Modeling the Kyoto Options for Forestry

For an explanation of the tortuousness and length of the negotiations over the inclusion of LULUCF in the CDM and its rules and modalities, we turn to Jung's (2005) analysis of the economic and country-by-country impacts of the different policy options that were on the table. The activities that Jung interpreted as falling under the definitions of A/R under the Kyoto Protocol are as follows:

• 'Regeneration' = degraded lands to secondary forests;

• 'Plantations' = fast-growing commercial plantations;

• 'Agroforestry' = trees integrated in farmland and rangeland;

• 'Avoided Deforestation' = conservation of forest that would otherwise have been deforested.

From IPCC (2000), Jung obtained estimates of the carbon uptake factors for forests, weighted by the percentage of the forest type in each region. Estimates of carbon emissions saved through avoided deforestation were also obtained from the literature, as were the costs of carbon sequestration which were ordered as follows. The most expensive is regeneration, since regrowth is slower and there are less marketable benefits. Then follow plantations and agroforestry, which have high establishment costs but yield marketable benefits. Cost differences of regrowth projects between countries were calculated according to GDP per capita and carbon uptake rates. Costs for avoided deforestation were assumed to be determined by scarcity of arable land and the carbon uptake factors of the project activity in the country. Modeling was through the CERT model of the international Greenhouse Gas Trading Model. Transaction costs for carbon credits were set at $0.55/tC02 for CDM projects and $0.27 for JI projects. The US participates to a small extent in the modeling, even though it failed to ratify the Kyoto Protocol, because of the level of interest in sequestration at state and company level.

The results showed the effect of introducing forestry on the market price of CERs in the CDM and the extent to which Annex B countries would have used CERs to comply with their emission targets, as well as country-by-country distributional effects.

If all forestry, including avoided deforestation, was included, the price of permits fell from $3.08 per tonne of C02e (the price of permits in the international market without forestry) to $0.90. The price remained unchanged for this scenario with the cap. By excluding avoided deforestation, the market price increased to $2.43/t C02e, as illustrated in Figure 2.2.

The avoided deforestation potential alone would have fulfilled the reduction requirements of the Kyoto Protocol more than twice. This is because forestry projects were assumed to be cheaper than all energy projects. But the 1 percent cap binds, limiting the amount of forestry CERs to 725 Mt C02e, or 45 percent of total reduction requirements. Where avoided deforestation was excluded, the results suggest that the crowding-out effect will not occur, as only 18.6 percent of reduction requirements are fulfilled by forestry CERs, allowing a larger role for energy projects (29-35.4 percent) and domestic abatements (22.2-24.7 percent) (see Table 2.2).

The fears of the parties who opposed the inclusion of LULUCF in the CDM, on the grounds that it would crowd out mitigation projects and allow Annex B countries to forgo domestic GHG mitigation measures, are thus supported by the results. In the light of the results Jung (2005)

Notes: R=Regeneration, P=Plantations, AG=Agroforestry, AD=avoided deforestation, 1% CAP = the proportion of 1990 emissions claimable by these activities by Annex I countries.

Source: Jung (2005).

Figure 2.2 Price per tonne of CO2e in world markets with and without forestry in the CDM

Table 2.2 The percentage of reduction requirements met by land use and land-use change in the Clean Development Mechanism

Scenario

Energy CERs

Total CERs

Russia and Eastern Europef

Domestic abatement

Without LULUCF

0

43

43

30.2

26.8

Ra,Pb,AGc,ADd

61.4

0

61.4

30.2

8.4

R,P,AG,AD 1% CAP

44.8

16.5

61.4

30.2

8.4

R,P,AG

18.6

29

47.6

30.2

a R=regeneration b P=Plantations c AG=Agroforestry d AD=avoided deforestation e 1% CAP is the proportion of 1990 emissions claimable by these activities by Annex I countries.

f The ease with which these countries can meet their Kyoto Protocol targets is expected to lead to a supply of low-priced credits.

3.08

0.9

0.9

LULUCF AG, AD 1% CAP

Source: Jung (2005).

reviewed the positions taken during LULUCF negotiations by different countries. In a number of instances the country positions were in sympathy with their profits and losses expected with LULUCF inclusion.

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