carbon emission offsets gary bull faculty of forestry, university of british columbia vancouver,...
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Carbon Emission Offsets
Gary BullFaculty of Forestry, University of British Columbia
Vancouver, Canada
September 19, 2005
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Bull 2
Carbon Sequestration
Carbon Markets 2004
Carbon Deals
Carbon Actors – Intermediaries
Challenges – People, Process
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Bull 3
Does Carbon Sequestration Matter?
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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
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Bull 5
Share of Emission Reduction
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Bull 6
Market Buyers
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Bull 7
Deals• Canada
• Belize
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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
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Bull 9
Canada –voluntary market
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Bull 10
Belize – Reforestation - CDM
8000 ha planted
50 000 ha in total
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Bull 11
Belize
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Bull 12
Belize Project - Net Greenhouse Gas Removal by Sinks
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Bull 13
Belize Forest Nursery
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Bull 14
Belize – Carbon Ownership
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Bull 15
Actors
• International Institutions
• Governments
• Buyers
• Sellers
• Brokers
• Intermediaries– Transactions costs
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Bull 16
Intermediaries
• Lawyers
• Accountants
• Resource Consultants
• Insurers
• Engineers
• Researchers
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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
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Bull 18
Types of Transaction Costs
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Bull 19
Transaction costs
Milne 1999 - CIFOR
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Bull 20
Projects examples
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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
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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
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Bull 23
Challenges
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Bull 24
Key challenges
Process
• Mixed motive problem
• Accounting tools
• Leakage, Baseline, Permanence
• Risks
• Learning curve
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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)
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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
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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
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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
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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
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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
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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)
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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
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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
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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
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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
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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
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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
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Bull 38
Solutions to the challenges
Research
1. Transaction costsa. Efficient regulatory frameworkb. Efficient markets
2. Income distributiona. Collect data – householdb. Analyze
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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
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Bull 40
Other activities
• Biodiversity measurement in the Kootenays
• ISO 14064
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Bull 41
Carbon Emission Offsets
• Payment systems
• Actors
• Deals
• Challenges
• Links to poverty reduction
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Bull 42
Tools for creating deals
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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
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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
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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 (
$)