Should the Rules for Forestry under the CDM be Eased

As for the CDM, this chapter has highlighted that while there are A/R projects in the pipeline that have not yet appeared in official statistics, the role of forestry is likely to be limited, compared with other offsets. Restraints in the form of conditions and rules have been necessary to generate confidence that CO2e removal by forestry sinks will actually take place and be permanent. But these have reduced the value of forestry CERs compared with other types of offsets. The high costs of generating low-value CERs by afforestation and reforestation under the CDM have meant that investment in projects and the purchase of CERs have been mainly by the World Bank, operating from a philanthropic stance rather than a commercial one.

Calls for radical changes that loosen LULUCF rules under the Kyoto Protocol are misplaced. These rules have been developed to overcome the difficulties of measurement and of impermanence of sequestered carbon in forestry projects. Moreover, it should be noted by policy-makers that voluntary offsets, to achieve credibility in markets, are moving towards the adoption of the CDM's LULUCF criteria (see Chapter 3 for the adoption of rules in the voluntary market). Rules have been slackened by the UNFCCC to allow small-scale A/R projects to lower their costs. It was shown above, however, that even with fewer rules, small-scale projects were unable to escape diseconomies of scale, so that their contribution is likely to remain extremely small. The question needs to be asked whether, in the process of extension of small-scale rules to medium-scale projects, the confidence in such projects would be compromised.

As a way of increasing the role of LULUCF in the CDM, the BioCarbon Fund (2008) recommends the removal of the limit to use of LULUCF to 1 percent of 1990 emissions by Annex I countries. Above, under section 2.4.2 'Modeling the Kyoto options for forestry', it was found that the relaxation of the 1 percent rule itself led to only a small reduction in price, but combined with the inclusion of avoided deforestation, could lower the global price of CO2e removals and crowd out other measures that abate emissions.

Another suggestion by the BioCarbon Fund (2008) is to review the rule that mandates the replacement of all CDM LULUCF credits at the end of 60 years. The Fund argues that this rule creates a perverse incentive to harvest trees in order to be able to replace the credits; such an outcome negates the principle of trying to ensure the integrity of the afforestation and deforestation projects.

This argument raises the issue of whether the permanence of A/R projects can be guaranteed for such an extended period, given the impermanence of institutions, governments and companies that were involved in making the undertaking at the outset.

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