The BioCarbon FundThe BioCarbon FundCaseCase--study and Lessonsstudy and Lessons

Monali Ranade, World BankJune 2009

Harnessing the carbon market to sustain ecosystems and alleviate poverty

OverviewOverview

Introduction to the BioCarbon Fund

Case Studies

• Moldova Soil Conservation

• China Pearl River Watershed Management

• Kenya Green belt Movement

• Niger and Mali Acacia Plantation Projects

Beyond A/R

• Madagascar Biodiversity Corridor

Is Everybody Happy?

Transacting Carbon Asset

Lessons Learned

Continued Involvement

World Bank Carbon Funds & FacilitiesWorld Bank Carbon Funds & Facilities

Prototype Carbon Fund. $180 million (closed). Multi-shareholder. Multi-purpose.

Netherlands Clean Development Mechanism Facility. (closed). Netherlands Ministry of Environment. CDM energy, infrastructure and industry projects.

Community Development Carbon Fund. $128.6 million (closed). Multi-shareholder. Small-scale CDM energy projects.

BioCarbon Fund. $89.9 million (Tranche 1 closed @ $53.8 million; Tranche 2 open). Multi-shareholder. CDM and JI LULUCF projects.

Italian Carbon Fund. $155.6 million (closed). Multi-shareholder (from Italy only). Multipurpose.

Netherlands European Carbon Facility. (closed). Netherlands Ministry of Economic affairs. JI projects.

Spanish Carbon Fund. $282.4 million (closed). Multi-shareholder (from Spain only). Multipurpose.

Danish Carbon Fund. $69.4 million (closed). Multi-shareholder (from Denmark only). Multipurpose.

Umbrella Carbon Facility. $737.6 million (Tranche 1 closed – 2 HFC-23 destruction projects in China).

Carbon Fund for Europe. $65 million. Multi-shareholder. Multi-purpose. Managed with EIB.

Total funds pledged = US$ 2.1 billion (16 governments, 67 firms)

BioCarbon Fund GoalsBioCarbon Fund Goals

Improve Improve livelihoodslivelihoods

Restore Restore ecosystemsecosystems

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Adapt to climate Adapt to climate changechange

Provide access Provide access to carbon marketto carbon market

Remove CORemove CO22from atmospherefrom atmosphere

CoCo--benefitsbenefitsBioCF wants to buy “green carbon with human face”Social: Improve livelihoods

People receive carbon paymentsNew job creationAdditional income from alternative activitiesKnow-how

EnvironmentalConserve biodiversityExpand natural habitatReconnect forest fragmentsProtect soil against erosionProtect savannah against firesFight against desertificationMoisture retentionStabilize radionuclides in biomass

Two WindowsTwo Windows

Second WindowSecond Window

•• No Kyoto creditsNo Kyoto credits

•• Exploration & Exploration & demonstration. Rules may demonstration. Rules may change after 2012change after 2012

•• CDM: Revegetation, CDM: Revegetation, Forest management, Soil Forest management, Soil managementmanagement

First WindowFirst Window

•• Meet Kyoto obligationsMeet Kyoto obligations

•• ““KyotoKyoto--gradegrade”” credits credits (tCERs, lCERs, ERUs)(tCERs, lCERs, ERUs)

•• CDM: Afforestation & CDM: Afforestation & Reforestation Reforestation

•• JI: All LULUCFJI: All LULUCF

Portfolio Portfolio –– First WindowFirst Window

Forest restoration

Community forestry

Agroforestry

Bioenergy plantations

Timber plantations

Portfolio Portfolio –– Second WindowSecond Window

Forest restoration & conservation

Reduced tillage

Revegetation

How the Fund WorksHow the Fund Works

Industrialized Governments

and Companies

EITs and Developing Countries

$$TechnologyTechnology

FinanceFinance $$TechnologyTechnology

FinanceFinance

CO EquivalentCO Equivalent22

Emission ReductionsCO EquivalentCO Equivalent22

Emission Reductions

Moldova Soil ConservationMoldova Soil ConservationReforestation of 20,000 ha of degraded land throughout Moldova (> 2,000 sites) Species: Mix exotics + natives. Not one site is monocultural. Enriched planting after 25-35 years with noble species.Protection + fuelwoodMoldsilva (public) with community participationProject start: October 2002ER Potential:

2012: 1 Mt CO2e2017: 1.9 Mt CO2e

Financing ($17 million): equityMethodology approved, 5 carbon pools (first to include soil carbon)

Moldova Soil ConservationMoldova Soil Conservation

China Pearl River Watershed ManagementChina Pearl River Watershed Management

Afforest 4,000 ha in Guangxi Zhuang Autonomous Region:2,000 ha with high biodiversity value in Huanjiang County

2,000 ha suffering from strong erosion

75% native species, 25% Eucalyptus (grown in China for 100 years)

2 forest companies + 2 villagers’ associations

ER Potential: 2012: 0.32 Mt CO2e (48%)

2017: 0.66 Mt CO2e

Associated IBRD loan

First ever LULUCF project with an approved methodology

First ever LULUCF project registered

China Pearl River Watershed ManagementChina Pearl River Watershed Management

Total investment cost = $ 1.9 million (in cash)

O&M cost (20 years) = $10.9 million

Financing:Government of Guangxi Zhuang Region

Kuangyan and Fuyan forest farms, Luhuan Forestry Development Company

World Bank loan

Farmer cooperatives (O&M)

Short-term loan (O&M)

Kenya Green Belt MovementKenya Green Belt Movement

Portfolio of Small Scale Reforestation CDM project

Located in Aberdare Range and Mt. Kenya; Catchment areas of River Tana

The project will reforest 2,000 ha of degraded land with mixed indigenous tree species ONLY

Communities have exclusive user rights for NTFP

Project is to use 20 year crediting period with the option of renewal twice (to a maximum of 60 years)

Tree Planting ActivitiesTree Planting Activities(Courtesy of the Green Belt Movement)(Courtesy of the Green Belt Movement)

Three Way Legal AgreementThree Way Legal Agreement

Forest user group

The Green Belt MovementForest DepartmentMOU: to jointly implement the project and to consider the regulations of the Forest Act 2005.

Forest license: for exclusive utilization of all non-timber forest products for 30 years with possibility of renewal.

Contract agreement:- forest user groups assign all carbon rights to GBM.- GBM provides tree planting support, covers part of the land rent and provides incentive payments for surviving trees and share carbon revenues.

BioCF AchievementsBioCF AchievementsComfort building: show that CDM can work for LULUCF

First contracts have been signedFirst methodologies have been developedFirst projects are being validated and registeredCarbon is being sequestered

Capacity buildingProject entities have been trained, more will be trainedCountries have adopted forest definitions

Learning by doing Piloting activities

A/RA/RAvoided deforestation / RED Avoided deforestation / RED Set stage for Forest Carbon Set stage for Forest Carbon Partnership FacilityPartnership FacilitySoil carbon managementSoil carbon management

Identifying areas of improvement in the rules

Niger Acacia Plantation ProjectNiger Acacia Plantation ProjectCarbon sequestration in the roots, trunks, and branches of trees8,800 hectares of plantation will be planted from 2006 30 rural communities, or around 800 families, will benefitCarbon sequestration expected to be 700,000 t CO2e by 2017Potential $2.8 M by 2017 ($280,000 per year)

Niger Niger –– Also replicated in MaliAlso replicated in Mali

Acacia senegalensis community woodlots Private gum arabic producers/exporters acting as carbon aggregators on behalf of outgrowers’ communitiesIntercropping with cowpeas and groundnutsModel can be expanded to Sudano-Sahelian beltProject under preparation with IDA credit support

Community Action Project in NigerAgricultural Competitiveness and Diversification Project in Mali

Niger Acacia Plantation ProjectNiger Acacia Plantation Project

03/2005: Project identification: Private company sponsor submitted projectproposal to WB Carbon Finance Unit

06/2005: Bank Carbon Finance Unit approved project for inclusion in theBioCarbon Fund pipeline

12/2006: Negotiate and sign ERPA: 10-year Emission Reductions PurchaseAgreement with fixed price per emission reduction for500,000 tCO2 signed between BioCF and sponsor

07/2006: Construction and start-up: Project commissioning09/2007: Validation: Project will be validated by independent auditor12/2007: Registration: Project officially registered under the CDM (expected)2012: Verification: First verification of emission reductions generated

(expected)01/2008: Carbon finance payment: First carbon finance payment to project owner

(expected)2017: Verification: 2nd verification of emission reductions (expected)

Beyond A/R Beyond A/R –– Pushing the BoundariesPushing the Boundaries

BioCarbon Fund Window 2Tranche 1: Project-level “avoided deforestation”Tranche 2: Soil carbon management – project development implies developing new methodologyWetland methodology and know-how

“Avoided deforestation” (REDD)Designing the Forest Carbon Partnership FacilityRequests by developing and industrialized countriesCapacity building + pilot purchasesPrepare ground for post 2012In line with UNFCCC processLaunch at/after CoP13?

Madagascar Biodiversity CorridorMadagascar Biodiversity Corridor

Purpose: Recreate connectivity between 2 protected areas severed by slash-and-burn agricultureOne of three BioCF projects to include Avoided DeforestationTechnology:

Reforestation using native speciesAgroforestry to stabilize peopleImproved forest management

Climate benefits: Reforestation + Agroforestry: 0.29 Mt CO2e before 2012Forest management: 0.6 Mt CO2e by 2017

Biodiversity benefits: connectivity will double habitat for species, including Lemur Indri indriSocial benefits:

Diversified sources of income: carbon sales; non-timber forest products (Raventsara essential oil); agroforestry productsStakeholder consultations leading to project site selection

Madagascar Biodiversity CorridorMadagascar Biodiversity Corridor

Management of non-permanence risk:Incentive to sustain project achievements through payments on delivery up to 2017, maybe longer with other buyers

Conservation International interested in long-term action, not short-term benefits

Issuance of lCERs with 5-year renewal subject to verification/certification

Financing:World Bank IDA grant

Conservation International

Protected Area Management Committee

First-of-a-kind: Actors of degradation have never been compensated for modifying their land-use practices in Madagascar. This is a real shift in paradigm in natural resource management, with potential of making ODA more effective.

Is Everybody Happy?Is Everybody Happy?Some cultures oppose commodification of land, but…

… Supply > Demand!

Some countries prefer to reduce emissions from energy and industry

The two are necessary and complementary (80-20%)

Projects are voluntary: seller and buyer sign a contract

Safeguards – “Do No Harm ”World Bank Safeguard policies: Host Country and government of buying country must approve project

Project must be validated by independent entity

Project must be registered by CDM Executive Board

Seek multiple benefits – “Do Good ”Cooperation with IUCN

Climate, Community and Biodiversity Alliance standards

Payment SchedulePayment ScheduleOn delivery, not in advance: annual payments (in accordance with Monitoring Plan) upon receipt of a verification report that a certain number of tons of CO2 have been sequestered = Verified Emission Reductions (VERs)Other resources must be found to cover the investment costBioCF will pay for VERs even if project is not registered by themarket regulatorIf project entity requested an advance payment

Proof would have to be given that there is no alternativeWould be limited to max 25% of the ERPA valuePrice per ton would be discounted to reflect the risk of non-deliveryBank guarantee would be requested No upfront payment has been granted for any of the 20 BioCF projects cleared

Cost RecoveryCost Recovery

100% of project preparation costs pre-financed by the BioCF will be charged back to projects in the form of withholdings from ER payments

Negotiated item

Costs capped in the Letter of Intent and ERPA

If BioCF also prefinances implementation costs (supervision and certification), these will also be charged back (subject to negotiation)

A/RA/R’’s Potential pres Potential pre--20122012Very small volume

<1% of total CERs and ERUsA small fraction of the cap (1% of 1990 emissions)

ReasonsRules came lateSome rules are not conducive / clearDemand restricted: exclusion from EU ETS deterred private sector from buyingTrees grow slowly

What can still be done before 2012?Very little that can change the 2012 outcomeBut changes adopted now will pave way for post-2012

Some Lessons LearnedSome Lessons Learned

LULUCF projects are neither easy nor cheap to preparePeople and land are impactedSustainability conditions must be built in, which takes timesLULUCF credits may be cheaper given buyers’ market

Biological carbon sequestration takes timeGrowth rates are not linearA small delay at the beginning of the project translates in higher ER loss before 2012 or even 2017 No more than 50-60% of BioCF needs before 2012Need to buy beyond 2012

Financing is a big constraintCarbon paid on delivery

Suggestions to A/R Working GroupTurn-around times are too shortPeriods of inactivity on the side of the A/R WGStaff up for the futureMore interaction with developers would clear up problems and save timeSubmission of new methodologies consisting of variations of approved methodologies or additional “modules”: faster processing

Methodologies and ToolsDifficult to develop; difficult to understandNew Tool for Afforestation and Reforestation Approved Methodologies (TARAM)

Rationale for Continued InvolvementRationale for Continued InvolvementImproved land use is part of the solution to climate change (deforestation causes 20% of CO2emissions)

Important for sustainable development

Open carbon market to rural communities (excluded if CDM restricted to energy & infrastructure)

Inform debate (initially too ideological, not enough based on facts)

Create synergies among Conventions (money channeled through UNFCCC can foster sister conventions)

Close fit with World Bank’s traditional work UNCCD

www.carbonfinance.org

www.biocarbonfund.org

ebaroudy@worldbank.org