2

Acknowledgement

The process of putting together a feasibility study report for examining and recommending a model for

developing and selling forestry-related voluntary carbon markets in Thailand was formally initiated at the

FAO sponsored work-shop “Linking Communities in Southeast Asia to Forestry-related Voluntary Carbon

Markets (VCM)” held at Chiang Mai, Thailand, between 20-22nd September, 2010. The contours of the

study were defined by the insightful inputs of Ms. Maria Spirovska-Kono, consultant, FAO Regional Office

for Asia and the Pacific (RAPO) and Dr. Pongvipa Lohsomboon, Director, Investment and Marketing Office,

Thailand GreenHouse Gas Management Organization (TGO) and her team. The background of the report

was meticulously researched by the team of professionals at Emergent Ventures Bangkok Office and the

report would not have been completed successfully without their effort in collecting industry feedbacks,

compilation of latest industry developments and liaison with FAO and FAO offices. A concurrent study by

Equitech (TCP/THA/3203, component 2) also provided necessary details to understand the ground-reality

of forestry project implementation scenario in Thailand. Patrick B. Durst, Senior Project Officer, RAPO,

facilitated closure of the report through detailed analysis of draft versions and identifying multiple areas

of improvement and modification. We hope that the report made in collaboration with FAO and Emergent

Ventures will be useful to TGO in its efforts to develop a forestry-related voluntary carbon market

structure in Thailand.

Abhirup Sen Emergent Ventures

April, 2011

3

Executive Summary

Voluntary carbon markets are expanding rapidly of late and according to some estimates they have been

doubling both in volume and value in the past couple of years. Voluntary offsets are particularly feasible

and potentially attractive alternative for forestry and small-scale initiatives that face difficulties in meeting

the rigid protocols and high transaction costs of compliance markets. This said, such “perceived”

advantages of the voluntary market are still to be reflected in the progress of forest carbon scenario in

Thailand. The Government of Thailand has thus recognized the importance and need to promote and

support various activities aiming at reducing carbon emissions and pursuing the path of “green

development”. Considering that the ownership of the forests including the onus of their protection and

rehabilitation is primarily with the government and the indigenous communities represent the principle

beneficiary of the conservation of forest resources, accessing the voluntary carbon trade has potentials for

providing benefits at both national and community level. However, there is a strong need for developing

capacities within the various institutions for availing benefits of the voluntary carbon markets mechanism.

On the request of the Royal Government of Thailand and the Thailand Greenhouse Gas Management

Organization (TGO), Food and Agricultural Organization Regional Office for Asia and the Pacific, Bangkok,

has initiated a Technical Cooperation Programme (TCP) Facility in support of start-up activities for

identifying the key opportunities and requirements for accessing voluntary carbon markets. Emergent

Ventures has collaborated with FAO and TGO to analyse the different aspects of Thai Forestry sector and

propose appropriate designs to implement a domestic forestry-related voluntary market mechanism. The

findings will be further utilized by the recently initiated Regional TCP project “Linking communities in

Southeast Asia to forestry-related voluntary carbon markets” (TCP/RAS/3210). Under the supervision and

guidance of, and in consultation with the Senior Forestry Officer, Regional Office for Asia and the Pacific

(RAPO) and in collaboration with Ministry of Natural Resources and Environment, the Thailand

Greenhouse Gas Management Organization, the following aspects were covered under the report:

a. Size, structure, key players, and potential buyers

b. Overview of most important carbon offset providers (type of activities)

c. Opportunities and constraints for Thai forestry-related carbon offsets

d. Overview of available carbon standards and their comparative advantage for forestry projects

e. Recommendations for a model for developing and selling forestry-related voluntary carbon markets

in Thailand

The study finds that developing forest carbon projects for voluntary markets may only be easier when

compared relative to existing compliance markets but they still need to meet internationally accepted

4

standards that require specialized expertise, finding the right buyers and significant resources.

Methodological issues related to project categories such as REDD are being sorted out in the voluntary

standards, which at least will help clear the air when it comes to technical, if not governance issues related

to these categories of carbon offset projects.

The deforestation rate in Thailand peaked in the 70’s and 80’s.Since the 90’s, the deforestation rate has

declined remarkably. This decrease in deforestation rate can be attributed to steps such as logging ban

since 1989 and concerted efforts to reforestation and rehabilitation of degraded lands by RFD. But for

such efforts to result in long-term actual action on the ground require clear policy guidelines on the part of

the government regarding tenural rights of forests, usufruct distribution and community participation.

Besides, reforestation efforts especially face the rising opportunity costs of land as most deforested areas

in Northern Thailand are now under cash crop or rice cultivation. The phenomenon of deforestation has

been recognized as a complex socio-economic issue that cannot be addressed merely by targeting one

factor whilst not responding to the other drivers.

The major challenge for the long-term success of a voluntary market mechanism for Thailand is to ensure

wide participation by the potential players and to keep them involved in the set-up for the long-term to

make it meaningful. Given the fact that Thailand is largely an export-oriented economy, it may not be

possible to introduce a mandatory domestic trading system like Korea VER trading system without

affecting the competitiveness of the companies involved. Another challenge is to make the market

attractive enough to induce buyer participation. This requires some differentiating factors which will be

attractive to potential buyers in the voluntary market.

Alternatively, the Thai Government can come out with a set of nationally relevant Criteria and Indicators

(C&I) which may be used as a guideline to assess social and environmental contributions of the forestry

projects apart from the net sequestration they achieve. This can also help differentiate the value of Thai

credits in the voluntary markets. This will not only add value to the credits but also bring about credibility

for the market participants, even for CSR participants. Moreover, these credits will be of particular interest

to environmentally responsible multi-national companies with operations in Thailand as they will find the

option of offsetting Thai facility emissions with distinctly Thai projects.

Based on these factors, the report has envisioned multiple structures that could be considered by Govt. of

Thailand for kick-starting the process of domestic carbon forestry project development. We have

compared these structures on various parameters like government involvement, attractiveness of

participation, anticipated buyer response, price discovery etc. The principle aim is to ensure a debate and

adoption of the most appropriate mechanism, even if it means a permutation of the major points of each

of the discussed mechanisms.

5

S. No.

Parameters Proposed Market structure scenarios

Laissez Faire model Thai Forest Standard model Voluntary Market as unilateral NAMA

Mandated Market Mechanism

1 Description Enabling model. At present forestry projects can be done by Thai companies/NGOs under standards like VCS. Govt. enhances awareness of such standards/ methodologies and then, it’s up to private companies to take a call

Strengthening model. Govt. encourages companies/NGOs to develop forestry projects adhering to international standards and also on a set of Criteria & Indicators developed by the TGO. Projects subscribing to these C&Is would be eligible to get an additional recognition from Thai govt. in form of a lable.

Govt. to setup central nodal agency which will guide project developers through carbon markets by providing information about carbon credit generation services, buyers etc.

Proactive model. Govt. encourages companies/NGOs to develop forestry projects subscribing to international standards and then, purchases credits from these projects under govt. bio diversity conservation, forest cover improvement activities. Fund for purchasing these credits could come from the fund collected by small cess on sale of fossil fuels. (example: Cess on coal in India for financing solar projects)

Regulated model. Govt. mandates companies to ascribe a certain percentage share of their profits for purchasing Thailand forestry carbon credits. Govt. could facilitate this by pre-selecting implementation partners who will implement forestry projects and make their credits available for sale.

2 Scope of Participation

The NGOs, commercial forest companies and companies pursuing CSR activities can participate

NGOs, commercial forest companies and companies pursuing CSR activities can participate

NGOs, commercial forest companies and private companies

Commercial forest companies and NGOs (preselected by government)

3 Mechanism oversight of the market

There will be no formal oversight over the market except awareness generation

TGO or any other nodal agency can provide oversight to the market operations and frame C&I guidelines, review projects which apply to the guidelines, issue necessary compliance certificates and provide guidance for carbon market activities

TGO or any other competent organization can provide oversight to the fund operations, project development and purchase of credits.

TGO or any other competent organization can provide oversight to the running of program. Besides, the TGO shall also arrange for appointment of independent verifiers for verification and issuance of credits and monitor the participation of mandated players.

4 Project standards

The system will be integrated with the rest of the voluntary market

The projects can adhere to Thailand specific sustainable development norms and may be highlighted as contributing to Thailand developmental goals

The projects can adhere to international standards but since government is funding the projects, it can claim it as a unilateral NAMA

Projects can adhere to local standard published by Govt.

Convergence of Compliance and voluntary market components for a domestic

voluntary market mechanism

As per the analysis from prevailing ground realities, feedback from stakeholders and studying similar

market structures, it should be considered that a free market structure that we generally associate with

voluntary market may not be feasible enough to entice adequate response from market participants and

project developers. A completely voluntary country-specific market with no mandated participation may

be too restricted in terms of

participation as against the global

unrestricted market now in place.

Rather, a market either mandated or

facilitated by the government, with

clear modalities of participation and

governance may be the more rational

way to proceed. The high initial cost of

developing a forestry project requires

assurances on the part of the

government regarding long-term policy support as well as funding support for community based projects

which other-wise may not be feasible for development forest carbon projects.

Such a market may incorporate the MRV standards of CDM and voluntary standards and include such

activities as reforestation, REDD plus and IFM. The structure can also accelerate funding for lagging sectors

like community based forestry projects and can act as a catalyst for capacity building and co-coordinating

across market verticals.

7

Abbreviations

AFOLU Agriculture, Forestry and Other Land Use

ALM Agricultural Land Management

A/R Afforestation/Reforestation

CCBA Climate, Community and Biodiversity Alliance

CDM Clean Development Mechanism

CER Certified Emission Reduction

CFS Carbon Fix Standard

CSR Corporate Social Responsibility

DNP Department of National Parks, Wildlife and Plant Conservation

EVI Emergent Ventures International

FAO Food and Agriculture Organization

FSC Forest Stewardship Council

GHG Green House Gas

IFM Improved Forest Management

IPCC Intergovernmental on Climate Change

MONRE Ministry of Natural Resources and Environment

MRV Measurement, Reporting and Verification

NGO Non-governmental Organization

NTFP Non-Timber Forest Products

PCFC World Bank Forest Carbon Partnership Facility

PDD Project Design Document

PES Payments for Ecosystem Services

REDD Reduced Emissions from Deforestation and Forest Degradation

RFD Royal Forest Department

RPIN Readiness Plan Index Note

SFM Sustainable Forest Management

TCP Technical Cooperation Programme Facility

TGO Thailand Greenhouse Gas Management Organization

UNFCCC United Nations Framework Convention on Climate Change

VCM Voluntary Carbon Market

VCS Voluntary Carbon Standard

VER Verified Emission Reduction

8

Contents

1. Voluntary Carbon Markets: Carbon Cowboys’ Flight to Quality 9

2. Forest Carbon Markets: Philanthropy to Compliance 11

3. Forestry Sector in Thailand: Expected Variety of Offsets 13

4. Forest Carbon Standards: Making Sense of the markets 22

5. Feasibility for developing a forestry-related voluntary carbon market in Thailand 30

6. Overview of discussions so far and summarization of findings 50

Annex I to III

7. References 58

List of Figures

FIGURE 1. MAJOR FOREST TYPES OF THAILAND ............................................................................................................. 13

FIGURE 2. THE PRINCIPLE DRIVERS OF DEFORESTATION IN THAILAND OVER LAST HALF CENTURY .............................. 15

FIGURE 4. PROTECTED AREA NETWORK IN CENTRAL THAILAND ................................................................................... 17

FIGURE 5. PROTECTED AREA NETWORK IN SOUTHERN THAILAND ................................................................................ 17

FIGURE 3. PROTECTED AREA NETWORK IN NORTHERN THAILAND ............................................................................... 18

FIGURE 6. GOVERNMENT AND LOCAL COMMUNITIES CONTINUE TO BE ON THE OPPOSITE SIDE OF THE TABLE ON THE

REDD ISSUE ............................................................................................................................................................ 19

FIGURE 7. STEPS IN PROJECT DEVELOPMENT UNDER PLAN VIVO (ADAPTED FROM WWW.PLANVIVO.ORG) .............. 25

FIGURE 8. THE PROCESS OF PROJECT DEVELOPMENT UNDER VCS AFOLU .................................................................... 26

FIGURE 9. THE HIGH TRANSACTION COSTS TENDS TO OUTWEIGH THE ........................................................................ 26

FIGURE 10. COMPARATIVE ILLUSTRATION OF COSTS AND RETURNS FROM A 1000 HECTARE AFFORESTATION PROJECT

IN THAILAND OVER A PERIOD OF 20 YEARS ........................................................................................................... 27

FIGURE 11. THE GHG OFFSET MECHANISM ADAPTED BY PANDA STANDARD (©2010 PANDA STANDARD) ................. 31

FIGURE 12 ....................................................................................................................................................................... 33

FIGURE 13. CONVERGENCE OF COMPLIANCE AND VOLUNTARY MARKET COMPONENTS FOR A DOMESTIC

VOLUNTARY MARKET MECHANISM ....................................................................................................................... 44

FIGURE 14. PAGE 1 OF THAI INDUSTRY SURVEY ON VOLUNTARY CARBON MARKETS IN THAILAND ............................ 53

FIGURE 15. PAGE 2 OF THAI INDUSTRY SURVEY ON VOLUNTARY CARBON MARKETS IN THAILAND ............................ 54

FIGURE 16. PAGE 3 OF THAI INDUSTRY SURVEY ON VOLUNTARY CARBON MARKETS IN THAILAND ............................ 55

FIGURE 17. PAGE 4 OF THAI INDUSTRY SURVEY ON VOLUNTARY CARBON MARKETS IN THAILAND ............................ 56

FIGURE 18. PAGE 5 OF THAI INDUSTRY SURVEY ON VOLUNTARY CARBON MARKETS IN THAILAND ............................ 57

1. Voluntary Carbon Markets: Carbon

Cowboys’ Flight to Quality

The Voluntary Carbon Market is historically seen

as an unregulated playing field for trading in

carbon credits and offsets outside the purview of

the compliance requirements. It has always been

a space that has encouraged experimentation

with new concepts and incubation of innovative1

technologies. Although voluntary carbon

markets preceded compliance market

mechanisms, but the inception of Kyoto Protocol

gave a boost to both the trading volumes and

participants of the voluntary market. Today, the

role of voluntary markets are viewed as

expanding the gamut of global climate change

mitigation efforts beyond the realms of

compulsory emission reduction targets as

envisaged under Kyoto Protocol2. Voluntary

offsets are of major interest to voluntary buyers

like major corporations, individuals and private

organizations who purchase it in anticipation of

emission reduction regulations, CSR activities,

voluntary emission cuts in excess of regulatory

obligations etc. Voluntary market mechanisms

have helped reduced the weight of formalities,

bureaucracy and transaction cost generally

associated carbon offset projects.

Voluntary markets are driven largely by project

based transactions which are not governed by

internationally accepted regulations and

bindings. The fragmented nature of the

voluntary market structure and confidential

nature of transactions in the voluntary market

makes them hard to track leading to lack of

transparency and information. The smoke-screen

surrounding such deals opens the voluntary

market to questions regarding it’s the credibility.

The voluntary market has been accused of

encouraging credits of “questionable”

background as there is a general lack of

mechanism to review the credibility of such

offsets3.

Thus pivotal to the success of voluntary offsets is

adopting credible monitoring, reporting and

verification standards and ensuring that in the

process, the advantages generally associated

with the voluntary market like lower transaction

cost and s process requirements are not lost. To

address the above concerns and also to bring a

larger proportion of the voluntary credits under

certification a number of standards have come

into existence4. Some of the standards are

general in their purview (eg. Voluntary Carbon

Standard) whilst others have a more sector

specific approach (eg. Green-e for renewable

energy, Carbon Fix Standard for reforestation

etc). The project development norms for some of

the standards are aligned with those of CDM

whereas others have developed their own

distinguishing criteria. The standards dedicated

to the sectoral scope of forestry generally give

more importance to community development,

biodiversity conservation and overall sustainable

10

development that the projects contribute to as

part of their design and activity. Whilst the

emergence of so many various standards have

effectively fragmented the voluntary market

even further in the initial years of the present

decade, gradually the market seems to

consolidate around a few standards which have

gained relatively higher market share of the

trade, better buyers’ confidence, transparency

and ease of project development.

Another concern arising out of the fragmented

nature of the voluntary market is the lack of

traceability of the credits wherein due to the

absence of an international statute covering the

activities carried out by the offset providers, an

offset project developer can “recycle” i.e. resell

the same credit to multiple buyers as there are

no centralized registries to track the trade5,

which remains hidden in a veil of secrecy and

disaggregated market. The drive for more

transparency, liquidity and enhanced credibility

of the voluntary market has resulted in almost all

the standards tying up with one or more

registries. This step is supposed to reduce

double-counting to a large extent. The trend in

the voluntary market now shows that by 2009,

more than half of the credits are being tracked

through a registry6 which has increased

considerably from about 30% in 20077.

11

2. Forest Carbon offsets: Philanthropy to

compliance

‘Carbon offset’ describes the process whereby

entities purchase ‘credits’ generated from

projects that claim to reduce greenhouse gas

emissions8. The use of forestry carbon offsets by

an American power generation company in 1989

to reduce its carbon footprint marked the

initiation of voluntary carbon market. During the

period 1989- c.2000, forestry was one of the only

active sectors in the market. The principle reason

why forestry receives attention is the tangible

benefits that can be received from such projects.

But the projects were beset with problems that

have come to be associated with forestry offset

schemes and influenced later policy decisions.

Planting of exotic species not suitable to local

ecosystem regimes9, denial of traditional forest

rights and coercion of indigenous people, lack of

long-term monitoring mechanisms of

plantations, clearing of natural forests for the

purpose of establishing plantations to earn

carbon credits were some of the concerns that

led to the marginalization of forestry in

compliance market. The activities of forestry

carbon offset companies also led to a notion that

forests were being used as an easy way out for

the problems of climate change rather than

addressing issues like energy efficiencies and

development of newer technologies. Apart from

the above, the different aspects of the science of

global carbon cycle that is central to the premise

of the role of forests in climate change

mitigation were poorly understood10 and the

rationale of assuming simplistic linear

relationship between trees planted and the

reduction in green house gases from the

atmosphere for justifying carbon credit benefits

was questioned. All these concerns led to a very

restricted role of forestry under Kyoto Protocol.

The Ninth Conference of Parties (COP 9) in Milan

held in 2003 allowed only afforestation and

reforestation activities under the first

commitment period citing the issues like of non-

permanence, additionality, leakage,

uncertainties and adverse socio-economic and

environmental impacts11 associated with these

activities. Forestry was allowed under CDM from

2005 onwards, but the stringent guidelines

associated with CDM did not encourage many

forestry projects. The lack of market for forestry

credits after exclusion of forestry EUETS till 2012,

the expiring nature of forestry CERs, high upfront

cost of project development12, have affected

confidence in the project developer's ability to

deliver eligible, tradable benefits13 through

afforestation and reforestation projects under

CDM. Thus there is a general uncertainty in the

markets about the success of such projects.

During the first half of this decade, the demand

for forestry carbon offsets slumped mainly with

the availability of new sectors like renewable

energy, industrial gases etc in the compliance

market.

12

But gradually as the dust of the whirlwind of

regulations, endless debates and controversies

settled, forestry offset credits emerged once

again to a market structure supported by sound

scientific evidence14, better insight into project

implementation, anticipation of inclusion of

forestry under new emission capping

regulations15, new robust forestry standards and

newer project types like REDD, agro-forestry etc.

which pushed the realm of forestry offsets

beyond afforestation and reforestation as

mandated under CDM. Armed with new

scientific evidences, voluntary market became

the ground for testing new frontiers of forestry

offset market applications like REDD, so much so

that compliance markets have accepted the

trends in voluntary markets as guidance for

shaping future policy decisions including the

Copenhagen Accord16. Today forestry offsets

have regained its importance in the voluntary

market with at least a quarter of the market

share. It has become an attractive market for

small community based projects which have

proved to be prohibitively costly to develop

under CDM as well as for massive REDD

initiatives which are beyond the scope of CDM so

far, reflecting the diversity of project developers

as well as buyers’ profiles17. Under the light of

such a fast evolving scenario and a dynamic

global market, we shall discuss the opportunities

that the present scenario offers to develop and

encourage forestry related voluntary carbon

sector in Thailand and the adaptive regulations

and policies required to achieve the goal. The

reason behind the attraction of forestry projects

in voluntary markets is the additional tangible

benefits of such projects including sustainable

development, protection of natural resources

(e.g., biodiversity, water, and soil), recreation,

and the rehabilitation of degraded lands.

13

Figure 1. Major Forest Types of Thailand

Forests in Thailand

Evergeen

Tropical evergreen

Tropical rain forest

Semi-evergreen

Hill EvergreenPine forest

Mangrove

Beach

Decidous

Mixed Decidous forest

Dry Dipterocarp forest

3. Forestry Sector in Thailand: Overview of

important offset providers (types of

activities)

Forest ecosystems form an integral part of the

carbon cycle that is affected as a result of

increasing anthropogenic activities. Thus they

form an important in the development of climate

change mitigation strategies. There are basically

three categories of forest management activities

that may be considered for forestry18 viz.

management for conservation (conservation of

forests, tackling forest degradation),

management for storage (carbon sinks in

plantations, carbon storage in durable wood

products) and management for substitution (eg.

substituting GHG incentive fuels with biomass).

In order to identify such activities it is important

to dwell over the various forestry practices in

Thailand.

3.1. Major Forest Types in Thailand

The distribution of forests types in Thailand are

generally influenced by altitude and climatic

variations. Thailand is located in continental

south-east Asia approximately between 6-20° N

latitude and 98-105° E longitude. The altitude

varies from sea-level to the high hills in

Northern Thailand that rises over 2500m. The

northern part of the country is hilly and is the

source of the four main tributaries of the Chao

Phraya River, which flows through the alluvial

plan of central Thailand southward to the Gulf

of Thailand forming the Chao Phraya Delta. The

peninsula stretches far to the south through the

Isthmus of Kra. The northern part of the country

is a plateau stretching eastwards and is known

as the Northeast highland or Korat plateau that

slopes eastwards to the Mekong River.

14

The climate of Thailand is shaped by monsoon

winds. Northern Thailand has three distinct

seasons, viz. rainy (May-October), cool-dry

(November February), and hot-dry (March-April).

The other regions have only two seasons, viz.

wet and dry. The temperature may rise up to

40°C during the dry season and drop to 0°C in

some places in the cool-dry season. An average

temperature of 25°C is common throughout the

year. The variations in altitude also influence the

climate to some extent that gets cooler from

south (near the equator) towards the north. The

NE monsoon (dry) wind is prevalent from

October-November to February-March and the

SW monsoon (wet) lasts from April- May to

October19. In general, the rainfall decreases from

south towards north. The annual average rainfall

varies from 4000mm in the far south Ranong

Province to about 1,000 mm in northern areas.

There are mainly two major forest types in

Thailand viz. evergreen and deciduous forests.

As per a report of FAO on Thailand Forestry

Outlook Study20, the evergreen forest is

subdivided into tropical evergreen forest, pine

forest, mangrove forest and beach forest.

Tropical evergreen forest is found all over the

moist part of the country. Tropical rain forest is

characterized by very rich flora and very dense

undergrowth. This type of forest is commonly

found in the Southern and the Eastern regions

where rainfall is above 2,000 mm. It is also found

along rivers and/or in valleys in other parts of

the country. Pine forest has two species of

tropical pines, Pinus merkusii locally called Son

Song Bi (the two -needle pine) and P. kesiya

locally called Son Sam Bi (the three-needle pine).

P. merkusii is found in the northern and the

western part of the Central region where the soil

is poor, lateritic and podzolic. P. kesiya is found

only in the highlands of the Northern and

Northeastern regions. Mangrove forests occur

along the coastal areas of the Eastern, Central

and Southern regions. The mangrove forest is

scattered along the estuaries of rivers and

seashores where the soil is muddy and

influenced by the tide. Beach forests occur along

the sandy coastal plains especially in the eastern

coast of the Southern region. Deciduous forest is

characterized by the presence of deciduous tree

species that seasonally shed their leaves and is

commonly found throughout the country. It is

broadly subdivided according to the species

composition into the mixed deciduous forest

(with and without teak) and the dry dipterocarp

forest. Mixed deciduous forest is commercially

among the most valuable forest of Thailand. In

the Northern Region, this type of forest is called

the teak forest with Tectona grandis, Xylia kerrii,

Pterocarpus marcrocarpus, Afzelia xylocarpus

and Dalbergia spp (rose wood) as

dominant/common species. Dry dipterocarp

forest is commonly found in the dry area (rainfall

below 1,000 mm) with sandy or gravelly lateritic

fertile soils.

15

3.1.1. Degradation of forests in Thailand

The major drivers for forest degradation in

Thailand have historically been colonization of

Northern highlands by clearing forests for

agriculture and settlement, unsustainable forest

management practices21, development activities

such as road construction and pressure of ever-

increasing populationxx; both indigenous and

tribes fleeing conflict zones in neighboring

countries. By 1990, an estimated 10 million

people lived on reserved forestland without title

to the land.

The forest areas in Thailand were

indiscriminately cleared for rice cultivation

during the early 1900s. The colonization of forest

lands got further impetus with the advent of

lucrative cash crops in the post World War II

era22. More than 20 million hectares of forests

are estimated to have been converted into

agriculture lands post World War II. The forest

harvest concessions, logging roads and political

instability took a further toll on the forests of

Thailand during the 60s and the 70s. The

harvesting concessions covered more than 80%

of the nation’s forests and the consequent rapid

deforestation excabarated the ecological

disasters throughout the 1980s. It has been

noted that though indiscriminate logging

resulted in degradation of extensive forest areas

in Thailand, demand for agriculture land and

increasing population pressure has been the

major drivers for permanent conversion of the

logged forest areas to non-forest lands23. By the

early 1980s, more than half of the 270000 sqkm

of forests that existed at the beginning of 1960s

were lost.

As per Thailand submission to the Forest Carbon

Partnership Facility, the annual deforestation

rate between 2000-2005 has been 1.07%24. This

corresponds to about 1 million hectares of forest

lost between 2000-2005. But there is significant

incongruity in the data on rate of deforestation

from different sources. The Global Forest

Resource Assessment, 200525 by FAO reports an

annual deforestation rate of 0.4% between 2000-

2005 and 0.7 % between 1990-2005 for Thailand.

In this period, Thailand has reported to have lost

about 1.5 million hectares of forest area. In what

may be termed as a silver lining, the latest forest

assessment report by FAO26 reports a net

increase in forest area in Thailand by 0.11%

annually between 2005-2010 with a increase of

about 0.1 million hectares in area under forests.

Figure 2. The principle drivers of deforestation in Thailand over last half century

16

3.1.2. Evolving Forest Governance in Thailand

Almost the entire area under natural forests in

Thailand are owned by the state and managed

by the RFD, DNP or the DMC. The Royal Forest

Department (RFD) was established in 1896 to

regulate forest exploitation, particularly in the

teak forests of the North. Before the

establishment of the RFD, forestland was

managed by autonomous local vassals, who

profited from logging contracts with European

companies. After the formation of RFD, the

ownership and control of all forests were

transferred from the feudal chiefs to the central

government. The RFD was divided into three

Departments in 2002: the Royal Forest

Department (RFD), the National Park, Wildlife

and Plant Conservation Department (DNP) and

the Department of Marine and Coastal

Resources (DMC). The DNP is tasked with the

management of Protected Areas whilst the rest

of the forests are under the jurisdiction of the

RFD. The DMC is entrusted with resource

management of coastal flora and fauna,

including mangrove forests. All the departments

are under the supervision of the Ministry of

Natural Resources and Environment (MNRE).

Privately owned forests are mostly plantations

but are not accounted as part of Permanent

Forest Estate. There are two state enterprises in

the forestry sector viz. the Forest Industry

Organization (FIO) involved in reforestation, teak

plantation, sawmilling, and development of

forest villages and FIO′s subsidiary Thai Plywood

Company Ltd. produces plywood and other

wood products.

The inability of the RFD to single-handedly stem

the rate of deforestation led to the increasing

recognition of the potential of local community

participation in forest management, who could

assist in forest conservation as well as regulate

encroachment into forestland. In 1985, The

National Forest Policy targeted 40 percent of the

country to be under forestland and stressed the

need to involve local communities, the private

sector, academia, and other agencies concerned

with forest management. In 1988, serious

flooding and landslides in the South generated

public opinion in favour of reducing forest

degradation. This led to the 1989 national

logging ban. The ban on logging and forest titles

to private corporations pointed towards a shift in

national forest management policies toward

local participation and forest conservation19. The

logging ban in 1989 following massive landslides

and loss of lives is considered as the inflection

point in the rates of forest degradation in

Thailand. Although the deforestation has

continued beyond 1990, the degradation rate

has been reduced substantially following

adoption of decentralized forest conservation

measures by the government of Thailand,

especially the Royal Forest Department

(RFD).The protected area network in Thailand

was initiated under the National Park Act in 1961

17

Figure 3. Protected Area Network in Central Thailand

Figure 4. Protected Area Network in Southern Thailand

and they presently cover about 17 percent of the

total nation territory. The protected area (PA)

system consists of national parks, wildlife

sanctuaries or local government-controlled

forest parks, wildlife sanctuaries, no-hunting

areas (mostly private lands), botanical gardens

and arboretums. The existing 228 protected

areas including 115 National Parks and 59 Wild

life sanctuaries amount to about 11.5 million

hectares and they are under the control of the

DNP.

3.2. Community forestry activities in Thailand

18

Figure 5. Protected Area Network in Northern Thailand

Communities in Thailand are traditionally

dependent on forests for their livelihood and can

relate closely to nature as part of their culture.

About a third of the country’s population still

lives in the vicinity of forests. In recognition of

this, in November 2007, after decades of

deliberation, the Thai National Legislative

Assembly passed the community forestry bill

that grants legal rights to forest communities to

preserve and manage forest lands surrounding

their communities. But perhaps as a reflection of

the duality in perception about role of

communities in conservation, the above-

mentioned bill continues to be opposed and

have been declared void by the constitutional

court. The Royal Forest Department has made

community involvement one of the corner-

stones of sustainable forest management when

it became evident by the mid-1980s that one of

the reasons for the lack of success experienced

by the top-down government policy to protect

and conserve natural forests was the lack of

cooperation from the rural poor dependent

directly or indirectly on the forests. About 12000

villages are involved in managing community

forests in the country, which are managing a

total of about 2000 sq km. Many of the

communities are entirely dependent on the

community forests for fuelwood, fodder and

NTFPs. Buddhist monks sometimes seek refuge

inside the forests. The RFD facilitates such

forests by supplying planting materials,

maintaining nurseries and capacity building

activities. But while the idea of participatory

management was accepted as one of the

remedies for the continuous degradation of Thai

forests as reflected in the deliberation over the

community forestry bill, the views of different

stakeholders regarding sharing of administrative

and financial responsibility, allowing community

participation in protected area (PAs)

management etc. seem to have little common

ground27. This is more so because settlements,

especially of illegal immigrants from conflict

zones in neighboring countries, inside forests are

still seen as the principle reason of deforestation

19

Figure 6. Government and local communities continue to be on the opposite side of the table on the REDD issue

in protected areas and communities still don’t

have formal rights over forest resources since

the land belong to the government.

3.3. Plantations in Thailand and Trees Outside

Forests (TOF)

Forests in Thailand have been harvested on a

large-scale since the mid-19th century mostly for

valuable timber like teak. The majority of logged

timber was exported thus earning valuable

foreign exchange for the country28. Large scale

unsustainable logging and consequent

conversion of land to non-forest use was one of

the major causes for large scale deforestation

during the 60s through to 80s. During this period

Thailand lost her forests at a rate exceeding 2.5%

per annum, causing irreparabale damage to Thai

forests. The disastrous floods in Southern

Thailand were exacerbated by soil erosion by

deforestation. This led to a concerted demand

and a consequent ban on logging of natural

forests (except for some special cases like forests

that are to be submerged by dam projects,

periodic thinning etc.) in 1989. Although

plantations of teak and rubber were initiated in

the early 20th century and was given a fillip

through reforestation activities in the 1960s, the

logging ban led to renewed emphasis on

plantation sector in the country. Teak, rubber,

eucalyptus etc form the majority of plantations

in Thailand. Acacia mangium, Pterocarpus

marsupium, Albizzia lebbeck, Leucaena

leucocephala, Gmelina arborea, Pinus sp., Acacia

sp. and Azadirachta indica (neem) are some of

the other species that are planted. The state-

owned Forest Industry Organization is involved

in large scale plantation activities. Although data

regarding private plantations is not available, it

can be conservatively estimated that there are in

excess of 0.2 million hectares of teak plantations,

0.5 million hectares of eucalyptus plantations

and about 2 million hectares of rubber

plantations in Thailand today.

The major forest based industries in Thailand are

pulp and paper, furniture and accessories,

construction and plywood industries. While

eucalyptus and rubber are the main raw

materials in pulp and paper and furniture

respectively, most of the hardwood used in

construction industry is imported. Given the fact

that Thailand imports approximately 21 million

cubic metres of wood annually, there is huge

potential for expansion of commercial

plantations in the country. Based on suitability of

land, FAO has identified more than 7 million

hectares for extension of plantation activities.

20

As per FAO assessment, there are equivalent to

about 19 million hectares of trees that are

outside recorded forests areas (Trees Outside

Forest). But there is a lack of data regarding the

biological, economic and cultural importance of

TOFs to the local communities.

3.4. Vulnerability of forests in Thailand to the

effects of climate change

One of the fallouts of anthropogenic GHG

induced climate change that shall affect tropical

forests is enhanced frequency and magnitude of

the climate extremes, variability and associated

disasters, like drought, flood and storms.

Although the exact fallout of drier climate and

more extreme weather conditions are difficult to

predict due to the interlinked and intricate

nature of tropical forest ecosystem, but it is

speculated that such changes shall have a

negative domino effect on the entire ecosystem

due to increased incidences of forest fires,

increased vulnerability of drought-stressed trees

to pest attacks.

These effects may be magnified by the fact that

species in moist tropical forests, including

economically important hardwoods, are

extremely vulnerable to drought29. Changes in

environmental conditions as a result of human

induced climate change will also certainly affect

the array of biodiversity in Thai forests that are

adopted to very specialized ecological niches.

As per a study conducted on the potential

impact of climate change on forests of

Thailand30, it was predicted through various

scenarios that the forest types are likely to shift

from moist forests to increasingly drier species

composition.

Anthropogenic pressure on forests, in the form

of logging, encroachment, land-use changes etc,

will continue to adversely affect forests of

Thailand notwithstanding the uncertainty

surrounding the exact impact of climate change

on such complex ecosystems.

Thailand’s initial national communication to

UNFCCC on greenhouse gas inventory31 mentions

forest as a net carbon emitter. Net emissions

from Thai forests were estimated at about

61,000 Gg in 1994.

As another indicator, Thailand’s submission to

FCPF documents the fact that Thai forests

continue to be a net emitter of GHGs and given

the recent trends, it is unlikely that the scenario

will be reversed in the near future. Although the

values have been calculated from incomplete

datasets, as indicative figures it may be

mentioned that the net GHG emissions from

forest conversions had more than halved from

about 81000 Gg in 1990 to about 38,000 Gg in

2001, but alarmingly from recent trends in land-

use conversions in forest areas, the GHG

emissions from forest conversions are forecasted

to increase to about 1,00,000 Gg in 2006. On the

21

other hand, sequestration from government

plantations doesn’t seem to increase significantly

over 2000 levels, thus indicating the need for a

major boost in this sector. The divergence in

data from different sources as discussed in 3.1.1

shows the requirement for further analysis with

respect to the long term trend of Thai forests

being as a carbon source rather than a sink.

Thailand has a 2,700-km shoreline that is

seriously threatened by coastal erosion, which is

a direct fall out of rising sea levels as a result of

global warming. Coastal erosion is a significant

problem along the Gulf of Thailand from Trat

province in the east to Narathiwat province in

the south32. The situation is aggravated by

destruction of mangroves as a result of influx of

saline water and increasing storm surges. Thus a

vicious cycle has been set forth wherein the

mangroves are being lost as a result of increased

salinity leading to further degradation, erosion,

contamination of ground water and loss of

precious lands. Bang Khunthian, which is

Bangkok’s only seaside district and which once

comprised 5 km of muddy coastline with

abundant mangrove forests as well as rare and

diverse species of plants and marine life, has lost

more than 483 ha of mangrove forests over the

last 30 years.

3.5. Thrust areas for climate change mitigation

measures under forestry in Thailand

The discussions from the chapter elucidates the

fact that the major areas of thrust which need to

be concentrated upon while discussing climate

change mitigation measures under forestry are

reforestation activities on both government and

private land and taking measures to reduce the

alarming rate of deforestation of natural forests

despite the logging ban two decades ago. The

development of any emission trading mechanism

related to forests should consider that the

region’s forests are not only extensive terrestrial

sinks of GHGs, but also represents major refuge

of global biological diversity. In the process, the

adversities presently faced by forest

conservation efforts today like encroachment,

land-use changes, resolution of responsibilities

related to financing, implementation and

ownership of such projects, lack capacity of

different stakeholders to participate

meaningfully in such activities33 need to be

addressed in order to successfully implement

such initiatives.

The discussion in Section 3.3 also details the

potential and practice of teak and rubber

plantations in Thailand. Benefits from carbon

offsets can also be an additional incentive for

private enterprises in developing such

plantations on degraded and marginal lands that

are considered to be more capital inceptive and

risky investment as compared to traditional

rubber and teak estates.

22

4. Forest Carbon Standards: Making sense of

the market

Forest carbon standards tend to bring some

sense of order to the apparently

incomprehensible tangle of rules and jargons

that tend to govern the chaotic and murky world

of forestry carbon offsets. Whilst the benchmark

of a credible carbon standard revolves round the

core issues of additionality, transparency and

relative simplicity of design, the voluntary

standards also try to set themselves apart on the

basis of some uniqueness that will be positively

reviewed by both aggregators as well as project

developers. In order to make sense of how forest

carbon standards set out to position their

uniqueness, it is equally important to understand

what buyers intend to look for when they are

purchasing credits and the motivation behind

buying them in the first place. The motivation

behind buyers’ purchasing of credits is varied as

the profile of voluntary carbon market buyers

itself. Buyers who may either be individuals or

corporate and financial institutions, may look to

buy cheap offsets as part of their corporate

social responsibility policy, as a strategy for

green marketing, for the purpose of boosting

reputation or merely in anticipation of

compliance regulations as in USA and of late in

Australia. Within the voluntary market forestry

offsets are preferred mostly because benefits

from forestry activities are visible, tangible and

hence demonstrable, sometimes in an “eye-

catching” manner, like some of the REDD

projects, thus giving the buyer his or her share of

publicity. Besides, the co-benefits of forestry

activities including community development and

biodiversity conservation (especially in REDD

activities) are also useful to form an attractive

portfolio for the buyers.

In a survey conducted by Ecosecurities34 in 2009,

buyers give high importance to biodiversity and

community co-benefits of forestry projects. But

from a project developers’ point of view, it is

crucial to note that buyers are also very discreet

about the carbon standards followed and the

credibility of the project proponent. The same

survey shows that VCS (to be termed Verified

Carbon Standards from March, 2011 onwards) is

the major standard in the voluntary market in

terms of awareness among buyers. Hence, there

is a higher certainty of salability of credits under

this standard, though the average price

realization may be less than its peers like the

Carbonfix standards6.

4.1. Comparative discussion on salient features

of forestry standards

On the basis of the above discussion we shall

discuss in this chapter the relative requirements

and scope under the prominent forestry carbon

standards vis-à-vis project development viz. VCS

AFOLU35, Carbon Fix Standard, CCBS36 and Plan

Vivo. As most of the standards allow for Clean

Development Mechanism (CDM) approved tools

23

and methodologies to be used, hence CDM

Afforestation/ reforestation (A/R) guidelines

shall also be considered. In order to make the

discussion more focused, we shall categorize the

proceedings into a functional approach, that may

be more relevant to the project developer, and

the commercial approach, that shall concentrate

on buyers’ perspectives and help all stakeholders

to take a decision regarding choosing the

appropriate standard as per requirement and

focus of approach.

It should also be worth noting here that CCBS

has established itself as a remarkable certificate

for forestry projects to establish their credentials

of promoting biodiversity, facilitating local

community development and combating the

perils of climate change. As CCBS in itself is not

an accounting standard, any other accounting

standard has to be used along with it. CFS and

VCS are now actively encouraging project

developers to undertake CCBS certification to

prove sustainable development initiatives of the

project. Hence CCBA certified forestry projects

are highly valued by buyers, to whom, such a

certification fulfils the objectives which govern

their principles for buying voluntary forestry

credits in the first place. Though CCBS is a

voluntary standard, it can also be used with CDM

afforestation and reforestation projects in order

to establish the biodiversity and community

development credentials of the project. Such

projects can also potentially realize a better price

for their CERs.

4.1.1. Mechanism to address non-permanence

One of the factors that sets apart voluntary

forest standard from A/R CDM is the way the

inherent non-permanence of sequestered

carbon stocks are treated. Whilst CDM has

resorted to expiring credits which have to be

replaced after a given interval by the buyer, in

voluntary markets a percentage of the issued

credits are pooled into a non-tradable buffer

pool, as a sort of insurance premium against

reversal of sequestered carbon during the

crediting period of the project.

In VCS AFOLU, the buffer is determined on the

basis of the risk assessment of the project as per

the prescribed risk assessment tool. It is a unique

mechanism as it offers the flexibility of adjusting

the buffer on the basis of assessed risks. It also

provides an idea to the buyer regarding the

probability of future disruptions of credit flow

from the project and the overall management

and technical quality of the project as a whole.

Other standards generally have a fixed buffer of

about 20-30% of the issued credits. The credits in

the buffers are released at the end of the

crediting period after taking into account any

reversal that may have happened within the

time period.

24

Table 1. Comparative details of project eligibility criteria under different Forestry Carbon Standards

Carbon Standard

Type of activities allowed Earliest start date of project activity allowed

Crediting period

Restrictions if any, on project implementation

VCS AFOLU Afforestation, Reforestation, Revegetation (ARR), Improved Land Management (ILM), Reduced Emissions from Deforestation and Degradation (REDD), Agriculture Land Management (ALM)

1st

January, 2002; however earlier projects are allowed too but validation needs to be completed by October 2011 along with evidence on earlier consideration for carbon credits

20 years minimum, can be extended to hundred years. The earliest start date of crediting period is 1

st January,

2002.

As per VCS 2011 provisional rules: AFOLU projects completing validation on or before “release date of VCS 2011 plus two years” are not required to complete validation within a specific time frame. AFOLU projects completing validation after “release date of VCS 2011 plus two years” shall complete validation within five years of the project start date.

Carbon Fix Standard

Afforestation and reforestation

Same as in CDM, no separate date mentioned

30 years None

CCBS Projects need to confirm to accounting another standard like VCS or CFS

Same as in the corresponding accounting standard

Same as in the corresponding accounting standard

Same as in the corresponding accounting standard

Plan Vivo Community based sustainable land-use projects like agroforestry, afforestation and small-scale timber, fruit or wood fuel plantations; Conservation of forests and woodlands under threat from deforestation.

Projects will typically use the Plan Vivo Standards from the outset. However, it is also possible for a project that is already running to become approved under Plan Vivo Project at a later date provided it meets the Plan Vivo Standards. No retroactive crediting is possible for activities already implemented

lower limit is 10 years, upper limit 100 years, with 10 year increments

All activities must be limited to the use of native or naturalised species and promote the restoration or protection of native ecosystems.

CDM A/R Afforestation and reforestaion

1st

January,2000 20 years minimum can be renewed twice or thirty years fixed

For all projects after August, 2008, projects proponents should intimate CDM Executive Board regarding project activity within six months of project start date as a proof of CDM consideration

25

Table 2. Comparative details of project development process details under different Forestry Carbon Standards

Carbon Standard

Format of Project Design

Submission and review Methodology Tools Unique aspects of the standard

VCS AFOLU VCS PD format Submitted to third party validator for verification and issuance of credits

VCS approved methodologies as well as CDM approved methodologies allowed.

The project buffer is determined by a risk assessment methodology and has to undergo a double approval process

Carbon Fix Standard

CFS project document format

Project document need to be pre-validated with CFS before certification by a validator

CFS criteria as well as CDM approved tools

The project will be pre-validated by CFS. Thus project developer can opt for VER futures to arrange for project finance

CCBS No PD as such but own chapters

Project document needs to be web hosted in CCBA and certified by validator

CCBA standards used There is a possibility of Gold certification for projects with exceptional biodiversity, climate or community benefits

Plan Vivo Plan Vivo Project Design Document template

Project Idea Note (PIN) needs to be approved and registered by Plan Vivo before developing technical parameters and third party certification

Plan Vivo guidelines as well as CDM approved methodologies

Plan Vivo shall require registration of PIN, that allows the project proponent to have an interface with potential investors

CDM A/R CDM A/R Project Design Document format

PDD must be webhosted for global stakeholder consultation, PDD validated by a third party validator and reviewed by CDM Executive Board for registration

CDM methodologies used

CDM projects need to obtain Host Country Approval from the Designated National Authority of the country

Figure 7. Steps in project development under Plan Vivo (adapted from www.planvivo.org)

26

Figure 8. The process of project development under VCS AFOLU

Figure 9. The high transaction costs tends to outweigh the cash flow from offsets in forest carbon projects

4.1.2. Transaction costs involved in project

development

It is often pointed out that one of the main

reasons that37 dissuades persons from taking up

forest carbon projects are the high transaction

costs. Considerable amount of money needs to

be spent

over a

period of

time

before the

project

promoter

is in a

position to

have any

cash flow

from carbon credits. This coupled with the

uncertainty of the process of project

development and registration is considered one

of the risks of developing forestry projects. The

transaction costs include development of the

project document and associated costs of geo-

referencing of sites, undertaking studies for

establishing baseline, undertaking biodiversity

studies, conducting participatory rural appraisal

engaging DOEs for registration process,

undertaking laying of sample plots,

measurement and calculation of net

sequestrati

on,

monitoring

for leakages

in case of

shift in pre-

project

activities

and finally

paying for

registration

and issuance fees. In this back drop it will be

interesting to see whether taking up a forest

carbon project makes economic sense. We have

taken the example of the community forests at a

ethnic Karen village of Huay Pak Kood, sub

District Mae Suk, Chiang Mai Province. Equitech,

27

as part of FAO TCP Facility (TCP/THA/3203,

component 2) project to assess potential sites

for carbon forestry projects in Thailand has

identified the degraded land around this

settlement as one of the potential suitable areas

for an afforestation project. It has been chosen

over other afforestation sites such as Doi tung

and Banta Papao as the later projects were

started more than a decade ago and no longer

qualifies under

the proposed

new VCS

AFOLU criteria

(please refer

Table 2).

Besides, being

in operation

for so long, it

shall be

difficult to

prove the

additionality of

such project activities. The area that can

(qualifies as per VCS AFOLU norms) be

reforested in the Mae Suk district has been very

conservatively estimated at about 1000 hectares

(about 6200 rai). Assuming that the plantation is

undertaken in the area over a two year period,

the various estimated costs pertaining to project

development, hiring of validators etc. are

compared against the expected benefits from

the carbon credits which is estimated in the

range of 10 credits per hectare per annum39 over

a twenty year period. The calculations also

assume 20% of the issued credits to be part of a

non-tradable buffer pool that shall be released at

the end of the crediting period provided there is

no reversal. The initial project development cost

has been estimated at $30,000. The cost of

engaging validator for registration process has

been taken at $25000 for the size of the project

involved and each verification fees is assumed as

US$20,000. The

first verification

is envisaged to

occur on the

third year of the

project and

repeated every

third year. In

total there are 7

verification

(issuances)

planned over a

twenty year

period. Additionally $10,000 is assumed as the

administrative charges for preparing the

monitoring report. Following the trend in

forestry credit prices over last few years, the

value of each credit has been conservatively

taken as $3 over the life time of project. Under

this model whereas the net cash flow after

deduction of issuance charges and brokerage

fees is found to be about $535,050 (Annex I),

wheras the total project development costs is

about $265000. It may be noted that the project

Figure 10. Comparative illustration of costs and returns from a 1000 hectare afforestation project in Thailand over a period of 20 years

28

developer has to spend at least $80,000 before

he starts receiving any revenue from the project.

This huge upfront cost is the reason why carbon

forestry projects are widely met with skepticism.

4.1.3. Realizing the value of forestry offsets:

Finding the right buyers

The difference between buyers’ motivations in

the voluntary and the compliance market defines

the two market types. The voluntary market is

not driven by any particular legally binding

agreement to offset emissions. There are as

many reasons for purchasing credits as are

number of buyers. The motivations for buying

forestry credits under VCS have been detailed in

Section 4. The peculiarity of voluntary offset

buyers vis-à-vis those of compliance market is

that the former are mostly individuals or private

entities which deal through intermediaries or

brokers. This makes deal making and discovering

actual value of credits difficult as there is a lot

less transparency in such a process. Brokers have

their own preferences as per their clients’ needs

on the volume of credits, origin and quality (eg.

CCBA approved) of credits as well as the

expected price range. The buyers are generally

concerned about the credibility of the project

proponent, expected number of credits, financial

position of the project proponent (s), risks

associated with non-permanence like harvesting

frequency, related policies of government that

may affect long term prospect of the project (eg.

acquisition of the plantations by government

agencies) etc. These aspects are reviewed by

buyers when they sign a “term-sheet” with the

project proponents giving them exclusive access

to the project details for a mutually agreed

period of time.

These circumstances make discovering right

prices for credits very difficult for average

project proponents. A lot of project proponents

explore the possibilities of upfront payment

(payment against credits on signing a Voluntary

Emission Reduction Purchase Agreement) to

finance their projects. But these types of deals

are available only when the buyers are certain

about the project developers’ credentials (eg.

Projects backed by large institutions). This

mechanism is encouraged in such standards as

CFS and Plan Vivo, where buyers can acquaint

with projects at the stage of conceptualization.

It has been observed that the better

transparency in project development, for

example webhosting of project design

documents as in case of CCBA, Plan Vivo and CFS

help in greater visibility of projects and attracting

credible buyers.

The two ways of transacting VERs are via auction

and via one-to-one negotiations over the

counter through registries. As discussed earlier,

dealing through registries help in accounting for

the credits and prevent double-counting. It also

safeguards the buyers’ (eg delivery default) as

well as the seller interests (eg payment default).

Using registries also make the project proponent

29

more visible to potential buyers. But auction

route is appropriate only when there is a

demand-supply mismatch.

Table 3. Comparative details of project management and transaction process details under different Forestry Carbon Standards

Carbon Standard

Price of credits

(US$/ tCO2e)

Publicly available information

Registry System

Number of registered projects

Number of Projects under development

VCS AFOLU**

$1-$27* None

Caisse des Dé APX, Markit, Caisse des

1.1.1.1 Depo

1 ?

Carbon Fix Standard $10-$18*

Projects are web-hosted for information

Markit 1 8

CCBS

- Projects are web-

hosted for information and comments

NA 25 22

Plan Vivo

$6-$15* Projects are web-

hosted for information Markit 4 8

CDM A/R

$3-$7 Projects are web-

hosted for information and comments

Internal 17 25

* State of Voluntary Carbon Markets 2010

** Not distinguished whether AFOLU or industrial VERs

30

5. Feasibility for developing a forestry-related

voluntary carbon market in Thailand

Affirmative climate action that is becoming one

of the important aspects of ongoing

international negotiations on post-Kyoto climate

change mitigation regimes. For a developing

country like Thailand, the need to establish a

national emission trading mechanism has the

potential to be a cornerstone for such action. In

a recent study on Thailand’s prototype carbon

market supported by Thailand Greenhouse Gas

Organization (TGO)38, it was argued that the

basis of establishment of a domestic carbon

market in Thailand should be to encourage

domestic GHG emission reduction activities and

confirming to future binding targets on GHG

emission reductions. Taking these aspects in

view, it may well be said that potential

participants under any domestic voluntary

market mechanism will either have purely

voluntary targets in view or such targets will be

taken in anticipation of compliance market

legislation. The Bali Action Plan calls for

“Nationally appropriate mitigation actions’ by

developing country Parties in the context of

sustainable development, supported and

enabled by technology, financing and capacity

building, in a measurable, reportable and

verifiable manner.“ In the international climate

negotiations at Copenhagen in December 2009,

nationally appropriate mitigation actions,

(NAMAs) by developing countries was seen as a

way forward towards balanced global initiative

for climate change mitigation action. Views

differ on the institutional structure needed for

providing support to NAMAs as well as ways to

measure, report and verify actions. NAMAs have

generally been categorized39 as Unilateral

NAMAs where mitigation actions are undertaken

by developing countries on their own, supported

NAMAs involving mitigation actions in

developing countries supported by direct climate

finance from Annex I countries and Credited

NAMAs which include mitigation actions in

developing countries that generate credits to be

sold on the carbon market (e.g. sectoral

crediting). Examples of NAMA include such

widely spaced sectors as BRT in Mexico City and

National Solar Mission in India. On the occasion

of the 16th ASEAN Summit at Hanoi, Vietnam in

April 2010, leaders of member countries

released a statement on “Joint Response to

Climate Change”40 which has recognized the

importance of forests in mitigating effects of

climate change and acknowledged the critical

role of countries in this region for effective

implementation of REDD plus mechanisms.

Additionally it has accepted that effective

implementation of REDD shall not only help in

mitigating emissions but also provide

opportunities for biodiversity conservation,

sustainable use of natural resources and

livelihood development of local communities.

NAMAs by developing countries have been

formally included as one of the valid mitigation

31

Figure 11. The GHG offset mechanism adapted by Panda Standard (©2010 Panda Standard)

options in COP16 resolution at Cancun, Mexico41.

Thailand has not yet decided upon its strategy to

implement NAMAs post Cancun and the process

is under consideration by the Thai government.

An attempt to set up a national voluntary carbon

market can thus be classified as a credited NAMA

in the perspective of climate change

negotiations. It needs to be decided the extent

to which the government support may extend to

the activities included under such a program,

whether it should be limited to legislation or

regulation only or whether preferential financing

in addition to credits should be provided to

initially support such activities.

5.1. Motivation for initiating a forestry-related

voluntary market in Thailand

As pointed out in earlier chapters, the effects of

climate change can potentially have serious

implications on the ecosystems and livelihoods in

Thailand. The vulnerability of Thailand to the

detrimental effects of climate change can be

attributed to following things:

Increase in sea level leading to coastal

erosions, increased salinity in low lying river

basins etc

Accelerated environmental damage like soil

erosion and forest degradation

Although the present climate negotiations is

oriented towards reducing emissions by

historical emitters (industrialized countries), the

importance of voluntary initiatives by developing

countries to initiate their own “green projects”,

which are either self-financed or sponsored by

international climate funds pledged by

developed countries has been accepted in the

form of NAMAs. In ASEAN region, NAMAs

centering about forests protection (REDD plus),

afforestation and related ecosystem services are

under active consideration. Some of the

examples are:

Vietnam has been successfully implementing

and is on the threshold to scale up the

Payment for Ecosystem Services (PES)

scheme under active government oversight.

It is also in the process of designing REDD

plus pilot project for voluntary emission

reductions.

Indonesia too has set an ambitious target to

reduce its green house gas emissions under

NAMA and has prioritized REDD,

32

afforestation and peat land management as

the potential mitigation activities.

Khazanah, the Malaysian sovereign

investment fund, has tied up with CAMCO, a

UK based CDM project developer to fast

track CDM projects in Malaysia, though this

is not a NAMA activity.

Positive action for voluntary adoption of climate

change mitigation activities is bound to help

enhance Thailand’s leadership position in climate

negotiations on behalf of the ASEAN countries.

At the same time, it is important to note that

Thailand is a major manufacturing base for

various multinational companies like Samsung,

Toyota, Ford, Carrier, Sony, Phillips, LG,

Mitsubishi etc. Whilst a majority of these

companies are involved voluntarily in CSR

activities in Thailand, it may be noted that

binding such firms to emission reductions can

result in loss of competitiveness of Thai

industries and force a shift in bases of such

companies to more attractive destinations in the

region.

However it is also pertinent to note that as these

companies are already involved in voluntary

environmental mitigation actions and

community development initiatives, they may

well be encouraged to participate in voluntary

carbon markets, wherein Thai government can

acknowledge their contribution in direct project

development or indirect contribution. Such

efforts can also provide additional creditability to

the social and environmental contributions of

the multi-national companies.

International negotiations aside, a developed

carbon market can prove to be a valuable source

of long-term funding for forest project

developers. A developed carbon market can

ideally remove the entry barriers for small scale

project developers to enter the market by

providing access to initial funding and expertise.

It can also prove to be one of the catalysts for

forest governance reforms, which is a pre-

requisite to make the proposed forestry-based

carbon market mechanism effective.

5.2. Outlook of potential participants towards a

domestic voluntary market mechanism

As per the Stock Exchange of Thailand42 data,

most of the companies listed in the exchange,

irrespective of their size are engaged in some

corporate social responsibility activities. The

activities range from education, health to trees

plantation. Some Thai companies like Siam

Cement Group (SCG) and PTT have taken the

lead in adopting international standards for

corporate social responsibility. Siam Cement

Group is now the only Thai company listed in

Dow Jones Sustainability Index. PTT has launched

the tree planting program “Million Trees for

King” by giving away one million tree saplings to

the public to plant in six provinces. Similarly, The

Electricity Generating Authority of Thailand

(EGAT) has also launched a similar campaign to

plant 84,000 trees to honour His Majesty the

33

Figure 12

King. The paper manufacturers are nowadays

declaring that their product has been derived

from “Farmed Trees”. But the general activities

carried out under CSR differ from those included

in a market mechanism essentially on the

grounds that while CSR is linked to philanthropy

and good business practices, any activity

implemented under a market mechanism has a

component for cash flow and hence has to

undergo monitoring and audit. Example, the

mere declaration of the paper manufacturers

that the trees used as raw materials are derived

from “farmed trees” may not be able to add any

value except for good fath from the customers

but for a more robust system, the same

practices or claims need to be certified by using

standards such as FSC (Forest Stewardship

Council) Forest Management and Chanin of

Custody and verified annually.

In the backdrop of such a fundamental

difference between existing CSR activities of Thai

corporate and commitment for participation in a

voluntary market mechanism, 25 companies

from a cross section of potential market players

ranging from international buyers, domestic

industry houses to plantation companies were

surveyed regarding their outlook on a voluntary

market mechanism in Thailand (Questionnaire in

Annex II). 80% of the international buyers and PE

funds who were contacted responded, but only

about 20% of the rest replied, which may be

interpreted in various ways including lack of

awareness in such issues. Keeping in mind such

low response from the survey, it was

supplemented with personal discussions with the

above mentioned companies to get their views

on the subject.

The majority of those who responded however,

were not too keen on participating in such a

market without clear guidelines and policy

support emanating from the government. They

were skeptical about the viability and credibility

of such a market without a clear mandate from

the government in terms of either incentives or

guidelines for participation.

The international buyers who responded to the

questionnaires and domestic companies who

were interviewed however, too were not

convinced regarding the rationale of such a

national voluntary market structure in the

absence of any declared policy guidelines of the

Thai government. But such parties also evinced

keen interest of participating in a clearly

34

structured market environment which could

command credibility in terms of transparent

processes and review mechanisms. Buyers and

aggregators however are keen on sourcing

forestry offsets with or without the existence of

such a market mechanism provided they are

credibly validated.

5.3. Key players and potential buyers for the

proposed Thai forestry-based voluntary

market

There are three categories of forest promoters,

who can play a key role in the proposed market

viz. commercial forestry companies like timber

and rubber plantation companies, paper mills

etc, non-governmental organizations, companies

promoting forests as part of CSR activities and

community groups involved in forestry activities

and government agencies involved in

afforestation activities on wastelands and

protection of natural forests. Given the

mismatch in the volume of forestry operations

and the number of forest carbon projects

underway in Thailand, it may be said that listing

of potential players itself won’t lead to a clear

picture on the level of participation in the

proposed market. The barriers discussed in the

preceding chapters have to be dealt with as

appropriate for individual categories and project

specific cases to encourage participation in the

proposed market. eg. Forest carbon components

can be institutionalized in the CSR activities

presently being carried out in this sector.

Although cash flow from CSR projects may not

be a priority for companies undertaking such

activities, but regular income from credits can be

a way for long term sustainability of such

projects after the initial handholding-period by

the promoters. Hence, such companies can be

encouraged to incorporate elements of forest

carbon structure in their project design and

planning. In this case, funding such projects may

not be as much of an issue as will likely be the

question of understanding of the processes.

Organizations like TGO and FAO will play a very

important role in capacity building across the

spectrum of stakeholders in such projects.

Similarly, for a vast number of small and “micro”

scale forestry initiatives by non-governmental

organizations that are of immense socio-

economic significance to local communities but

lack the knowledge and the wherewithal to tap

the carbon market can also be accommodated

by grouping them together (please refer Section

5.5 for further details). However given the

diversity of NGOs in Thailand with respect to

their scope of work, their expertise and capacity

of project implementation, the heterogeneity of

the constituents should be taken into account

while working out a grouped project design.

Similarly, commercial plantation companies may

be encouraged to take up projects on degraded

lands with the additional income from carbon

credits as an incentive. Given the fact that timber

and rubber plantations cover approximately 15

35

million hectares in Thailand, it forms a very

important component of the market.

Given the fact that most of the natural forests in

Thailand are government owned, the initiative

for launching REDD project activities ought to be

taken by respecting government departments.

As discussed in details in section 4.1.3, the

voluntary market is a buyers’ market. Hence the

project standards those are to be followed for

project implementation should be determined

by the prevailing market preferences. The

majority of the buyers are based in developed

countries but not exclusively from those

countries as in the case of compliance market.

One way to encourage greater participation in

the proposed market mechanism is to encourage

Thai corporate houses to use the carbon credits

generated in the market as a “currency for CSR

activities” in Thailand. The voluntary

involvement of Thai corporate houses in the

proposed market can be a positive impetus and

ultimately help in encouraging the community

forestry activities that the corporate houses are

presently striving to promote themselves.

5.4. Precedence of voluntary market

mechanisms in developing countries

In the discussion for possible mechanism for

voluntary markets involving forestry credits, the

precedent set by China and Korea may be

reviewed.

As part of their domestic climate change

mitigation plan, China has aimed to create a

robust national market infrastructure for

developing and trading of high quality carbon

credits through the domestic voluntary GHG

offset program- the Panda Standard (2009)43.

The standard shall initially focus on AFOLU

projects starting after 1st January 2005 (base

year for calculating emission reduction) in view

of the potential of these activities to enhance

rural incomes while promoting reductions in

GHG emissions and emissions intensity. The

standard witnessed its first transaction in March,

2011, selling about 17000 VERs valued at

$9.14/tCO2e44.

Similarly Korea has initiated a Korea Voluntary

Emission Reductions (KVER) program which

involves the voluntary participation of public and

private sectors of Korea. These KVERS target

clean energy projects which cover project sizes

of 500t CO2e or above.

India has initiated a Renewable energy

Certification (REC) program which aims to

incentivize renewable energy in addition to

present CDM benefits.

The trend in all of these market mechanisms is

that they are “voluntary” on the basis that no

binding international convention exists to

legislate such markets and are voluntarily

established by developing countries. There are

not in essence laissez faire markets like the

voluntary markets that we know of, but are

clearly and efficiently regulated and guided by

36

competent government agencies, giving the

mandate and legitimacy required for wide

participation. Korea and India has, in the their

respective programs described above gone to

the extent of fixing a price band for the tradable

certificates so as to lower the uncertainties

associated with market volatility. These are in

keeping with the views of the potential

stakeholders as discussed in Section 5.1.

5.5. Potential size of a forestry based voluntary

market structure in Thailand

In an initial study by FAO into the opportunities

of developing Emission Reduction Credit (ERC)45

projects in Asia- Pacific Region, it was observed

that biodiversity conservation is as important as

protecting carbon sinks when it comes to forests

in Asia-Pacific region which implied the need for

a mechanism that encompasses both

conservation of forest land besides rehabilitation

of degraded land.

In view of the prevailing condition of the forestry

sector and associated policies of the Thai

government as discussed in Chapter 3, we may

consider afforestation/ reforestation,

revegtation, REDD and IFM as viable activities to

consider for the proposed mechanism.

Replanting activities that do not result in

vegetation that qualifies as “forest” as per

national forest definition for CDM46 are

considered as revegetation. Activities related to

improved forest management include those

implemented on forest lands managed for wood

products such as sawn timber, pulpwood, and

fuelwood. Only areas that have been designated,

sanctioned or approved for such activities (e.g.,

as logging concessions or plantations) by the

national or local regulatory bodies are eligible for

crediting under the VCS Improved Forest

Management (IFM) category35. Activities to

reduce emissions from unsanctioned forest

degradation (e.g., illegal logging) are not eligible

for crediting under the IFM category. Hence in

view of the logging ban on most of Thai forests,

only existing plantations can be included under

such project activity. Extending the rotation age

of evenly aged plantations (managed forests)

and improved productivity of forests by

mitigation of existing disturbances, undertaking

enrichment planting i.e. ANR etc. can be viable

activities under IFM in existing conditions in

Thailand. It has been estimated45 that restoring

degraded forests can augment forest carbon

pool by more than 100 tonnes per hectare. In a

demonstration project on assisted natural

regeneration (ANR) in Philippines, undertaken by

FAO in collaboration with the Philippine

Department of Environment and Natural

Resources (DENR) and the "Bagong Pagasa

Foundation, it was found that ANR activities can

reduce the costs of reforestation by 50%, while

successfully preventing fires and enhancing local

biodiversity. However, the biggest success of the

project is the strong catalytic effect it had on

attracting commitment from the local people,

37

the policy makers and the private sector. Such

models may be adopted for the proposed

regional ANR projects involving Thailand.

5.5.1. Potential of afforestation activities in

Thailand

The afforestation and reforestation

methodologies currently approved under CDM

and applicable in voluntary markets offer a wide

ranging scope of scenarios wherein afforestation

projects are applicable including wastelands,

degraded farmlands, pastures, agro-forestry

activities, rehabilitation of saline soils and mine

spoils, urban plantations (eg. Road-side

plantations, mangrove plantations etc.). The

variety of activities that are applicable under the

approved CDM afforestation and reforestation

project activities are provided in Table below.

The prevailing plantation practices in Thailand,

example of teak and rubber provide excellent

opportunity for developing carbon sequestration

project for rehabilitation of wastelands. It has

been estimated that the above ground carbon

content in a 20 year old plantation will be about

38 tonnes/ hectare47. This converts to an average

of about 9 tonnes of net CO2 sequestration per

annum per hectare. Large-scale monoculture

plantations however may be discouraged

because of the negative effects of single species

plantations versus the obvious biodiversity

benefits of ecological restoration and

conservation projects.

Community forestry too can be structured to

provide GHG benefits as a by-product. Because

of the land tenure systems in most communities,

the projects may generally be small scale once

that may not be financially attractive to private

investors and government may decide to

subsidize such initiatives as part of sustainable

development mandate. Such plantations may be

for timber production, energy plantations or fruit

or fodder yielding trees. Presently, an A/R CDM

initiative has been launched for mangrove

forests in Chanthaburi province of Thailand.

This report refrains from putting a figure on the

total land that can potentially brought under

afforestation projects qualifying for carbon

credits and the cumulative credits thus

generated as such projects not only depend on

the availability of degraded land for plantation,

but also on such factors as long-term funding,

proper management structure, clear tenural

rights, documentation processes and these

factors can only be assessed on a case by case

basis that is beyond the scope of this report. A

cumulative figure of the total potential credits

shall thus be speculative and hence misleading.

5.5.2. Potential for REDD project activities in

Thailand

The continuous loss of forest land in Thailand

over that last half a century and the aim to

reverse that trend over the next ten years forms

the basis of REDD potential in the country. The

38

annual average deforestation rate in Thailand for

about fifty years since 1961 has been more that

0.4% annually. During this period, Thailand have

lost almost 40% of her about 28 million hectares

of natural forests. Today Thailand is ranked 26th

country in the world in terms of GHG emissions

from LULUCF sector. The regional assessment48

of REDD program planning by USAID however

finds Thailand lagging all regional countries in

terms of all indicators pertaining to REDD

readiness. There are currently 228 protected

areas established in Thailand and more being

planned. Many of these are to be located in the

upland watersheds of northern Thailand where

ethnic minority settlers are viewed as

encroachers and blamed for continuous

deforestation. Thus REDD initiative shall require

resolution of such issues.

Presently DNP serves as the REDD focal point.

REDD efforts are currently being supported in

Thailand by ADB BCI, which is working on a REDD

pilot site with DNP in the Western Forest

Complex.

In the REDD PIN submitted by Thailand it

projects a decrease in emissions of net CO2

emission from forest conversion in Thailand from

59 Tg in 1994 to 51Tg in 2020. But this is

considerably above its figure of 38Tg in 2001 (as

per REDD PIN). As per FAO estimate in 199845,

REDD efforts in this region can save upto 300

tonnes of CO2 per hectare of sequestered carbon

from being lost. As per the studies conducted by

Petsri et al the carbon sequestered in a

secondary mixed deciduous forest in Thailand is

of the order of 71.60 t ha-1 after 24 years which is

about 13 tCO2 sequestered per hectare per

annum. Although this figure will vary with the

stocking density and management practices, but

the fact that such forests are capable of

sequestering as much carbon as a plantation or

even more lends credence to the importance of

forest conservation and rehabilitation of

degraded forests.

As discussed in Chapter 3, the political issues

surrounding forest ownership (and by extension

future efforts to clarify carbon ownership) have

given way to fears of further resource exclusion

and denial of land rights to indigenous by the

government. Also central to this debate is the

fact that there is lack of clarity regarding revenue

sharing from REDD proceeds between

government and the local communities

dependent on such forests. In such

circumstances it is unclear if Thailand can initiate

any meaningful domestic trading mechanism

involving REDD project activities.

As per the provisional finding of the FAO project

“Development of REDD model sites in Thailand:

Assessment of potential sites for developing a

carbon offsetting forestry project” (TCP Facility

(TCP/THA/3203, component 2), any site under

threat of continued deforestation, as long as it is

possibly larger than 20,000 ha could qualify as a

REDD project. Larger areas are required to make

39

a REDD project viable from as only a part of the

forest does in essence undergo deforestation

and the number of credits depend on the

baseline carbon loss, that is only about 1-5%

annually of the total carbon stocks.

The other major impediment to developing

REDD projects is the lack of peer reviewed

methodologies to estimate the baseline and

project net removals for such projects activities.

In this discussion it will be worthwhile to note

that VCS has in recent months approved a few

methodologies for REDD project activities as

discussed below. Besides such methodologies,

VCS has also approved methodology modules

that provides guidance for constructing

methodologies for REDD project activities

compliant with the requirements of the VCS.

These methodologies provide the basis for

developing REDD and IFM projects in conditions

that is familiar in Thailand and South-East Asia

including mosaic deforestation, peat forests and

converting low productive forests to high

productive ones. These methodologies can be

adopted on project–specific basis for

implementation of REDD projects.

40

Table 4. Table illustrating various scenarios under which approved CDM methodologies can be used under voluntary standards

Applicability Scenario

Sr. No.

Methodologies

Degraded land/ Degrading land

Degraded Grassland

Unmanaged grassland

in reserves or protected

areas

Croplands/ Degraded

Agricultural lands

Pastoral land

Polyculture, including perennial tree crops

and/or fallow periods with woody re-growth

Wetlands Settlements

Large-Scale

1 AR-ACM0001/ ver 05

2 AR-ACM0002/ ver 01

3 AR-AM0002/ ver 03

4 AR-AM0004/ ver 04

5 AR-AM0005/ ver 04

6 AR-AM0006/ ver 03.1

7 AR-AM0007/ ver 05

8 AR-AM0009/ ver 04

9 AR-AM0010/ ver 04

10 AR-AM0011/ ver 01 No Alternatively Yes

11 AR-AM0012/Ver 01

Small-Scale

1 AR-AMS0001/ ver06

2 AR-AMS0002/ ver02

3 AR-AMS0003/ ver01

4 AR-AMS0004/ ver02

5 AR-AMS0005/ ver02

6 AR-AMS0006/ ver01

7 AR-AMS0007/ ver01

41

Table 5. Overview of existing VCS methodologies on REDD and IFM

Sl. No.

Methodology Code Name Eligible Project

Activity Essential elements

Methodology Developer

1 VM0003 / v1.0 (May,2010)

Methodology for Improved Forest Management through Extension of Rotation Age

IFM

Forests must be certified by the Forest Stewardship Council (FSC) or become FSC-Certified within one year of the Project Start Date

The project does not encompass managed peat forests

Ecotrust

2 VM0004 / v1.0 (August, 2010)

Methodology for Conservation Projects that Avoid Planned Land Use Conversion in Peat Swamp Forests

REDD The methodology is applicable to preventing planned land use change on undrained tropical peat swamp forests in southeast Asia.

Infinite Earth, Ltd.

3 VM0005 / v1.0 (November,2010)

Methodology for Conversion of Low-productive Forest to High-productive Forest

IFM

IFM projects in natural evergreen tropical rainforests

Avoiding emissions from re-logging of already logged-over forest; and/or

Rehabilitation of previously logged-over forest by cutting climbers and vines, or liberation thinning, or enrichment planting, or a combination of these activities.

Face the Future

4 VM0006 / v1.0 (December,2010)

Methodology for Carbon Accounting in Project Activities that Reduce Emissions from Mosaic Deforestation and Degradation

REDD This methodology is aimed at reducing unplanned deforestation and forest degradation of the mosaic type

Terra Global Capital

5 VM0009/v1.0 (January, 2011)

Methodology for Avoided Mosaic Deforestation of Tropical Forests

REDD

This methodology provides a means to quantify net emissions reductions and/or removals (NERs) from project activities that avoid mosaic deforestation of semi-arid tropical forests.

Wildlife Works Carbon

* Apart from the above VCS has also approved many methodology elements that may be used as building blocks for devising REDD methodologies

5.6. Preparedness for rolling out forestry

based voluntary markets in Thailand

In the process of discussion in previous

sections, it is apparent that Thailand is still to

be ready as far as its policies and projects are

concerned, to roll out a forestry-based

voluntary carbon market mechanism. In a FAO

sponsored first regional workshop on “Linking

Communities in Southeast Asia to Forestry-

related Voluntary Carbon Markets (VCM)”

held at Chiang Mai, Thailand, between 20-22nd

September, 2010 critical gaps were identified in

existing structures that hamper the

advancement of forestry VCM initiatives.

Hence, while discussing the strategy for rolling

out a policy framework supportive of such a

market, the outcomes of the workshop shall

also be considered.

To summarize the inputs of the workshop that

was attended by almost all South-east Asian

countries, the major gaps that were identified

in terms of preparedness for rolling out a

forestry-based VCM are as follows:

i) Knowledge related barriers like

inadequate information sharing about

process related to project development

and accessing markets, related

government policies, lack of usable data

and lack of access to advanced

technologies.

ii) Barriers to integration of local communities

with Voluntary Carbon Markets like lack of

integrated capacity building with other

stakeholders of the system like buyers and

aggregators, lack of governance and

transparency for forestry negotiations, lack of

access to decision making and benefit sharing

process.

iii) Barriers related to forestry VCM finance and

market advancements like uncertain land

tenure, carbon rights, and carbon market

pricing; high transactions cost linked to MRV

methodologies, lack of confidence to institute

equitable benefit sharing mechanisms and

meet carbon sequestration and co-benefit

expectations, lack of a system to connect and

govern carbon brokers and forestry VCM

facilitators and lack of a system to promote,

provide guidance, regulation, standardization,

and integration with PES in forestry VCM

finance and marketing structures.

43

Existing deficiencies Recommendated actions Expected results

Lack of well defined tenural rights

Framing legislation for clearly defined tenural rights and benefit

sharing mechanisms

More inclusive participation from all stakeholders

Lack of centralized clearing house, information portal and

process facilitation

TGO canbe mandated to develop processes and capacity to act as

facilitation center in Thailand

Centralized facilitation center will help streamline processes including interface between

different gorvenment departmentsand stakeholders

High transaction cost in project development and

unpredictable financial returns

Setting up of a carbon fund from the proceeds of a

domestic emission trading market

Carbon funds can initiate pilot projects and help co-ordinate with potential buyers for sale

of credits

Lack of capacity on the part of grassroot project developers to

take part in decision making process, Lack of knowledge

dissemination

Capacity building activties need to be carried out involving

government agencies as well as communities

Better knowledge dissemination will help stakeholders participate more meaningfully in a dynamic

market

iv) Structural barriers like complicated

government processes, uncertainties

regarding carbon ownership, absence of

central information portal, lack of

flexibility within national structures to link

with a dynamic market and absence of a

centralized (either regionally or nationally)

forestry carbon clearing house.

v) Policy and governance barriers like

inability to formulate consistent

community forestry laws and access rights

to natural resources, gaps in policy

support respective of laws, regulations,

and national strategy implementation;

absence of national forestry VCM or PES

policy incentives. On the basis of these

discussions, the following issues needs to be

addressed to prepare for a successful

voluntary market initiative involving forestry

projects.

5.7. Proposed Market structures that may be

considered for the proposed mechanism

The foremost challenge for the long-term success

of the proposed voluntary market mechanism is to

ensure wide participation by the potential players

and to keep them involved in the set-up for the

long-term to make the process meaningful. Given

the fact that Thailand is largely an export-oriented

economy, it may not be possible to introduce a

mandatory domestic trading system like Korea VER

trading system without affecting the

competitiveness of the companies involved.

Po

licy

Bar

rier

s

Stru

ctu

ral

Bar

rier

s

Mar

ket

Bar

rier

s

Kn

ow

led

ge

Bar

rier

s

44

Figure 13. Convergence of Compliance and voluntary market components for a

domestic voluntary market mechanism

Another challenge is to make the market

attractive enough to induce buyer

participation. This requires some differentiating

factors which will be attractive to potential

buyers in the voluntary market.

As discussed earlier, buyers of voluntary carbon

credits are especially interested in strong co-

benefits associated with the project such as

socio-economic impacts, conservation of

biodiversity and implementation in

environmentally threatened zones. On the

other hand, projects have the potential to

show-case the efforts of Thai government in

taking positive climate mitigation action, so,

the latter (TGO) can come out with a set of

nationally relevant Criteria and Indicators (C&I)

which may be used as a guideline to measure

social and environmental contributions of the

forestry projects apart from the net

sequestration it achieves. This can also help

differentiate the value of Thai credits in the

voluntary markets. This will not only help to

add value to the credits but also bring about

credibility for the market participants, even for

CSR participants. Moreover, these credits

would be lucrative for MNCs with operations in

Thailand as then; they can offset Thai facility

emissions with distinctly Thai projects.

Another major obstacle in developing forest

carbon projects is the huge upfront investment

and the uncertainty involved in expecting

returns from carbon credits. One way that the

Thai government may pitch in is to provide the

project proponents with funding for project

verification and in turn get it reimbursed, once they

have realized the carbon credit revenue from the

projects. This will not only help in realizing goals for

NAMAs, but also encourage wider participation and

remove a major obstacle in domestic forest carbon

project development.

Also, various Annex I countries like Australia faced

initial hiccups for developing domestic forestry

carbon market projects because of double

counting. It was not clear that who will claim the

emission reductions, because once credits are sold

to a buyer, project owner has to submit his right to

claim emission reduction from the same project.

Although, this should not affect Thailand as being

an Annex II country, it hasn’t taken any mandatory

cuts under Kyoto. It should be noted that emission

reduction achieved under such voluntary

mechanism should fall under proper category of

NAMA.

Based on these points, we have created multiple

structures that could be considered by Govt. of

45

Thailand for kick-starting domestic forestry

project development. We have compared these

structures on various parameters like

government involvement, attractiveness of

participation, anticipated buyer response, price

discovery etc. The principle aim is to ensure a

debate and adoption of the most appropriate

mechanism, even if it means a permutation of

the major points of each of the discussed

mechanisms.

46

Table 6. Various Market structures that may be considered for the proposed mechanism

S. No. Parameters Market structure scenarios

Laissez Faire model Thai Forest Standard model Voluntary Market as unilateral NAMA

Mandated Market Mechanism

1 Description Enabling model. At present forestry projects can be done by Thai companies/NGOs under standards like VCS. Government enhances awareness of such standards/ methodologies and then, it’s up to private companies to undertake such projects

Strengthening model. Government encourages companies/NGOs to develop forestry projects adhering to international standards and also on a set of Criteria & Indicators developed by the TGO. Projects subscribing to these C&Is would be eligible to get an additional recognition from Thai government in form of a label.

Government to setup central nodal agency which will guide project developers through carbon markets by providing information about carbon credit generation services, buyers etc.

Proactive model. Govt. encourages companies/ NGOs to develop forestry projects subscribing to international standards and then, purchases credits from these projects under govt. bio diversity conservation, forest cover improvement activities. Fund for purchasing these credits could come from the fund collected by small cess on sale of fossil fuels. (example: Cess on coal in India for encouraging large scale solar power projects)

Regulated model. Govt. mandates companies to ascribe a certain percentage share of their profits for purchasing Thailand forestry carbon credits. Govt. could facilitate this by pre-selecting implementation partners who will implement forestry projects and make their credits available for sale.

2 Costs Companies/NGOs to take care of all project costs themselves

Carbon market costs to be borne by Government through nodal agency. These can be reimbursed back by project developers when they receive carbon credit sale revenue

Companies/NGOs to take care of all project costs themselves. Since, govt. would buy the credits, there aren’t any buyer acquisition costs

Companies/NGOs to take care of all project costs themselves. Since, buyers are free to chose projects, enhanced quality would mean better revenue realisation

3 Ability to encourage participation

Low Medium to high High Mandatory

4 Anticipated Buyer response

Medium, because credits supply from Thailand is less and thus, market players favorably look at Thai projects

High, as added government lable would provide better recognition and PR value especially for MNCs having manufacturing set-up in Thailand

Fixed, as govt. will buy predetermined numbers annually

High, being mandatory means buyers will have to purchase annually.

5 Scope of Participation

The NGOs, commercial forest companies and companies pursuing CSR activities can participate

NGOs, commercial forest companies and companies pursuing CSR activities can participate

NGOs, commercial forest companies and private companies

Commercial forest companies and NGOs (preselected by government)

6 Mechanism oversight of the market

There will be no formal oversight over the market except awareness generation

TGO or any other nodal agency can provide oversight to the market operations and frame C&I guidelines, review projects which apply to the guidelines, issue necessary compliance certificates and provide guidance for carbon market activities

TGO or any other competent organization can provide oversight to the fund operations, project development and purchase of credits.

TGO or any other competent organization can provide oversight to the running of program. Besides, the TGO shall also arrange for appointment of independent verifiers for verification and issuance of credits and monitor the participation of mandated players.

47

Xxxxx

7 Project standards

The system will be integrated with the rest of the voluntary market

The projects can adhere to Thailand specific sustainable development norms and may be highlighted as contributing to Thailand developmental goals

The projects can adhere to international standards but since government is funding the projects, it can claim it as a unilateral NAMA

Projects can adhere to local standard published by Govt.

8 Price discovery of credits

The price will be discovered in the open market based on demand and supply as is the norm in voluntary market

The price will be discovered in the open market based on demand and supply as is the norm in voluntary market. But added label would ensure premium for Thai forestry credits

The price will be fixed by the govt. on an annual basis taking into account project costs and decent ROI

This system is prone to economic vagaries as if the economy is good, buyer demand may be high but supply cannot be raised overnight, so there should be a provision of collar price in this scheme. So, supply should be forecasted annually and accordingly, percentage should be fixed

9 Any additional benefits linked to the market participation

None The project developers shall be recognized as contributing to Thailand development goals especially if they subscribe to C&I

The project developers shall be recognized as contributing to Thailand’s efforts to restore biodiversity, forest cover etc.

None

10 Economic impact

Purely voluntary in nature, so no adverse impact on companies

Purely voluntary in nature, so no adverse impact on companies. In fact, for interested project developers, government is sharing the burden of carbon market costs and thus scheme might have a positive impact

Adverse impact on fossil fuel consumers, but impact per consumer could be very low

Adverse impact on all Thai companies as this is more like an added tax/surcharge on revenue, thus making this model as less preferred for corporate.

5.8. Review of proposed market scenarios

As per the analysis from prevailing ground

realities, feedback from stakeholders and

studying similar market structures, it may be

considered that a free market structure that we

generally associate with voluntary market may

not be feasible enough to entice significant

response from market participants and project

developers. Rather, a proper structured market

supported by the government, with clear goals

and objectives may be the more rational way to

proceed. Such a market may incorporate the

MRV standards and governance of CDM and

include such activities as REDD and IFM. The

structure can also accelerate funding for

lagging sectors like community based forestry

projects and can act as a catalyst for capacity

building and co-coordinating across market

verticals.

Besides, the mandate of the participants,

potential targets and price discovery

mechanism for such market too needs to be

worked out in order to have clarity about the

structure. In case of price discovery, a floor

price may be fixed as in Korea Voluntary

Market, where the buyer is the government.

Such a move may safe guard the participants

from volatility but may be against the spirit of

voluntary market itself. The voluntary market

tends to reward relatively well executed

projects more than the once that are not well

managed or do not meet certain standards. In

the scenario wherein credit pricing range may be

fixed, there may not be any incentives for

developing high quality initiatives. Range-bound

pricing thus won’t allow many choices to the

potential buyers and consequently lead to lesser

participation. Further-more, price-fixing in a

completely voluntary structure may be unviable as

they may be out of sync with the price movements

in international markets.

One perceived drawback of such a market

structure being implemented in Thailand is the

level of participation. Scaling up of the proposed

market system is essential for its long-term

viability, but unlike countries like China, the

number and sizes of participants and the present

status and scale of forest carbon projects may not

be sufficient to make the process viable, especially

in the near future. The alternate approach that

may be effective especially as a transition to such a

market system is a collective effort by present

project developers to initiate forest carbon projects

in Thailand.

Some of the potential triggers to kick-start the

voluntary forest carbon initiative are the inclusion

of small landholders who have been excluded so

far due to small land sizes and disproportionately

large transaction costs, accommodating “willing”

corporate houses who have not yet participated

due to lack of adequate insight in this subject,

lower transaction costs by adopting comparatively

less elaborate certification system and if viable,

49

lessen a part of the upfront development cost,

that may be recouped after actual sale of the

credits.

One way forward under the existing voluntary

standards structure may be to launch a

“grouped project” program under the umbrella

of a competent authority like the TGO. In the

VCS version 3 scheduled to be launched in

March, 2011 has proposed the structure of

grouped projects, which is in line with Program

of Activities (PoA) of CDM but has less

complexity and prima facie appears to be less

costly than the later. Grouped projects are

structured to allow the expansion of a project

activity subsequent to project validation. Thus

once the project design is validated initially,

projects of similar criteria as defined in the

initial design can be included in every

verification event. This said, smaller projects,

which would other-wise have been unviable as

standalone projects can be included in these

project structures. This also brings down the

transaction cost as multiple projects can be

included at each verification event. It is also

possible, if circumstances permit for the

umbrella organization to pay a part of the

initial validation costs, which can later be

recovered by claiming a part of the proceeds

from the sale of VERs.

On the other hand, “Mandated Markets”

however, may not be politically or economically

admissible due to the binding nature of such

markets as well as the fact that “mandate”

effectively takes away the “voluntary” component

of the entire process.

50

6. Overview of discussions and

summarization of findings

The forests in Thailand are an integral part of

the socio-economic and cultural life. They are

also pivotal in maintaining the environmental

balance in Thailand. The natural forests have

been nationalized as part of the effort to stem

their degradation. Side by side, private

plantations too continue to play a pivotal part

in the economy though they have not been

able to fully substitute the supply of timber

from natural forests after the ban on large-

scale commercial logging. Over the last two

decades, the deforestation rate of Thai forests

has almost been reduced to zero. This said, the

socio-economic causes of deforestation, like

poverty, population growth vis-à-vis stagnation

of available arable lands, illicit felling still

persists. Thus the gains achieved in reducing

forest degradation need to be consolidated

through policy measures addressing issues like

land tenure, forest rights etc. The

incentivization of forest protection and

afforestation activities on wastelands under the

carbon market mechanisms has provided an

added impetus to the process of institutional

reforms as these are considered as one of the

main barriers to the wider penetration of such

markets in Thailand. The other major barriers

to the development of forest carbon projects in

Thailand are the high initial investments

required and the lack of easily accessible

expertise in project development. These barriers

can be removed by developing an effective

mechanism to market domestic carbon credits

generated from forestry projects. Four different

market structures have been proposed, on the

basis of various levels of involvement by different

stakeholders like the forest project developers,

corporate houses, NGOs and the government.

Though over-arching government mandate for

private sector participation in such a market

mechanism may be untenable, minimal

involvement too may result in a still-born proposal.

Thus the aspects such as Thailand’s stance in

international climate negotiations, the urgency to

encourage forest enterprises, the private

participation in natural resource management etc.

should be properly calibrated whilst envisioning a

forestry-related voluntary carbon market structure

in Thailand.

Annex I

TCP/THA/3201 “Voluntary Carbon Markets in Thailand”

Terms of Reference Consultant to conduct assessment on opportunities for forestry-related voluntary carbon markets in Thailand

Background

Voluntary carbon markets are expanding rapidly, and according to some estimates they have been doubling both in

volume and value in the past couple of years. Voluntary offsets are particularly feasible alternative for forestry and

other small-scale initiatives that face difficulties in meeting the rigid protocols and high transaction costs of

compliance markets. The Government of Thailand has recognized the importance and need to promote and support

various activities aiming at reducing carbon emissions and pursuing the path of “green development”. Considering

the country’s important forest resources and valuable experience with community forestry, accessing the voluntary

carbon trade has potentials for providing benefits at both national and community level. However, there is a strong

need for developing capacities within the country for learning how the voluntary carbon markets function. On the

request of the Government of Thailand and the Thailand Greenhouse Gas Management Organization (TGO), FAO has

initiated a Technical Cooperation Programme (TCP) Facility in support of start-up activities for identifying the key

opportunities and requirements for accessing voluntary carbon markets. The findings will be further utilized by the

recently initiated Regional TCP project “Linking communities in Southeast Asia to forestry-related voluntary carbon

markets” (TCP/RAS/3210).

Tasks

Under the supervision and guidance of, and in consultation with the Senior Forestry Officer, Regional Office for Asia and the Pacific (RAPO), and in collaboration with Ministry of Natural Resources and Environment, the Thailand Greenhouse Gas Management Organization, and the consultants working for the TCP/RAS/3210, the National Consultant will carry out the following tasks:

1. Conduct a gap analysis of the potential for voluntary carbon markets in Thailand, and develop a concise report including:

a. Size, structure, key players, and potential buyers b. Overview of most important carbon offset providers (type of activities) c. Opportunities and constraints for Thai forestry-related carbon offsets d. Overview of available carbon standards and their comparative advantage for forestry projects e. Recommendations for a model for developing and selling forestry-related voluntary carbon

markets in Thailand 2. Participate at the regional start-up workshop and present the key findings of the study to a wide-range

of stakeholders1.

Duration: 32 days of input during a three months period (15 August – 31 October 2010)

1 The regional start-up workshop for the TCP/RAS/3210 “Linking communities in Southeast Asia to forestry-related

voluntary carbon markets” will take place in Chiang Mai in September 2010.

52

Annex II

Table 7. Cash Flow Table for potential 1000 hectares afforestation project in Chiang Mai Province

Year Area (Ha)

Cumulative VERs Buffers

VERs issued

Price/ VER

Revenue DOE Cost

Per Unit Administrative

cost

Issuance Cost

Consultant Cost

Brokerage/ Issuance

Rate

Brokerage/ Verification

Support Cost

Yearly Net

Revenue

0 2011 500

- $ (25,000)

$(30,000)

0 0 $ (55,000)

1 2012 1000 5000 1000

$ 3.00 - - $ 0.20 - 0 5%

-

-

2 2013 1000 10000 2000

$ 3.00 - - $ 0.20 - 0 5%

-

-

3 2014 1000 10000 2000 20000 $ 3.00 $60,000

$ (20,000) $ 0.20 $(4,000)

$(10,000)

5% $ (1,000.00) $ 55,000

4 2015 1000 10000 2000

$ 3.00 - - $ 0.20 - 0 5%

-

-

5 2016 1000 10000 2000

$ 3.00 - - $ 0.20 - 0 5%

-

-

6 2017 1000 10000 2000 24000 $ 3.00 $ 72,000 $ (20,000) $ 0.20 $ (4,800) $(10,000) 5% $ (1,200.00) $ 66,000

7 2018 1000 10000 2000

$ 3.00 - - $ 0.20 - 0 5%

-

-

8 2019 1000 10000 2000

$ 3.00 - - $ 0.20 - 0 5%

-

-

9 2020 1000 10000 2000 24000 $ 3.00 $ 72,000 $ (20,000) $ 0.20 $ (4,800) $(10,000) 5% $ (1,200.00) $ 66,000

10 2021 1000 10000 2000

$ 3.00 - - $ 0.20 - 0 5%

-

-

11 2022 1000 10000 2000

$ 3.00

- - $ 0.20 - 0 5%

-

-

12 2023 1000 10000 2000 24000 $ 3.00 $ 72,000 $ (20,000) $ 0.20 $ (4800) $(10,000) 5% $ (1,200.00) $ 66,000

13 2024 1000 10000 2000

$ 3.00 - - $ 0.20 - 0 5%

-

-

14 2025 1000 10000 2000

$ 3.00 -

-

$ 0.20 - 0 5%

-

-

15 2026 1000 10000 2000 24000 $ 3.00 $ 72,000.

$(20 000) $ 0.20 $ (4,800) $(10,000) 5% $ (1,200.00) $ 66,000

16 2027 1000 10000 2000

$ 3.00 - - $ 0.20 - 0 5%

-

-

17 2028 1000 10000 2000

$ 3.00 - - $ 0.20 - 0 5%

-

-

18 2029 1000 10000 2000 24000 $ 3.00 $ 72,000. $ (20,000) $ 0.20 $ (4,800) $(10,000) 5% $ (1,200.00) $ 66,000

19 2030 1000 10000 2000

$ 3.00 - - $ 0.20 - 0 5%

-

-

20 2031 1000 10000 2000 55100 $ 3.00 $ 165,300 $ (20,000) $ 0.20 $(11,020) $(10,000) 5% $ (2,755.00) $ 151,525

Annex III

Format for questionnaire on potential for “Voluntary Market in Thailand” shared with participants of survey

(Five pages)

Figure 14. Page 1 of Thai industry survey on Voluntary Carbon Markets in Thailand

54

Figure 15. Page 2 of Thai industry survey on Voluntary Carbon Markets in Thailand

55

Figure 16. Page 3 of Thai industry survey on Voluntary Carbon Markets in Thailand

56

Figure 17. Page 4 of Thai industry survey on Voluntary Carbon Markets in Thailand

57

Figure 18. Page 5 of Thai industry survey on Voluntary Carbon Markets in Thailand

58

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