Presentation by Phil Franks, on Session 1, Learning Event number 2, Room A. Agriculture and Rural Development Day. What role for carbon finance in climate smart small holder agriculture: Introduction

1. What role for carbon finance in
climate smart small-holder
agriculture: Introduction
Phil Franks
CARE International
ARDD, COP17 Dec 3rd 2011

2. Objectives of this learning event
1. To critically review key assumptions relating to
carbon/mitigation finance being an element of
climate smart small-holder agriculture.
2. To explore different ways in which carbon/
mitigation finance may have an important role
to play in financing climate smart small-holder
agriculture.
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3. The context
• Focus on Kenya:
• “Sustainable Agriculture in a Changing
Climate” (SACC) project
Nyando River catchment in western
Kenya (middle and lower sections)
• Policy, institutional and financing
context from at national perspective
• Project context
• Low-medium agricultural potential
• Increasing climate variability
• Serious land degradation
• Almost no natural forest and relatively
few trees on farm
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• One of the poorest areas in Kenya
December 6, 2011

4. Project strategy
• Main interventions
• Agroforestry: boundary planting, dispersed inter-planting, woodlots
• Crop diversification
• Conservation agriculture (from 2012)
• Target groups
• 50,000 small-holder farmers within 10 years, then extending to at
least 100000
• Explicit emphasis on participation of poorer and more vulnerable
farmers and especially women and youth
• Builds on a successful agroforestry project established 3
years earlier - before any thought/talk of carbon finance
• Learning program
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5. An agricultural carbon project?
Key assumptions
1. Project to be financed by sales of carbon credits after the initial 5
years establishment phase (i.e. like many REDD & energy projects)
2. Soil carbon not included in carbon accounting as did not worthwhile
from a farmer or project perspective BUT interventions that improve
soil carbon included e.g. conservation agriculture.
3. Cash payments to individual farmers are necessary as an incentive to
adopt interventions and at least partially cover short-term costs
4. Non cash benefits will be very substantially greater that any cash
payments since increasing carbon content of the landscape:
• enhances agricultural production,
• provide valuable tree products
• builds resilience to climate change
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6. Financed by sales of carbon credits?
• Project financial modeling indicates:
• Project needs pre-financing for 10 years rising to a cumulative total
of at least $3m in year 9
• Internal rate of return over 25 years = 8%
• Assumes only 25% of carbon revenues shared with farmers
• Why is the financial case so poor?
• One improved cook stove can generate 3t CO2e credits/year worth
$36/year that can be sold annually
- Assumes compliance markets with CDM PoA approach
• 0.3 ha of agroforestry can generate carbon credits worth an
average of $10/year over 25 years, but only sold every 5 years
- Assumes voluntary markets with VCS/CCB certification
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7. Other relevant concerns
• Growing concerns over offset-based financing
§ Offsets must not substitute for deep domestic emissions
reductions in Developed Countries
§ Additionality (risk of hot air)
§ Markets frequently exploit the poor
• From a small-holder farmer perspective mitigation is only
relevant as an opportunity to access new funding for climate-
resilient agricultural development.
- i.e. mitigation is a “co-benefit” of climate smart small-holder agriculture
BUT
• At landscape scale mitigation co-benefits could leverage
substantial carbon-based co-financing for climate smart
small-holder agriculture
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