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Forest carbon markets
Forest carbon markets
Forest carbon markets
Forest carbon markets
Forest carbon markets
Forest carbon markets
Forest carbon markets
Forest carbon markets
Forest carbon markets
Forest carbon markets
Forest carbon markets
Forest carbon markets
Forest carbon markets
Forest carbon markets
Forest carbon markets
Forest carbon markets
Forest carbon markets
Forest carbon markets
Forest carbon markets
Forest carbon markets
Forest carbon markets
Forest carbon markets
Forest carbon markets
Forest carbon markets
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Forest carbon markets

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  • 1. Forest Carbon Markets: Potential for Indonesia Dr Hanafi S Guciano March 08
  • 2. Topics Covered <ul><li>The markets </li></ul><ul><li>The voluntary (OTC and CCX) carbon market </li></ul><ul><li>Voluntary vs. mandatory market demand and prices for forest offsets </li></ul><ul><li>Forest Carbon Offset Project </li></ul><ul><li>CCX managed forest offset rules and costs </li></ul><ul><li>10 elements for managed forest offset policy </li></ul><ul><li>Drivers for demand and supply for forestry offsets </li></ul>
  • 3. The facts <ul><li>Carbon trade 10 million Metric ton 2004 </li></ul><ul><ul><li> 600 million Metric ton 2007 </li></ul></ul><ul><li>Market size $ 10 billion </li></ul><ul><ul><ul><ul><ul><li> $ 45 billion/year from 2008-2012 </li></ul></ul></ul></ul></ul><ul><li>Investment fund for carbon market $ 22 trillion (UNEP forum 21/2/08) </li></ul>
  • 4. The Voluntary Carbon Market <ul><li>􀂄 Primarily a North American Market </li></ul><ul><li>􀂅 Not Driven by Regulation, e.g. the Kyoto Protocol </li></ul><ul><li>􀂄 Highly Fragmented </li></ul><ul><li>􀂅 Over-the-Counter vs. Chicago Climate Exchange (CCX) </li></ul><ul><li>􀂅 Multiple standards - all have their own forestry offset project </li></ul><ul><li> standards </li></ul><ul><li>􀂄 Multiple Registries and Programs </li></ul>
  • 5. Voluntary Carbon Market <ul><li>Over-the-Counter (OTC) + Chicago Climate </li></ul><ul><li>Exchange (CCX) </li></ul><ul><li>2006 value = $US 91 million </li></ul><ul><li>2006 volume = 23.7 million MTCO2 </li></ul><ul><li>􀂄 forecasted to be > 1300 million MT globally by 2012 </li></ul><ul><li>U.S. accounted for 68% of demand </li></ul><ul><li>Businesses accounted for 80% of demand </li></ul><ul><li>Forest projects accounted for 35% of demand </li></ul>
  • 6. Voluntary Carbon Neutral Market <ul><li>Companies/individuals wants to do “the right thing” by calculating their GHG footprints </li></ul><ul><li>Its becoming an environmental commodity market after they can sell the offset, and make the household carbon neutral </li></ul><ul><li>Small payment to credit card ($100/year at $10/ton) </li></ul><ul><li>Carbon neuttality offers ibdividuals, businesses and other institutions (govt offices/universities) the opportunity to take personal responsibility of their lifestyles. The sale of carbon neutral products and services offer companies a way to develop competitive advantage with comsmers. </li></ul><ul><li>The retail market for voluntary carbon neutrality is moving full speed ahead. </li></ul><ul><li>Top performing retail offset providers: AgCert/DrivingGreen (ireland); Atmosfair (Germany), CarbonNeuralCompany/Climate Care/CO2balance (UK), Climate Trust, Native Energy, SustainableTravel/MyClimate (US). </li></ul>
  • 7. Voluntary Carbon Market Suppliers <ul><li>􀂄 Over-the-Counter (OTC) </li></ul><ul><li>2006 value = $54.9 million </li></ul><ul><li>􀂅 Project developers, aggregators, retailers, and brokers </li></ul><ul><li>- Conservation Fund, Pacific Forest Trust, Ducks </li></ul><ul><li>Unlimited, Climate Trust, Terrapass, New Forests </li></ul><ul><li>􀂄 Chicago Climate Exchange (CCX) </li></ul><ul><li>2006 value = $36.1 million </li></ul><ul><li>􀂅 Aggregators and project developers </li></ul><ul><li>- Forecon EcoMarket Solutions, National Carbon Offset Coalition, Sustainable Forestry Management , LTD, Eco-Securities, Natsource </li></ul>
  • 8. CCX and OTC Demand and Prices for CO2 <ul><li>􀂄 Over-the-Counter (OTC) </li></ul><ul><li>Demand and prices are determined by offset project quality characteristics that include project design elements for conservation co-benefits </li></ul><ul><li>Buyers are not driven by compliance requirements </li></ul><ul><li>􀂄 Chicago Climate Exchange (CCX) </li></ul><ul><li>Demand and prices are established by the CCX rules and the demand for a fungible commodity </li></ul><ul><li>􀂄 quality characteristics are already built into the rules and </li></ul><ul><li> are not distinguished from other offset projects </li></ul><ul><li>􀂄 fungible commodity – “a ton is a ton” </li></ul><ul><li>Buyer are CCX members driven by emission reduction compliance requirements </li></ul>
  • 9. Voluntary vs. Mandatory Market Forest Offset Prices <ul><li>Voluntary Market 2006 value = $91 million </li></ul><ul><li>􀂅 OTC Prices in U.S. for Forestry Offsets: </li></ul><ul><li>$4 - $13 per MTCO2e (Clean Air - Cool Planet, December 2006) </li></ul><ul><li>$10 - $18 per MTCO2e (Ecosystem Marketplace, July 2007) </li></ul><ul><li>􀂅 CCX Prices for Offsets (fungible commodity) </li></ul><ul><li>$2 per MTCO2e in October 2007 (CCX) </li></ul><ul><li>Mandatory (Kyoto) Market 2006 value = $30 billion </li></ul><ul><li>􀂅 EU ETS Prices for Offsets (fungible commodity) </li></ul><ul><li>$35 per MTCO2e in October 2007 (Point Carbon) </li></ul>
  • 10. Consideration in developing forest offset projects: Accounting Issues <ul><li>1. Additionality : the net additional carbon that is removed from the atmosphere as a result of the carbon transaction. (Additionality is a big challenge for forest offset projects, and the rule book isn’t written yet. Best practice: projects that are good for the climate, good for biodiversity, and good for local communities. ) </li></ul><ul><li>2. Baseline : the net amount of carbon that would be captured in the absence of the carbon transaction. </li></ul><ul><li>3. Permanence : the time period that the carbon stays sequestered. </li></ul><ul><li>3. Leakage : carbon that is wittingly or unwittingly lost to the atmosphere but was supposed to be sequestered by the offset project. </li></ul><ul><li>4. Monitoring : measurement of the additional carbon sequestered (instantly or over time, depending on the type of project). </li></ul><ul><li>5. Registration : measurement of the additional carbon sequestered (instantly or over time, depending on the type of project). </li></ul><ul><li>6. Verification : an independent entity verifies that the carbon calculations are correct (akin to sustainable forestry certification). </li></ul><ul><li>7. Cobenefit : additional societal benefits provided by the offset project. </li></ul><ul><li>8. Cost : the cost to the landowner for doing the offset project. </li></ul>
  • 11. Basic Types of Forest Carbon Offset Projects <ul><li>(1) Afforestation : planting trees where trees are not now </li></ul><ul><li>growing. </li></ul><ul><li>(2) Avoided deforestation : preventing emissions of CO2 as a result of converting forest to some other land use, e.g., pastureland, ag land, housing development. </li></ul><ul><li>a) Forest might be designated as reserve, or for active </li></ul><ul><li>forest management. </li></ul><ul><li>(3) Active forest management </li></ul><ul><li>a) Reforestation (accelerating regeneration) </li></ul><ul><li>b) Enhanced growth (through silviculture) </li></ul><ul><li>c) Enhanced product storage (e.g. lumber) and product </li></ul><ul><li>energy substitution </li></ul>
  • 12. CCX <ul><li>> Of the three markets available, the only one for trading forestry offset credits is the CCX. </li></ul><ul><li>> 350 members – the largest emissions trading </li></ul><ul><li>market globally, surpassed Germany in October 2007 </li></ul><ul><li>Located in Chicago, Montreal (2007), New York (RGGI- 2009), London/Amsterdam (ECX/2005), California </li></ul><ul><li>(AB32 – 2012) </li></ul><ul><li>> Forest management organizations can be aggregated </li></ul><ul><li>TIMO’s, NIPF’s, Tree farm groups, FSC groups, Land trusts </li></ul><ul><li>Those who reduce below the targets have surplus allowances to sell or bank. </li></ul><ul><li>> Those who emit above the targets comply by purchasing </li></ul><ul><li>CCX offset contracts called Carbon Financial </li></ul><ul><li>Instrument™ (CFI), such as forest offset projects. </li></ul>
  • 13. CCX Forest Offset Rules Update <ul><li>Managed forest rules were developed in September </li></ul><ul><li> 2007 – and 6 projects approved </li></ul><ul><ul><li>Harvested wood products rules for managed forest offsets and products from mills </li></ul></ul><ul><li>Afforestation rules were revised in August 2007 </li></ul><ul><li>Forest Conservation and Protection (avoided </li></ul><ul><li>deforestation) rules are being refined </li></ul><ul><li>Verification protocols and auditor qualification rules </li></ul><ul><li>are being refined </li></ul>
  • 14. Managed Forest Offsets within the CCX <ul><li>Commitment Period: Through Phase II - 2010 </li></ul><ul><li>Accounting and Reporting: Annually for project owner </li></ul><ul><li>Carbon Pools: Above and below ground </li></ul><ul><li>Baseline Setting: Base-year approach </li></ul><ul><li>Discount: based on inventory precision and error </li></ul><ul><li>Sustainable Forestry: FSC, PEFC endorsed standard like SFI, CSA, ATF Group, or other approved </li></ul><ul><li>Market Access: Trading for compliance as member or aggregated as a project or pool </li></ul><ul><li>Insurance Reserve Level: 20% of annual net change </li></ul><ul><li>Harvested Wood Products: Long-lived for 100 years </li></ul><ul><li>Verification: Annually </li></ul><ul><li>Payback Provision: Within the commitment period </li></ul><ul><li>Quantification: Growth models </li></ul>
  • 15. Sustainably Managed Forests <ul><li>􀂄 Restricted opportunity globally, new and evolving opportunity in the US </li></ul><ul><li>􀂄 Not currently accepted by some buyers and in some registries, i.e. RGGI. </li></ul><ul><li>􀂄 Offsets may not work well for all working forests. </li></ul><ul><li>􀂄 May provide modest revenues with low added costs to existing management programs. </li></ul><ul><li>􀂄 Economics favor large projects or aggregation of </li></ul><ul><li>many landowners. </li></ul><ul><li>􀂄 Requires a robust inventory system, and a carbon accounting system. </li></ul>
  • 16. Project <ul><li>Project owners must understand and be willing to assume the risks associated with entering the carbon market. </li></ul><ul><li>Project owner must have sufficient ownership control to have influence over carbon stocks and sequestration levels for the future </li></ul><ul><li>Project must be capable of sequestering levels of carbon capable of generating gross revenues in excess of market start up and participation costs. </li></ul><ul><li>Project owner must be willing to commit to maintaining carbon stocks for the commitment period associated with the CCX market (to end of current pilot period) </li></ul><ul><li>Project must have been certified as sustainable by an independent third party </li></ul><ul><li>Project owner must be able to track and report on carbon stocks annually in conformance with market rules. This includes the use of a CCX approved growth model. </li></ul><ul><li>Project owner must disclose any significant emissions sources under their influence, ownership, or control. </li></ul><ul><li>Carbon stocks and net sequestration must be disclosed on all interests associated with the project owner. For instance, all lands owned must be accounted for and disclosed to the market. </li></ul><ul><li>Project baselines must be developed using a site specific inventory with statistical standards of +/- 10% at 95% confidence for total tree volume. </li></ul>
  • 17. Project development <ul><li>Step 1 </li></ul><ul><ul><li>Fase 1. Penetapan Basline Karbon dan tingkat sekuestrasi </li></ul></ul><ul><ul><li>Fase 2. Analisa Ekonomi </li></ul></ul><ul><li>Step 2. Forest Offset Project Development, Verification, Registration, Trading/Marketing of Forest Carbon Credits </li></ul><ul><ul><li>Fase 3. Project Proposal (Dev. Ver. Agg. Trade & marketing) </li></ul></ul><ul><ul><li>Fase 4. Project Commitment – CCX Aggregation contract </li></ul></ul><ul><ul><li>Fase 5. Baseline Calculation & Devt of Carbon Accounting System </li></ul></ul><ul><ul><li>Project Verification </li></ul></ul><ul><ul><li>Project Aggregation, Baseline Registration and Trading </li></ul></ul>
  • 18. Cost? <ul><li>Result: Annual costs per forested acre </li></ul><ul><li>􀂅 Start Up (Fixed) costs: $0.28 per forested acre </li></ul><ul><li>􀂅 Participation (Variable) costs: $1.26 per forested acre </li></ul>Start Up Cost Inventory? Certification? Project Preparation Proposal, Accounting, Modelling Participation Cost Annual Report And Verification Aggregator Fees Transaction Fees
  • 19. Fee structures <ul><li>Consulting services provided in phases I through IV are either on a cost not to exceed or hourly rate schedule. Phases V through VII are a blend of hourly rates for some items, and an aggregation rate or commission fee for others. </li></ul><ul><li>Each project presents a unique set of circumstances. For some projects, all of Phase V through VII can be covered under a flat aggregation fee based on the market value of carbon credits as they are registered annually. </li></ul><ul><li>Other projects may require a different mix of hourly fees and a commission for aggregation. </li></ul>
  • 20. Six Requirements of any High Quality Offset Standard <ul><li>􀂄 Real </li></ul><ul><li>􀂄 Measurable </li></ul><ul><li>􀂄 Permanent </li></ul><ul><li>􀂄 Additional </li></ul><ul><li>􀂄 Independently verified </li></ul><ul><li>􀂄 Unique (no double counting) </li></ul>
  • 21. 10 Elements for Managed Forest Offset Policy <ul><li>􀂄 Project Eligibility </li></ul><ul><li>􀂄 Sustainability </li></ul><ul><li>􀂄 Inclusion of Forest Carbon Pools </li></ul><ul><li>􀂄 Harvested Wood Products </li></ul><ul><li>􀂄 Measuring and Monitoring </li></ul><ul><li>􀂄 Reporting </li></ul><ul><li>􀂄 Baselines and Additionality </li></ul><ul><li>􀂄 Leakage </li></ul><ul><li>􀂄 Permanence </li></ul><ul><li>􀂄 Equivalence </li></ul>
  • 22. Demand and supply of forest carbon credits will be driven by: <ul><li>1. The level to which all forest offset projects participate, including managed forests. </li></ul><ul><li>2. The level of standardization of rules in voluntary and mandatory (compliance) markets </li></ul><ul><li>3. The level of risk, assuredness & equivalence </li></ul><ul><li>4. U.S. legislation (if Democrat wins, will voluntary become mandatory?) </li></ul>
  • 23. The messages… <ul><li>􀀹 The rule book isn’t written yet (or, too many books are written) about what kinds of forest projects can be used to offset carbon. </li></ul><ul><li>􀀹 Now is the time to get it right. Its up to us to participate. </li></ul><ul><li>􀀹 Carbon offset projects are a matter of both technical and social legitimacy. </li></ul><ul><li>􀀹 If the net reduction to the atmosphere is not real, </li></ul><ul><li>will forest offset projects be socially legitimate? </li></ul>
  • 24. THANK YOU

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