 21 4.4 Company initiatives 21 4.4.1 BP 21 4.4.2 Shell 21 4.4.3 FACE 21 4.5 Possible future directions: financial dérivâtes and brokers 22 4.6 Relationt o International Trade Agreements 23 4.7 CDMcommunit y forestry projects 23 page Institutional system 25 5.1 Institutional setting at national level 25 5.2 Institutional setting at project andloca l level 26 5.2.1 Maximise project success through strong local participation 26 5.2.2 Select the most suitable compensation mechanisms 27 5.2.3 Enhanceth e profitability of newlan d uses 27 5.2.4 Increase transparency ininvestor-communit y partnerships 28 5.2.5 Reduce project marketing costs andinvesto r risks 28 5.2.6 Increase scale andreduc e costs of community-based CDMproject s 29 5.3 Financial institutions 29 Discussion 31 References 33 Executive summary Humanactivitie s have increased the concentrations of greenhouse gasses inth e atmosphere, primarily duet o the combustion of fossil fuels, but alsothroug h changes inlan d use and landcover . The resulting changes in climate andclimat e variability pose amajo r threat to the functioning of human andnatura l systems. The impacts of future changes are expected to fall disproportionately onth e developing countries (IPCCWGII ,2001) . Asa firs t step towards reduction of greenhouse gasses emissions to the atmosphere, the Kyoto Protocol was signed in 1997. Inthi s protocol, 39 industrialised countries committed themselves to reduce their greenhouse gas emissions to at least 5%belo w 1990 levels during the period 2008 to 2012. The Kyoto Protocol outlines three types of market-based mechanisms: emissions trading,Join t Implementation(Jl ) andth e CleanDevelopmen t Mechanism (CDM).Emission s trading allows the 39 governments committed to collective reductions under the Protocol to trade the right to pollute amongthemselves . Under this scheme, due to start in 2008, acountr y may choose to buy emission credits from another country that has managed to reduce its emissions below its Kyototargets . The CDMha stw o main objectives: 1. To assist developing countries who host CDMproject s to achieve sustainable development. 2. To provide developed countries with flexibility for achieving their emission reduction targets by allowingthe m to take credits from emission reducing projects undertaken indevelopin g countries. TheCD Mmechanis m provides developing countries witha nadditiona l source of income through anenvironmenta l service: carbon management. The market as it isno w emerging is still init s infancy. Asfo r any market, prices will depend largely onsuppl y anddeman d relations andth e risks involved.Th e possibility of getting paidfo r carbon management is expected to stimulate environmental protection andconservatio n andi s expected to be beneficial for social circumstances aswell . The implementation of the trade mechanisms andho wthi s will benefit the local poor will differ per region. This study focuses onCentra l Kalimantan at the Indonesian part of the island Borneo. Large parts of this region are covered by peatlands, originally covered by peat swamp forests. In 1996 the Mega Rice Project (MRP)wa sinitiated , aimed at increasingth e self-sufficiency of Indonesia's food production.T o reachtha t goal, one million hectares of peat swampfores t was plannedt o beconverte d into rice fields. BetweenJanuar y 1996 andJul y 1997, more than 4000 km of drainage andirrigatio n channels were constructed. Asa consequence , the forests became accessible, leadingt o large-scale illegal logging activities anddeforestation . Thefastes t andeasies t way of clearingth e landi s by means of fire. In 1997 this practice, together with other factors such as the drought caused by ElNino , dried out peatlands duet o large-scale drainage, logging activities, led to large-scale forest fires. This intur n ledt o large amounts of carbon being released into the atmosphere, amountingt o 1340%o f the meanannua l global carbon emissions from fossil fuels for 1997. The C02 market is defined by demandfo r and supply of C02 reduction possibilities. The study discusses anumbe r of different initiatives taken by public andprivat e parties. Ingeneral ,deman dfo r C02 reduction comes from industrialised countries that under the Kyoto Protocol need to reduce their greenhouse emissions (Annex 1countries) . Besides these parties, several private corporations (mainly fossil fuel andelectricit y corporations) are initiating projects to offset their owncarbo n emissions, out of corporate green image considerations, or expectation that inth e future C02 reductions will become more strict. The suppliers of C02 reduction are very diverse, ranging from large multinational energy companies to small local operators,an dt ogovernment s inth eso-calle dnon-Anne x 1countries .Mos tbuyer shav esough tt o acquire reductions generated withinthei r own home country, andonl y ahandfu lo f projects located indevelopin g countries have resulted in successful emissions transactions. Projects located inthes e countries have greater perceived project risk andfe w developing countries haveestablishe d adequate institutions to review project proposals andt o grant necessary host country approvals. Thefinancia l sector is playing anincreasingl y important role inth e carbon market. Financial dérivâtes already playa major role in emission reduction transactions, andth e role of market participants whofunctio n as brokers to match buyers and suppliers or whofunctio n as consultants is expected to increase. The CDMca n be applied to (community) forestry projects andpotentiall y contribute to local livelihoods and ecosystem restoration as well. The costs of such aprojec t consist of the costs involved inC0 2 sequestration itself (forest management) andcost s involved inCD Mmanagemen t (also called transaction costs). For aprojec t to be successful, several criteria havet o be met concerning the national and regional institutional setting.Th e institutional requirements at national level are partially described inth e Kyoto Protocol and include the establishment ofa national CDMAuthority . Although Indonesia is a signatory to the Kyoto Protocol it has not ratified it and meaningful follow-up related to the Protocol has beendelayed . The study also highlights several key elements of project design related to local institutional settings. Atransparen t andwell-define d project with clearly outlined compensation mechanisms and strong local participation are someo f the key elements. Attention shouldals o be given to reducing risks (e.g.fro m leakage, non-compliance) to the investor inth e project. Financial institutions can play a role in reducing risks. However, these have not developed sufficiently yett o play aconcret e role inCD Mforestr y projects. Glossary Additionally The Kyoto Protocol established the requirement that Jlan dCD Mproject s may only count emissions reductions that are 'additionalt o what otherwise would have occurred inth e absence of the certified project activity' (environmental additionality). These reductions must be 'real' and'measurable' , andmus t bequantifie d against a project baseline. Another form of additionality (financial additionality), isth e notiontha t aprojec t is made commercially viable via its ability to generate value inth e form of CERs.Currently , there is no international agreement ona method to determine financial additionality. Annex 1 countries These areth e 36 industrialised countries and economies intransitio n listed inAnne x 1o f the UNFCCC.Thei r responsibilities under the Convention are various, and include anon-bindin g commitment to reducingthei rGH G emissions to 1990 levels byth e year 2000. Annex Bcountrie s These are the 39 emissions-capped industrialised countries andeconomie s intransitio n listed inAnne x Bo f the Kyoto Protocol.

Load more