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Carbon Emission Offsets
Gary BullFaculty of Forestry, University of British Columbia
Vancouver, Canada
September 19, 2005
Bull 2
Carbon Sequestration
Carbon Markets 2004
Carbon Deals
Carbon Actors – Intermediaries
Challenges – People, Process
Bull 3
Does Carbon Sequestration Matter?
Bull 4
Carbon markets potential 2006
International Pre-
Compliance
Retail Marke
t
Regional Markets- EU
National Markets –Japan, Canada, Australia
US Market
SUB-NATIONAL MARKETS
MassachusettsNew HampshireNSW
National market DenmarkNational Market
United Kingdom
Bull 5
Share of Emission Reduction
Bull 6
Market Buyers
Bull 7
Deals• Canada
• Belize
Bull 8
Canada-Chile? Hog farm
Agricola Super Ltd, Chileo 400 thousand tonnes
annual reductiono 10 years - 4 million
tonnes credit
$20 million technology investment to reduce methane
Transalta, Canadao Releases 30 million
tonnes CO2E annually
o Not sure what its obligations are under Kyoto
o Purchased 1.75 million tonnes CO2E for 9 million $US
Bull 9
Canada –voluntary market
Bull 10
Belize – Reforestation - CDM
8000 ha planted
50 000 ha in total
Bull 11
Belize
Bull 12
Belize Project - Net Greenhouse Gas Removal by Sinks
Bull 13
Belize Forest Nursery
Bull 14
Belize – Carbon Ownership
Bull 15
Actors
• International Institutions
• Governments
• Buyers
• Sellers
• Brokers
• Intermediaries– Transactions costs
Bull 16
Intermediaries
• Lawyers
• Accountants
• Resource Consultants
• Insurers
• Engineers
• Researchers
Bull 17
Transaction CostsSummary of the Mark-up on Product Pricing – Bamboo flooring
PlayerOriginal
CostAdded
Cost/MarkupSale Price Margin
Flooring Manufacturer
$15 - $17/m2
--- $18 – 20/m2 15 – 20%
Importer and Wholesaler
$18 – 20/m2
$2/m2 (handling)
$12 – 13/m2 (markup)
$32 – 35/m2 60 – 70%
Retailer $32 – 35/m2
$15 – 25/m2 (markup)
$47 – 60/m2 40 – 70%
Consumer $100/m2
Source: Bull 2004
Bull 18
Types of Transaction Costs
Bull 19
Transaction costs
Milne 1999 - CIFOR
Bull 20
Projects examples
Bull 21
Challenges
Process
People
• Manage the ‘mad’ scientists!
• Recognize the limits to bureaucratic intelligence!
• Beware of the lawyers, insurance salesman, consultants and accountants!
• Shady sellers and ignorant buyers
Bull 22
Conclusions
• Forest and Agriculture need inclusion
• Deals are diverse - Wild West mentality
• Transaction costs will kill many deals
• People in the process can also kill deals
Bull 23
Challenges
Bull 24
Key challenges
Process
• Mixed motive problem
• Accounting tools
• Leakage, Baseline, Permanence
• Risks
• Learning curve
Bull 25
Kinds of offsets
• Landfill gas, methane reduction, bioenergy, etc.
• Forest carbon sequestration– Afforestation, Reforestation, Deforestation (Article 3.3)– Management Intensification (Article 3.4)– Avoided losses - (Article 3.4)
Bull 26
Key Questions
Why do we want forest carbon sequestration included in the current global dialogue on climate change?
To find money:• basic forest management – e.g. part of ftg costs• institutional reform costs – e.g. carbon pooling• mgmt plans• multiple objectives management strategy – e.g green-up• alleviate poverty ? - unknown
Bull 27
What are the opportunities?
– Planting degraded or barren areas– Intensify management on existing forests– Conserving or manage differently forests
which have large carbon stock
Bull 28
What are the challenges?
– Risks (fire, insect and disease)– Measurement tools (all the carbon pools)– Reluctance to allow sequestration to trade off
against emission reduction– Property rights are new– Transaction costs– Income distribution
Bull 29
Solutions to the challenges
• Risk– Build risk models– Create carbon pools– Buy insurance
• Measurement– Use the best available science– Make sure the measurement is cost effective– Invest in new R and D.– Use biological models sensitive the marketplace
Bull 30
Solutions to the challenges
Sequestration vs. Emission– Team up with the agriculturalist– Help people get the perspective e.g. fire– Use good science on the measurement side
Bull 31
Kinds of offsets
• Landfill gas, methane reduction, bioenergy, etc.
• Forest carbon sequestration– Afforestation, Reforestation, Deforestation (Article 3.3)– Management Intensification (Article 3.4)– Avoided losses - (Article 3.4)
Bull 32
Key Questions
Why do we want forest carbon sequestration included in the current global dialogue on climate change?
To find money:• basic forest management – e.g. part of ftg costs• institutional reform costs – e.g. carbon pooling• mgmt plans• multiple objectives management strategy – e.g green-up• alleviate poverty ? - unknown
Bull 33
What are the opportunities?
– Planting degraded or barren areas– Intensify management on existing forests– Conserving or manage differently forests
which have large carbon stock
Bull 34
What are the challenges?
– Risks (fire, insect and disease)– Measurement tools (all the carbon pools)– Reluctance to allow sequestration to trade off
against emission reduction– Property rights are new– Transaction costs– Income distribution
Bull 35
Solutions to the challenges
• Risk– Build risk models– Create carbon pools– Buy insurance
• Measurement– Use the best available science– Make sure the measurement is cost effective– Invest in new R and D.– Use biological models sensitive the marketplace
Bull 36
Solutions to the challenges
Sequestration vs. Emission– Team up with the agriculturalist– Help people get the perspective e.g. fire– Use good science on the measurement side
Bull 37
Solutions to the challenges
Developing new markets– Clarify ownership– Strengthen the weak institutions– Deal with the specifics – leakage, contract
period, permanence– Experiment– Make sure you deal with the distribution of
income issue
Bull 38
Solutions to the challenges
Research
1. Transaction costsa. Efficient regulatory frameworkb. Efficient markets
2. Income distributiona. Collect data – householdb. Analyze
Bull 39
Carbon activities
• Article 3.3 – CDM project proposals in Belize, China and Uganda– Non spatial and spatial forest risk models– Transaction costs analysis– Institutional analysis for small farmers
• Article 3.4– Fertilization impact assessment– Develop new forest planning model– Carbon conservation in Canadian old growth ~
avoided deforestation in other context
Bull 40
Other activities
• Biodiversity measurement in the Kootenays
• ISO 14064
Bull 41
Carbon Emission Offsets
• Payment systems
• Actors
• Deals
• Challenges
• Links to poverty reduction
Bull 42
Tools for creating deals
Bull 43
Area:
610 000 ha (1 549 400 acres)
Current Harvest:
900 000 m3
Biogeoclimatic Zones: AT, BG, ESSF, ICH, IDF, MS, SBPS, SBS
Major Tree Species: Black Cottonwood, Trembling Aspen, Douglas-fir, Sub-alpine Fir, White Birch, Lodgepole Pine, Engelmann Spruce
Red-listed Species: American White Pelican, Peregrine Falcon, Prairie Falcon, Brewer’s Sparrow, Yellow Breasted Sparrow, Lake Whitefish, Giant Pygmy Whitefish
Lignum IFPALignum IFPAProject AreaProject Area
Bull 44
Carbon Balance
50000000
55000000
60000000
65000000
70000000 Baseline
Treatment
125,000 Polygons
Age
Operability
AreaForest Cover
>200 Layers Defining Management Objectives
Roads …
>2,000 Yield Curves
Block Size Targets
Patch Size Targets
FORECAST Carbon Curves
FSOS
Carbon Storage by Pool
-5000000
5000000
15000000
25000000
35000000Total Biomass
Litter
Soil
Timber Flows
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
0 40 80 120 160 200
Years
Volu
me
(m3/
yr)
Base CaseProposed Option
Caribou Habitat
0
20
40
60
80
100
0 40 80 120 160 200Years
%>1
00
years
Actual
Target
Old Growth -IDF
0
10
20
30
0 40 80 120 160 200
Years
%>
250 y
ears
Actual
Target
Bull 45
Financial AnalysisFinancial AnalysisScenario 4: No Discounting
Value of Additional Carbon
-
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
0 50 100 150 200 250
Year
Rev
enu
e (
$)