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Carbon Offsets for Forestry and Bioenergy: Researching Opportunities for Poor Rural Communities

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Carbon Offsets for Forestry and Bioenergy: Researching Opportunities for Poor Rural Communities CARBON OFFSETS FOR FORESTRY AND BIOENERGY: RESEARCHING OPPORTUNITIES FOR POOR RURAL COMMUNITIES Final report, May 20101 Leo Peskett, Jessica Brown and Kate Schreckenberg Overseas Development Institute (ODI) Funded by the Ford Foundation 1 Revised, August 2010 1 Acknowledgements The authors would like to thank Sami Izutsu for her help with background research and the planning of fieldwork and David Brown (ODI) for his advice in the planning of the research. Many thanks go to Roselline Nyamutale, Cornelius Kazoora and colleagues at the Sustainable Development Centre (SDC) and Janet Fisher (UEA) in Uganda for their assistance with fieldwork in Uganda, and H.I. Somashekar and Professor N.H. Ravindranath at the Indian Institute of Science for their help with fieldwork in India. Thanks also to all who gave time to provide background information and help run activities at each of the six field sites visited during the course of the research. We would also like to thank the Ford Foundation for supporting this work. Note on revisions Please note that this report was revised in August 2010 to include updated information on the Kikonda forestry project. 2 EXECUTIVE SUMMARY Concerns about climate change have been a key driver in the rapid evolution of carbon markets over the last five years, as a potentially efficient and cost-effective way to reduce greenhouse gas concentration in the atmosphere. Carbon offset projects implemented in developing countries are one of the approaches that have been developed as a way to achieve emissions reductions or removals that generate credits that can be traded in carbon markets. They include a wide range of technologies for which emissions reductions or removals can be quantified, from tree planting and avoided deforestation, to energy efficiency, renewable energy and capture of industrial gases. The theory is simple: by implementing projects in developing countries, carbon finance can be harnessed to contribute to sustainable development whilst also reducing the costs of tackling climate change. Poverty reduction is an aspect of sustainable development that commercial carbon offset providers, donors, governments and NGOs are increasingly interested in addressing through carbon offset projects. This report presents findings from a research study looking at the opportunities that carbon offset projects offer for poor rural communities. It addresses three main questions: 1. What are the different approaches to establishing carbon offset projects in the forestry and bioenergy sectors? 2. Does the carbon offset aspect of these projects introduce new opportunities or risks for the poor? I.e. has the fact that these are carbon offset projects, rather than more traditional development projects, given rise to new opportunities or risks for the rural poor? 3. How does carbon finance influence the long-term sustainability of any new opportunities? The report first gives an overview of the carbon offset markets and considers opportunities at the global level in terms of the types of projects that are attracting investment in rural areas in developing countries and the size of the market. The findings are clear: whilst the overall scale of markets has been increasing rapidly (though with recent slowing related to the global financial crisis), investment in projects in low income countries is still only at a small scale, with only 3.2% and 1.2% of projects in Africa and in the mandatory and voluntary carbon markets, respectively. When considering forestry and bioenergy projects in rural areas (the rural project types in which households tend to be more directly engaged), these opportunities are even more limited. Nevertheless, investment is increasing in both the forestry and bioenergy sectors so there could be potential for finance. Recent market surveys also suggest that investors are interested in ‘reduced emission from deforestation and degradation’ (REDD) projects because of their potential social and environmental benefits, and progress in the UNFCCC could contribute to a rapid increase in these projects. The remainder of the report looks at three forestry and three bioenergy offset projects in more detail, in Uganda and India respectively (full case studies are provided in Appendix 1 and 2, in order to answer the three questions at the local level. The case studies represent carbon offset projects using similar technologies but structured in different ways. Approaches to establishing carbon offset projects 3 There is a great diversity of approaches to establishing carbon offset projects. Both forestry projects and bioenergy projects vary broadly between two extremes: small- scale community or individually implemented projects, often with local NGOs acting as the main intermediary, and having a poverty reduction objective; and large-scale, more commercially orientated projects driven by private enterprises. These generalizations mask details which need to be well understood in order to assess the opportunities and risks for communities. Key variables include: • The type of technology used to generate carbon offsets. In the forestry sector differences between sequestration activities (through tree planting) and carbon stock preservation (through reducing emissions from deforestation) have implications for the types of land in which projects can be implemented, and hence their implications for the poor. There is great diversity of technology in bioenergy based offsets. Most biomass or biogas technologies are relevant for commercial activities (e.g. energy generation on large farms), with few direct benefits for the poor beyond the potential for employment. • Nature of the markets used for trading carbon. There are two main carbon markets (regulated and voluntary) for trading credits from offset projects (chapter 3). The type of market influences the types of technologies that can be used, standards and methodologies applied, the prices paid for carbon credits and the motivations of buyers. • Institutions and actors. Even where projects use similar technologies and trade in the same markets, they can be set up in different ways. For example, communities can be involved through group or individual contracts, which can affect participation of the poor. Group structure (e.g., whether existing or new structures are used) is important. Important differences also arise at the level of intermediaries. These can differ in type (e.g. whether local NGOs are involved, governments, or both) and number (e.g. buyers may transact with project developers based in developed countries that may partner with companies or NGOs in host countries, introducing many different levels into the system). The types of project developers involved and their motivations are also key variables. Project developers can be private companies, NGOs, developing country governments and donors (e.g. multilateral banks) are commonly involved. Some projects are established for commercial purposes, and others are non-profit. • Local context. There are differences in country policies relating to carbon trading and the implementation of different project technologies. Country sustainable development criteria vary considerably for the CDM, which affects issues such as the social impact requirements during project preparation. The degree to which the Designated National Authority (DNA) has oversight of project implementation also varies considerably between countries as do the financial and human resources. While carbon finance has some influence over how projects are established and run it does not appear to result in much innovation. This is a concern, given that the ultimate aim of carbon offsetting is to help shift towards low carbon development. Many of the types of projects and approaches that are attracting finance have been implemented for many years. This may not be an issue where these are well tested. But often these have failed, not because of the technology, but because ‘best practice’ has not been taken into account. ‘Best practice’, for example in terms of establishing collaborative forest management approaches, has not been followed in a number of the projects reviewed here. The fact that projects are often driven by external actors, who may also be new to the field, may be a contributing factor to this tendency to adopt such a trial and error approach. Paying more attention to best practice would be a good first step in enhancing project opportunities. 4 Impacts of carbon offset aspects of projects on the opportunities and risks for poor rural communities The use of carbon finance to support projects has some bearing on whether projects offer new opportunities, barriers and risks for the poor compared to more traditional financing approaches. Carbon finance can contribute to a number of expanded financial and material opportunities, including: • Employment: All of the projects reviewed are providing employment to varying degrees for both participants and non-participants. These tend to be higher in the forestry projects, where more labour is required. Projects are likely to provide ongoing employment for smaller numbers of people. Employment quality can also be enhanced by offset standards. • Subsidy of technologies: In some projects carbon finance covers all upfront and ongoing maintenance costs, whereas in other projects it supports only a small fraction of investment costs for participants. • Income from sale of products related to projects: This is particularly the case for forestry projects, where income from future timber sales
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