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A ppt file that explains on environmental trade law.
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Trade, Environment, &
Climate Change
UPH-MTIC 23-27 June 2014
1. Climate Change Policy, Command and Control, and Market Based Approaches
2. Investing in Renewable Energy through Clean Development Mechanism
3. Other Types of Carbon Markets4. Investing in Forestry through REDD+5. Group Exercise
Table of Content
3
800 600 400 200 0
CO
2 (p
pmv)
Thousands of Years Before Present
Present CO2 concentration (386 ppmv)
CO2 concentration after 50 years of unrestricted fossil fuel burning (600 ppmv)
240
300
270
210
180
The image shows the concentration of CO2 in the
atmosphere over a period of time if emissions continue
unaltered.
6
•Carbon dioxide (CO2)– Source: fossil fuel combustion and land-use changes, particularly
deforestation – the most important GHG, but – lowest global warming potential (GWP) - 1
• Methane (CH4)– Source: coal mining, landfill operations, livestock raising and natural
gas/oil exploitation and transportation– GWP - 21 ( 1t CH4 = 21 tCO2 in terms of global warming effect)
• Nitrous oxide (N2O)– Source: fertilizer manufacturing, fossil fuel combustion (mainly in
transport sector) – GWP – 310
Climate change causes: ”natural” greenhouse gases (GHG)
7
•Hydrofluorocarbons (HFCs) and Perfluorocarbons (PFCs)
– Alternative to ozone depleting CFCs and HCFCs – Source: manufacturing processes (e.g. refrigeration and air
conditioning equipment)– GWP: HFCs range from 140 to 11,700 (HFC23), CxFx range from
6.500 (CF4) to 9,200 (C2F6)
•Sulphur hexofluoride (SF)
– Used as a dielectric fluid (e.g. in power grids)– GWP - 23,900– Atmospheric lifetime of one molecule - 3,200 years– Most dangerous anthropogenic-induced GHGs
Climate change causes: ”engineered” greenhouse gases (GHG)
8
Annual greenhouse gas emission by sector
Source: Global Warming Art
9
Climate change: General UN Message
Science is clear: warming of climate system is
unequivocal and attributable to human activities
Severe impacts of climate change are already being
felt, particularly in developing countries, and demand
an urgent response
Economic assessments indicate that cost of inaction
will exceed the cost of taking action now by several
orders of magnitude.
10
•Objective: stabilize global GHG concentrations in atmosphere
•Universally agreed: 189 countries have ratified/accepted UNFCCC
•Principle of common but differentiated responsibilities:
– Industrialized countries (Annex I) aim to restore GHG emissions to 1990 levels (no mandatory commitments thus legally non-binding)
– Developing countries (Annex II) commit to build capacity of and facilitate technology transfer to developing countries
•Identifies two options to address climate change:
– mitigation of climate change by reducing GHG emissions and enhancing sinks, and
– adaptation to the impacts of climate change
•Both mitigation and adaptation are essential in reducing the risks of climate change!!!
International Response: UN Framework Convention on Climate Change (UNFCCC) 1992
11
• Kyoto Protocol amended UNFCCC with 2 principal provisions:
I. Assigns mandatory (legally-binding) GHG emission reduction targets to Annex I parties:
– Individual targets for each industrialized country: on average by 5% below 1990 levels
– Establish time-frame (Kyoto commitment period): 2008-12
– Developing countries and some economies in transition (non-Annex I) countries do not have reduction targets
II. Introduce market mechanisms to allow industrialized countries to meet their commitment in most cost-effective way by purchasing GHG emission reductions from elsewhere:
– from financial exchanges (Emission Trading)
– from projects which reduce emissions (Clean Development Mechanism (CDM) or Joint Implementation (JI))
International Response: Kyoto Protocol, 1997
GLOBAL WARMING
CONVENTIONS
- UN Framework Convention on Climate Change
(1992)
- Kyoto Protocol(1997)
- [Post-Kyoto?](2015)
Mitigation
Adaptation
SOLUTIONS
• Emissions Trading (ET)
• Clean Development Mechanism (CDM)
• Joint Implementation (JI)
PROBLEM
International Response Map
Command & Control
• Technology (input) standards– Required use of BBG/ biofuels– Required use of CFL lightbulbs– …
• Performance (output) standards– US Clean Air Act –> sets air quality standards– AMDAL– …
Command & Control
Company A
Company 1
Company 3
Company 2
Input Standards
TechnologyStandard
Technology
Output standards
PenalViolation
Company B
PollutionStandard
PenalViolation
Pollution
• Pros:– Easier enactment & implementation– Easier monitoring – Clear enforceability (in theory)
• Cons:– Uniform costs blind to unique capacities– Initial subsidies often needed– High monitoring & enforcement costs– Provides no incentive to do more than necessary– Information asymmetry between gov’t & corporations
Command & Control
Market-Based Mechanisms• Objective: To Put a Price on Externalities
An externality is a cost which results from an activity which affects an uninvolved party who did not choose to incur that cost. Pollution is an externality because although it is emitted by a producer, it affects the society, and society must pay for the cost ultimately (social cost).
“Pricing externality” means making the producer pay for the cost of that externality / pollution.
• Tax• Cap-and-Trade
Types of Market-Based Mechanisms
Company A
Tax
Company 1
Company 3
Company 2
Companies with High Costs of Compliance
EmissionsThreshold
Emissions
Companies with Low Costs of Compliance
Carbon Tax
Company B
Tax
• Pros:– Relatively simple to implement– Liberty to choose compliance mechanism– Commonly understood concept of disincentive– Money goes to gov’t– Emission leakage
• Cons– Gov’t-dependant enforcement relatively difficult– Uniform costs blind to unique capacities– Money goes to gov’t– Emission leakage
Cap & Trade
Company 1
Company 3
Company 2
Companies with High Costs of Compliance
EmissionsCap
Emissions
Companies with Low Costs of Compliance
Company A
Business AsUsual
Carbon Credits
CarbonCredits
CarbonCredits
Carbon Credits sold to meet their emissions cap
Company A
Reduction Program
reductions
1 ton CO2
1 ton CO2
1 ton CO2
Cap & Trade
• Pros– Cost-efficiency – Self-monitoring mechanism– Acts as incentive & disincentive at the same time
• Cons– Only works for atmospheric pollution– Complicated implementation– The reduction needs to be “additional” to business-as-
usual reductions (Additionally Principle)
1. Climate Change Policy, Command and Control, and Market Based Approaches
2. Investing in Renewable Energy through Clean Development Mechanism
3. Other Types of Carbon Markets4. Investing in Forestry through REDD+5. Group Exercise
Table of Content
24
IPCC, UNFCCC, Kyoto Protocol
• Intergovernmental Panel on Climate Change• United Nations Framework Convention on Climate
Change• North & South agree to mitigate climate change
before “it is too late”• Agree that they have “Common but Differentiated
responsibilities”.
GLOBAL WARMING
INSTRUMENTS
- UN Framework Convention on Climate Change
(1992)
- Kyoto Protocol(1997)
- Non-Treaty Actions
CARBON MARKETS
• Clean Development Mechanism (CDM)
•Emissions Trading Systems
•Domestic Offset Schemes
•Voluntary Carbon Market
PROBLEM
26
The Kyoto protocol
Annex INon-Annex INot ratified
27
The Kyoto Protocol Mechanisms: economic rational
Developed countries:• Kyoto allows Annex I countries to purchase “GHG emission reductions”
instead of reducing emission domestically• Costs of complying with Kyoto targets is prohibitive for Annex I
countries (most EU members with highly efficient, low GHG polluting industries, and high environmental standards)
Developing countries:• Kyoto encourages non-Annex I developing economies to reduce GHG
emissions since doing so is now economically viable because of the sale of GHG emission reductions
28
Kyoto Protocol
• It relies on market based flexible mechanisms to reduce GHGs emissions to mitigate GW.– Emission trading (trading of allowances between
Annex I governments) Like between the EU Members
– Clean Development Mechanism (CDM) (projects in Non-Annex I countries with participation of Annex I countries)
– Joint Implementation (JI) (projects between Annex I countries)
Clean Development Mechanism
Company 1
Company 3
Company 2
Annex I (“industrial” countries)e.g. Germany
EmissionsCap
Emissions
Non-Annex I (“developing” countries)e.g. Indonesia
Company A
Business AsUsual
CertifiedEmissionsReductions
CER
CER
CERs sold to Annex I to meet their emissions cap
Company A
Clean Development Mechanism
reductions
1 ton CO2
1 ton CO2
1 ton CO2
30
Emission trading (cap-and-trade)
Kyoto Protocol sets a limit or cap on the amount of GHG that can be emitted
Each Annex I country is given credits or allowances (Assigned Amount Units or AAU), i.e. the right to emit a specific amount which corresponds to the cap
Countries that emit beyond their allowances must buy credits from those who emit less than their allowances
This transfer is referred to as a CARBON TRADE
Emissions in reporting yearAllocated allowances (AAU)
Surplus of certificatesDeficit of certificates
Country A Country B
CAPTrade in AAUs
31
Generating Carbon Credits G
HG
em
issi
ons
TimeProject commissioned
“With project” emission level
“Without project” emission level Carbon
credits
Project based emission reductions need to be calculated and verified 1 reduced Ton of Carbon Dioxide equivalent = 1 Carbon Credithereafter they can be sold on the open market.
32
Formula Name Global Warming Potential
CO2 Carbon dioxide 1
CH4 Methane 21
N2O Nitrous oxide 310
PFCs Perfluorocarbons 9200
HFCs Hydrofluorocarbons 11700
SF6 Sulphur hexafluoride 23900
GWP & Carbon Credits
If one tonne of GHG emission is reduced then number of carbon credits issued will be equivalent to the GWP.
33
Supposed benefits of the market mechanisms
• Help identify lowest-cost opportunities for reducing emissions and attract private sector participation in emission reduction efforts.
• Cost of limiting emissions varies considerably from region to region, the benefit for the atmosphere is the same, wherever the action is taken.
• Developing nations benefit in terms of technology transfer and investment brought about through collaboration with industrialized nations under the CDM.
34
Carbon market: Project (micro) - level
• CDM Project Development Cycle
Carbon Credits needs to be certified and verified
(UN BODIES and Gov’t)• CDM Eligibility Criteria• Project Examples
CDM: The long and winding road…
35
Source: adapted from Carbon Finance Branch, World Bank 2005
Preparation and Review of the Project•Submission of the Project Information Note (PIN)
Carbon Asset Due Diligence•Development of the Project Design Document (PDD)
Validation process•Acceptance and Registration of the project
Project Appraisal and Negotiation•Signing of Emissions Reductions Purchase Agreement (ERPA)
Construction and Start up
Periodic verification & certification
Project completion
3 month
2 month
2 m
onth
3 month
1 – 3 years
up to 21 y
ears
Phase Responsible Entity
1. Project Design Document Project-Developer
2. Letters of Approval (NATIONAL) Designated National Authority (DNA)
3. Validation (UN BODY) Designated Operational Entity (DOE)
4. Registration (UN BODY) CDM Executive Board (EB)
5. Monitoring Project Developer
6. Verification and Certification Designated Operational Entity (DOE)
7. Issuance of CERs CDM Executive Board (EB)
8. Forwarding (tracking of buy and sell) CDM Registry Administrator
CDM: The long and winding road…
37
Designated National Authority (DNA)
• Project participants shall get written approvals of CDM project from the DNA of each Party involved
•
• PPs may get written approvals in step (1), (2) or even (3), but before a request for registration
• The written approval from DNA must confirm:- The fact of Kyoto Protocol ratification; (Country)- Voluntary participation in CDM project activity; (Additionally Principle)- Contribution to sustainable development of the host Party
• Additionally, the letter may contain:- Authorization of project participants (official confirmation of CER
ownership-owned by the developer)
Designated National Authority (DNA)
• DNA was established under KepMenLH No. 206/2005 jo. 522/2009.
• DNA members consist of representatives from 14 gov’t institutions:
• Coordinating Ministry of Economy• State Ministry of Environment• State Ministry of National Development Planning• Ministry of Energy and Mineral Resources• Ministry of Forestry• Ministry of Industry (CDM Project)• Ministry of Foreign Affairs (CDM steming from International treaty)• Ministry of Home Affairs (wants to know everything in the )• Ministry of Transportation (can be a transportation project, e.g. switching fuels)• Ministry of Finance (deals with gov’t revenue, wheter CDM projects can generation non-tax:
paying for licenses)• Ministry of Agriculture(can be a CDM n project, e.g. switching fuels)• Agency for Technological Assessment and Implementation (Maybe there’s aquisition)• National Land Agency• National Council for Climate Change
39
Designated Operational Entity (DOE)
• DOE is domestic or international legal entities that have been
accredited by the CDM Executive Board (Info in UNFCCC data base http://cdm.unfccc.int/DOE)
• It has two key functions:1) To validate and subsequently request registration of a proposed CDM project
activity (Step 4)
2) To verify emission reduction of a registered CDM project activity, certify as appropriate and request the CDM Executive Board to issue CERs (Step 7) – verification is done periodically at the request of PPs
• 12 DOEs officially accredited by CDM EB; only two from non-Annex I Parties (South Korea and South Africa)
40
CDM Executive Board (CDM EB)
• CDM EB – is an international CDM governing body
• It consists of 10 members (& 10 alternates): 2- from Annex I , 2 - from non-Annex I, 1 from each UN region, 1 from small island developing states
• Its key functions:− to register CDM projects (Step 5) and issue CERs (Step 8)
− to approve baseline and monitoring methodologies
− to accredit DOEs
− to do any others tasks according to the decision of COP/MOP of UNFCCC
41
Project Participants
•CDM Project owner (CER seller): - Any legal entity officially registered in host country that can develop
and operate CDM projects (business, municipalities, NGOs)- Each host country may establish additional criteria for project owners
(e.g. financial sustainability or share of foreign capital)- Others: CDM broker, project financier, technology provider, project
operator, etc…
•CDM Project Investor (CER buyer):- An entity that purchases CERs from a CDM project. The investor is
usually from an Annex I country and can be a corporation, a government body or non-governmental organization, or an international carbon fund (e.g. World Bank Prototype Carbon Fund)
Various Project Sectors
Energy Renewable energy (non-fossil fuel)
Energy efficiency
Others
Solar, wind, biogas, biomass, hydro, geothermal, hybrid systems, and waste.
Residential, service, industry, agricultural machineries/technology.
Agriculture (e.g. improved fertilizer, water management), fuel switching, transport, waste management (irrigation), HFC.
Forestry Aforestation
Reforestation
[REDD+]
Replanting land that hasn’t been forest for at least 50 years
Replanting land that used to be forest before 1990
Reduced Emissions from Deforestation & Degradation]
P R O J E C T S
SECTOR
CDM (basic) eligibility
It must not be required by law or mandatoryVOLUNTARY
ADDITIONAL
SUSTAINABLE
APPROVED
METHODOLOGY
1.
2.
3.
4.
Emissions would not have been reduced without the CDM, because it’s a financing project
The project must fulfill sustainability requirements
It uses UN-approved methods of reduction choose and pick,
44
a) CDM projects must be “additional”. This concept requires careful attention.
b) Official language ・ (A CDM project must achieve) Reductions in emissions that are
additional to any that would occur in the absence of the certified project activity.
・ A CDM project activity is additional if anthropogenic emissions of greenhouse gases by sources are reduced below those that would have occurred in the absence of the registered CDM project activity
CDM Eligibility Requirements: Additionality
c) Interpretation・ CDM status will be given only to those projects
that cannot be implemented without it. ・ Those projects that can/will be carried out in the
course of regular business (Business-As-Usual - BAU - projects) are disqualified.
d) Paraphrase• CERs are offered as an incentive to encourage developers to
undertake GHG mitigation projects that do not normally happen.
45
CERs = Baseline emissions – Project emissions
The baseline is the amount of GHG that would be emitted in the absence of the CDM project. It is not necessarily the current amount of emissions.
KEY:– ability of a project developer to identify and prove the
selection of baseline scenario;– CDM projects must follow official UN Baseline
Methodologies (or get their new baseline methodology approved by UN)
CDM Eligibility Requirements: Measuring emission reductions
46
Selection of project baseline
Source: GTZ
CDM Eligibility Requirements: Sustainable
Sustainable Development:
“Development that meets the needs of the present without compromising the ability of future generations to meet their own needs. It contains within it two key concepts:
1. The concept of needs, in particular the essential needs of the world’s poor, to which overriding priority should be given; and
2. The idea of limitations imposed by the state of technology and social organization on the environment’s ability to meet present and future needs.”
CDM Eligibility Requirements: Sustainable
The Indonesia DNA has defined four sustainable development criterion:
1. Environmental Sustainability 1. Natural resource conservation2. Local community health and safety
2. Economic Sustainability1. Local community welfare2. Local community income
3. Social Sustainability1. Local community participation2. Local community social integrity (no conflicts triggered)
4. Technological Sustainability1. Transfer of know-how2. Relevant technologies
The above checklist forms part of the Application Form for National Approval of a CDM Project. All indicators must be checked with a “yes”.
CDM Eligibility Requirements: Sustainable
Problems with the sustainability criteria:
1. Lack of standard criteria globally recognized2. Backwards incentives of allowing host countries to define criteria3. Exclusion of sustainability from CER prices4. Lack of correlation between sustainability and emissions reductions
Will this ultimately be a social benefit?
CDM Eligibility Requirements: Sustainable
Law No. 32 of 2009 on the Environment:
1. The government is required to prepare a Strategic Environmental Assessment to ensure that the principle of sustainable development is integrated into development policies, which should then become a foundation of all policies and planning in a given area;
2. The Strategic Environmental Assessment should be prepared with the participation of the public and stakeholders through dialogue, discussion, and public consultation.
Solar cook stoveENERGY EFFICIENCY PROJECT
Location: Aceh Method:
• Solar cook stoves imported from Germany in prefabricated kits, local assembly, distribution to households
• Frying, steaming, baking, etc, and simmering – can boil 6 litres of water within 55 minutes.
Funding: • Fully funded by the supplier (Klimaschutz e.V.) in return for
CERs Payment is used to buy the stoves Potential CERs:
• 3,500 per year (for 1000 solar cookers)• 24,500 cumulative for 7 years
Benefits:• Free technology and free energy • Saves money - increases welfare• Supports local food-selling businesses• Eliminates dependence on kerosene and firewood• Reduces lung and eye disease caused by dirty fumes
Business as usual
Micro HydropowerRENEWABLE ENERGY PROJECT
Location: Across Indonesia Method: Program of Activities
• Install approx 100 small hydropower plants delivering energy to main grids and small isolated grids for rural electrification
• Combined installed capacity of no more than 15 MW Funding: Equity and loan by South Pole Carbon Asset Management Ltd. (a BANK) Potential CERs
• 973 per project per year• 2,724,400 cumulative for 100 projects in 28 years.
Benefits:• Rural electrification to isolated areas• Electricity independence – decentralized, no bills• No emissions – minimal impact on environment• Enhances economic activity• Creates employment opportunities
Landfill methane captureWASTE MANAGEMENT PROJECT
Location: TPA Suwung, Denpasar; Yogyakarta Method:
• Waste separation and controlled decomposition• Capture of methane for electricity generation
Parties: • PT Navigat Organic Energy Indonesia (developer)• Mitsubishi UFJ Securities Co. Ltd. (consultant)
Funding: General Electric (machinery) Potential CERs:
• 108,749 per year [=1000 cars]• 761,246 over 7 years
Benefits:• Generates 10 MW electricity = 700 households• Improve municipal waste management• Improve environment around landfill site• Reduce health hazard and risk of landslide• New technology• Employs scavengers
1. Climate Change Policy, Command and Control, and Market Based Approaches
2. Investing in Renewable Energy through Clean Development Mechanism
3. Other Types of Carbon Markets4. Investing in Forestry through REDD+5. Group Exercise
Table of Content
GLOBAL WARMING
INSTRUMENTS
- UN Framework Convention on Climate Change
(1992)
- Kyoto Protocol(1997)
- Non-Treaty Actions
CARBON MARKETS
• Clean Development Mechanism (CDM)
•Emissions Trading Systems
•Domestic Offset Schemes
•Voluntary Carbon Market
PROBLEM
Supranational, national, and sub-national, & voluntary Carbon Markets
• European Union – Emissions Trading Scheme (EU-ETS)• California Carbon Exchange (CCX)• Costa Rica Voluntary Domestic Carbon Market
(MDVCCR)• US Regional Greenhouse Gas Initiative(RGGI) (Between
federal states) • Australia, New Zealand, Japan, China, Korea
• DISCUSS: “ETS, RIP?”
Other Carbon Markets
Company 1
Company 3
Company 2
(Voluntary or Compliance) Buyer
EmissionsCap
Emissions
Seller
Company A
Business AsUsual
VerifiedEmissionsReductions
VER
VER
Carbon Credits sold to Buyer to meet their emissions cap
Company A
Carbon CreditProject
reductions
1 ton CO2
1 ton CO2
1 ton CO2
Legal Aspects of Carbon Trade
• Carbon Contracts Provide a documented framework within which “emission rights” are bought , sold , acquired, transferred.
• Ownership of Atmosphere : The Property Rights Issues
• Nature of Carbon Contracts & Carbon Trade – ER’s a new ‘commodity’
• Ownership of Emission Reductions (ERs) and Legal Process of Transfer- If Project is “legal” in domestic jurisdiction and ERs are “certified” and “verified” by authorised agents, then ERs are legal commodities
• Carbon Contracts are called Emissions Reductions Purchase Agreement (ERPA)
ERPA’s Key ElementsThe key elements in any ERPA will cover the following
areas:◦ Quantity of CERs to be delivered◦ Price per unit◦ Delivery schedule◦ Consequences of non-delivery◦ Other default events
ERPAs are usually long-term agreements and need to cover a range of potential scenarios, so they will generally be more complex than this, often extending to 30 – 40 pages.
Negotiating, Drafting & Executing ERPA Or Carbon Trade Document
Key Issues for Project Developer:– Rewards you wish to achieve:
• Maximizing future revenue from CER?• Using ERPA as collateral to obtain further
finance?• Upfront funding for project costs?
– Overall Risks:• What barriers does the project face before
CERs delivered?• How big is potential for failure?
– Balancing Rewards with Risks
Negotiating, Drafting & Executing ERPA Or Carbon Trade Document
• CER pricing and terms of sale– Types of Agreement
• Spot Agreement (CERs are issued and ready for delivery)
• Future Delivery Agreement (CERs to be issued in future)• Call Option (Buyer pays upfront premium; has right to
buy later at fixed price)• Put Option (Seller pays upfront premium; has right to
SELL later at fixed price)
– Types of Pricing• Fixed Price• Floating Price• Combination of fixed and floating
Negotiating, Drafting & Executing ERPA Or Carbon Trade Document
Risks– Country Risks
• Change in laws• DNA doesn’t approve
– General Project Risks• Force Majeure• Project under-performs• Market risks
– CDM Risks• Post-2012 uncertainty• Failure to validate and register or verify credits
– Project Entity Risks• Credibility• Lack of resources• Financial risk
• Key Contractual Provisions– Representation and Warranties– Liabilities and Indemnities – Default,Termination and Remedies– Progress Reports and Audit Rights – Confidentiality– Arbitration and Dispute Resolution– Force Majeure– Third Parties– Compliance of Local/Domestic Laws– Taxes, Levies and Charges
Negotiating, Drafting & Executing ERPA Or Carbon Trade Document
1. Climate Change Policy, Command and Control, and Market Based Approaches
2. Investing in Renewable Energy through Clean Development Mechanism
3. Other Types of Carbon Markets4. Investing in Forestry through REDD+5. Group Exercise
Table of Content
REDD+
“Reducing Emissions from Deforestation and Forest Degradation (REDD+) is a global initiative designed to pay groups or countries for protecting their forests and reducing emissions of GHG (countries that have tropical forests have to be ). The “plus” takes the mechanism to another level by enhancing the land’s capacity for carbon storage by rewarding activities that improve forest health.”
Bali Roadmap 2007
“Encourages developing country parties to contribute to mitigation actions in the forest sector by undertaking the following activities as deemed appropriate in accordance with respective capabilities & national circumstances:a. Reducing emissions from deforestationb. Reducing emissions from forest degradationc. Conservation of forest carbon stocks (warehouse for
carbons)d. Sustainable management of foreste. Enhancement of forest carbon stocks (improving the
quality to reserve carbons)
REDD+
Company 1
Company 3
Company 2
Business As Usual- Baselines
EmissionsFromForest Conversion
Reforestation or Avoided Deforestation
1 ton CO2
1 ton CO2
1 ton CO2
Pulp
Palm Oil
Mining
Pulp
Palm Oil
Mining
1 ton CO2
1 ton CO2
1 ton CO2
1 ton CO2
1 ton CO2
1 ton CO2
1 ton CO2
1 ton CO2
credits
credits
credits
credits
Sold to voluntary carbon credit buyers
Forest heterogeneousPalm oil and pulp are plantations: homogenous
No compliance market
Managed => reduce emissions=> sell carbon credits
REDD+: voluntary but popular
• 109 REDD activities around the world• 44 demonstration activities• 65 readiness activities• 20 demonstration activities in Indonesia
REDD+ Regulations
• Permenhut 68/2008 on Demonstration Activities for REDD
• Permenhut 30/2009 on REDD• Permenhut 36/2009 on Carbon Use• Permenhut 20/2012 on Forest Carbon• Inpres 2013 on Forest License Moratorium
(stopping the licenses to convert forests, 2 years )• [Norway US$1 billion grant for REDD+]
Market-regulated REDD+
• Acquire Forest Concession (hard in Indonesia because of the
beaurocracy, many diff. interests- project owner/developer)• Project Design Document (usually done by a consultant)• Verified by Voluntary Carbon Standard (VCS) or
Climate, Community, and Biodiversity Standards (CCB) a higher price for credits
• Monitored and Verified (project owner are verification)
• Issuance of Credits
Verification
• Proof of title that demonstrates their right to the GHG emissions reductions and the ownership of the project.
• Additionally: forest conservation would not occur in the absence of the REDD incentive
• Permanence: both parties perform obligations for the duration of the contract
Some Problems with REDD+• Leakage: deforestation is avoided in one place but
forest destroyers might move to another area of forest• Additionally: almost impossible to predict what might
have happened in the absence of the REDD project (no
one has claimed the forest, done by estimates)• Permanence: carbon stored in trees is only temporarily
stored and when trees die will be released back to atmosphere (not really a problem at the present because trees can
have a long time span)• Measurement: accurately measuring the amount of
carbon stored in forests and soils is very complex.• DISCUSS: “The Finitude of Forests”
1. Climate Change Policy, Command and Control, and Market Based Approaches
2. Investing in Renewable Energy through Clean Development Mechanism
3. Other Types of Carbon Markets4. Investing in Forestry through REDD+5. Group Exercise
Table of Content
Simulation: Project CDM Geo
• The “Forest” is a 50,000 hectare area designated as “Convertible Production Forest”. The forest concession is owned by PT Agro, a palm-oil developer, with rights to convert the forest into a palm oil plantation.
• PT Pertamina owns a “pinjam-pakai” permit for underground coal mining on the Forest.
• Indigenous communities are scattered throughout the Forest, for years growing their own food & selling weaved baskets.
Simulation: Project CDM Geo
• Group I: Energy Developer PT. Pertamina Geo• Group II: Forest Concession Owner PT. Agro• Group III: Local Community • Group IV: Government of Indonesia
Project CDM vs. REDD
• Group I: Energy Developer PT Pertamina Geo– To put forth proposal on CDM project to generate
carbon credits by avoiding coal extraction and shifting to geothermal extraction in the Forest
– To make sure the proposal is approved by local community and government
Project CDM vs. REDD
• Group II: Forest Concession PT Agro– To put forth proposal on REDD+ project to
generate carbon credits by avoiding the conversion of its forest into palm oil, and therefore conserving the Forest
– To make sure the proposal is approved by local community and government
Project CDM vs. REDD
• Group III: Local Community– To ask a lot of questions scrutinizing the impact of
both proposed projects to their community and livelihood
– To decide which is more favorable to them (CDM)
Project CDM vs. REDD
• Group IV: Government– To identify whether each proposal meets
requirements– To scrutinize baseline, additionally, impact to
locals, society, and environment– To “want something in return”– To issue letter of approval to one of the projects
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