Carbon Forestry: Concepts and Operationalization

Lokesh Chandra Dube

Consultant, Emergent Ventures India1, Gurgaon
E- mail: lokesh@emergent-ventures.com
lokesh.env@gmail.com

FORESTS act as both, sink and source of carbon. Role of forests in global carbon budget is very
significant as forests retain carbon stock in their five pools: aboveground and belowground living
biomass, deadwood, litter and soil organic carbon.

Since climate change is the most severe problem faced by mankind today (King, 2004), management of
carbon in our forest resources becomes essential. As a result of the evolution of financial mechanisms of
climate change mitigation Carbon became a tradable commodity in recent past. Forestry based carbon
credits provide good opportunity of low cost emission reduction (Stern, 2006). International carbon
market can be categorized into two structures, first the Compliance market, also called regulatory market
and second voluntary market. Compliance market is further categorized as Kyoto type that allows
transactions in terms of well defined market based flexibility mechanisms like Clean Development
Mechanism (CDM), Joint Implementation (JI) and International Emission Trade (IET) or of Non Kyoto
type that have been developed as many state legislations in the USA and as New South Wales GHG
Abatement Scheme (NSW GHG AS) in Australia. Second structure of the carbon market is Voluntary
market; segments of Voluntary Carbon Market (VCM) are legally binding ones like Chicago Climate
Exchange (CCX) and the Over the Counter (OTC) market that includes the activities of companies and
individuals who offset emission footprints of their activities, products or services. These companies or
individuals often purchase Emission Reductions (ERs) in small quantities. These ERs are usually not
intended for compliance. The financial mechanisms of regulatory (both Kyoto and non-Kyoto type) and
voluntary (both wholesale and retail offset) carbon markets, however, behave in different manners and
thus treat Land Use, Land Use Change and Forestry (LULUCF) activities differently.

For the first commitment period of the Kyoto Protocol (2008-12), reforestation activities will be limited
to those lands that did not contain forest on 31 December 1989. Afforestation is done on the land which
did not contain forest for last fifty years. 
                                                            
1
 Emergent Ventures, a Gurgaon based carbon advisory is involved in developing some interesting
forestry projects and is in process of proposing new methodologies for accounting emission reductions in
forestry and agriculture sector.
 

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There could be two types of A/R CDM project activities;
1. Small Scale A/R project activities where the threshold limit of net anthropogenic GHG removals
by sinks is of 16,000 tonnes of CO2 per year and to be developed or implemented by low income
communities.
2. Large Scale A/R project activities which have no threshold limit of net anthropogenic GHG
removals by sinks. There are eight methodologies approved by the CDM Executive board of
UNFCCC, but till now only one A/R project has been registered.

As compared to other sectors of CDM projects, Afforestation and Reforestation (A/R) sector is moving
very slow. There are a number of factors which attribute to small number of A/R projects coming up
under CDM. These include, among others:

• Non permanent (expiring) nature of A/R CDM credits (t- and l- CERs)
Carbon credits generated from A/R CDM projects are called t-CERs (temporary CERs) and l-
CERs (long term CERs). These CERs, unlike CERs of other CDM project types are not
permanent and needs to be expired. t-CERs are the total amount of carbon dioxide sequestered
(net baseline) since the project start. These are issued periodically and expire at the end of the
commitment period subsequent to the period in which they were issued. They can be used in the
commitment period for which they were issued. l-CERs are the amount of carbon dioxide
sequestered (net baseline) since the last issuance (or project start, for first issuance) of an l-CER.
They can be used in the commitment period for which they were issued and expire at the end of
the crediting period (20, 30, 40 or 60 years) for which they were issued. They cannot be carried
over to subsequent periods. When trees are harvested (called reversal) l-CERs expire. Expired
credits need to be replaced by same kind of non permanent forestry credit or permanent energy
credits.
• Complexity of A/R CDM methodologies and lack of experts in developing countries:
There are ten large scale and three small scale A/R methodologies approved by the CDM
Executive Board (EB). These methodologies require specific set of skills and background to
understand them. In developing countries very few people involved in CDM advisory/ audit have
grown their expertise in A/R CDM.
• Limitation of A/R CDM on low/ no productivity lands:
Almost all A/R methodologies require that activities implemented only on degraded land would
qualify. Degraded land was however not defined. CDM EB has recently approved a Tool for the

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 identification of degraded or degrading lands for consideration in implementing CDM A/R
project activities.
• EU’s decision of not purchasing t or l-CERs:
A review of linking directive of the EU ETS in 2006 has again decided not to purchase forestry
based expiring credits for a period up to 2012.
• Low price of t and l-CERs:
There is hardly any demand of A/R credits in the CDM market and due to non permanent nature
their prices likely to be offered are very low. Further, transaction cost is also high as it requires
lots of efforts in terms of evidences and experts consultation.
• Extreme volume of CERs in A/R projects:
A/R project activities generate either very low or very high volumes of emission reductions.
Analysis of proposed (and registered) AR CDM project activities suggest that more than 70%
projects (in terms of numbers) are concentrated in the range of low volume (removals less than
8000 t CO2 / year) or of high volume (removals more than 80,000 t CO2/year). In terms of net
removals, about 90% of the volume is concentrated in large projects (removals more than 80,000
t CO2/year) (based on analysis of data as available on UNFCCC website).
• Lack of awareness in plantation raisers and farmers:
In developing countries plantation raisers and farm holders are generally not aware of benefits of
A/R CDM and have limited access to resources.

Voluntary Carbon Market has developed considerably in the past few years as an alternative to the
Compliance Market. The Parties such as the USA, Canada and others have no legally binding targets as
they have not ratified the Kyoto Protocol. Companies and individuals in these nations are realizing that
they must take action to offset and reduce their emission footprints, as a sense of Corporate Social
Responsibility or to gear up for possible future legislations. In comparison with compliance markets,
voluntary markets are less mature and trade in lower volumes. There is no umbrella regulator in the
voluntary carbon market. Voluntary market considers less complex and lest costly ways to handle the
issue of non-permanence than the current approach of temporary credits under the CDM. In Voluntary
Carbon Standard 2007 (AFOLU) and CarbonFix Standard, two major voluntary standards for forestry it is
done by setting a buffer reserve based on its assessment of potential risks of carbon loss.

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Figurre 1: Structure o
of the voluntaryy carbon market

Observatiions from volluntary carboon market sugggest that forrestry accounnted for the highest
h 36% of
o the
transaction volume in the year 20066 (Hamilton et al, 2007). Growing 45%
%, in the yearr 2007 Agricuulture
and foresstry projects contributed to 18% of total OTC market
m transaaction (Hamiilton et al, 2008).
2
Comparedd to Kyoto markets,
m it’s cllear that the voluntary
v carrbon markets play a criticaal role in finaancing
sequestrattion projects. Price of VER
Rs from monnoculture forestry (single sppecies plantattions) projects sold
D/t CO2 while those from A/R
in 2006 raanged betweeen 10-13 USD A with mixeed native speccies were offeered a
price as loow as 0.45 USD/t
U CO2 annd as high as 45 USD/ t CO2.
C In 20077, offset crediits from nativve and
plantationn reforestation
n/afforestatioon projects were
w sold at averaged
a pricce of 6.80 US
SD/tCO2 andd 8.20
USD/tCO
O2, respectivelly (Hamilton et
e al, 2008).

This is nooteworthy heere that volunntary market is still smalll as comparedd to regulatoory ones. Thee total
volume off VERs transaacted in 20066 was 9.7 Milllion tonnes (M
M t) and foresstry contributted for about 3.5
3 M
t in this. The volumee of 3.5 M t is even lesss than forestrry based carrbon credits that
t shared 1%
1 in
compliancce market traansaction last year. In 20077, size of OT
TC market waas 28.4 M t consisting
c of 5 M t
from forestry and agricculture projeccts (Hamilton et al, 2008).

The salability for foresstry VERs deppends upon thhe following factors:
f
1. Sttandard: VER
Rs verified onn double standdards are prefferred.
2. Type
Ty of projecct: the most valuable
v VER
Rs are those from mixed plantation off native speciies on
deegraded land..

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 3. Sustainable and community co-benefits: the higher the social positive impact and benefits to the
community generated by the project, the more attractive it is.
4. Vintage: this indicates the year in which the reductions were achieved, and for which the VERs
have been issued. Recent vintages are preferred.

Large portion of LULUCF based opportunities including soil carbon sequestration, forest conservation,
revegetation and avoided deforestation are attractive prospects to encourage sustainable development
developing economies. These activities are ironically excluded from the CDM in regulatory markets at
least for the first commitment period but, Voluntary Carbon Market (VCM) gives opportunity for these
activities also. The potential community benefits and economical cost are resulting in some additional
demand from public and private buyers. This demand can be fulfilled by the retail offset market by
adapting a wide range of forestry based climate change mitigation options. Voluntary Standards in
forestry sector include Voluntary Carbon Standard 2007, Climate Community and Biodiversity Standard,
CarbonFix Standard, Plan Vivo etc. Chicago Climate Exchange (CCX) is the biggest registry in the
Voluntary Carbon Market. Forestry offset projects for the member parties in the CCX fall under three
categories: forestation and forest enrichment, combined forestation and forest conservation and urban tree
planting.

Based on above analysis this can be concluded that though running slow in compliance market, the
forestry based climate change mitigation options are in full swing in the voluntary market. There is a need
to simplify the procedures of carbon accounting and monitoring in forestry projects to make it attractive.
Furthermore, there is needed intense capacity building by academia and research in forestry based carbon
management. Small scale projects can be promoted by government and community cooperation. The net
positive community and biodiversity impacts of forestry projects are the co benefits that can drive the
developmental efforts towards the sustainability and profitability.

It is nearly impossible to generalize the carbon sequestration by different forest types/ species. It depends
upon the environmental conditions of plantation site and the genetic properties of plant material used.
Conservative and generalized benchmarking estimates based on global default values for net GHG
removals by sink for some common species are given here.
 

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 Species Common name in India Net removals (t CO2 e/ha/yr)

Acacia nilotica Babool 20

Albizzia lebbeck Kala Siris 9

Azadirachta indica Neem 8

Casuarina equisetifolia Bull-oak 15

Dalbergia sissoo Sheesham 12

Eucalyptus deglupta Eucalyptus 32

Eucalyptus tereticornis Eucalyptus 19

Gmelina arborea Khmar 36

Jatropha carcus Ratanjot 15

Populus spp Poplar 20

Syzygium cumini Jamun 12

Tectona grandis Teak 18

Hence on an average 500 hectares of land when afforested would generate approximately 120,000
tradable VERs (deducting 33% buffer) in a fixed crediting period of 30 years (a generalized
conservative estimate@12 ERs per ha per year, however this volume strictly depends on species,
climate, soil and seed source) which would bring in cash flow of about 20,000 US$ per annum
(conservative price @US$ 5 per VER, subject to market variables). Thus a forestry project has to be
of more than 500 hectares (earning at least 40 US$ per ha per year) so that it could sustain the
transaction cost and could earn Carbon Credit revenue as well.

Voluntary market is also to promote innovative means of emission reductions. Harvested wood should be
used as durable wood products such as furniture and construction. Maximum benefits from the terrestrial
carbon sinks can be obtained by making progressive farmer a project holder for growing trees in agro
ecosystems and for Bio-energy options in them. Reduction in agriculture based GHG emission (as CH4
emission from paddy fields) may also be developed as a CDM/ VCM project. In order to minimize the
transaction costs it is important to maximize the flow of financial benefits to the farmers from the sale of
good quality VERs/ VCUs. This will lead to the deduction in costs to the project developer and /or
promoter and make attractive to them as well as local stakeholders.

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REFERENCES:

King, Sir David (2004). U.K. government’s chief scientific advisor. Science, 2004.

Stern, Sir N. (2006). Economics of climate change.

http://www.hm-treasury.gov.uk/media/B/D/annex7f_land_use.pdf

Hamilton Katherine, Ricardo Bayon, Guy Turner, Douglas Higgins, (2007). State of the Voluntary
Carbon Market 2007 Picking Up Steam. New Carbon Finance, a service of New Energy Finance Ltd, and
Ecosystem Marketplace.

Hamilton Katherine, Milo Sjardin, Thomas Marcello, Gordon Xu (2008). Forging a Frontier: State of the
Voluntary Caron Markets 2008. A report by Ecosystem Marketplace & New Carbon Finance.

UNFCCC website (www.unfccc.int)