Replacing carbon lost from forests: an assessment of insurance,reserves, and expiring credits

Abstract

Concern over the “non-permanence” or reversibility of carbon sequestration projects has been prominent in discussions over how to develop guidelines for forest project investments under the Clean Development Mechanism (CDM) of the UNFCCC Kyoto Protocol. Accordingly, a number of approaches have been proposed that aim to help ensure that parties do not receive credit for carbon that is lost before project obligations are fulfilled. These approaches include forest carbon insurance, land reserves, and issuance of expiring credits. The potential costs of each of these different approaches are evaluated using a range of assumptions about project length, risk and discount rate, and a comparison of costs is ventured based on the estimated reduction in value of these credits compared with uninsured, and permanent credits. Obstacles to participation in the different approaches are discussed related to problems of long-term commitments, project scale, rising replacement costs, and low credit value. It is concluded that a system of expiring credits, which could be coupled with insurance or reserves, could guarantee obligations that span time-scales longer than that of conventional insurance policies while maintaining incentives for long-term sequestration.     

Accounting methods for carbon credits: impacts on the minimum area of forestry projects under the Clean Development Mechanism

Abstract

The Ninth Conference of the Parties (COP-9) decided to adopt an accounting system based on expiring carbon credits to address the problem of non-permanent carbon storage in forests established under the Clean Development Mechanism (CDM). This article reviews and discusses carbon accounting methods that were under consideration before COP-9 and presents a model which calculates the minimum area that forest plantation projects should reach to be able to compensate CDM transaction costs with the revenues from carbon credits. The model compares different accounting methods under various sets of parameters on project management, transaction costs, and carbon prices. Model results show that under current carbon price and average transaction costs, projects with an area of less than 500 ha are excluded from the CDM, whatever accounting method is used. Temporary crediting appears to be the most favorable approach to account for non-permanent carbon removal in forests and also for the feasibility of smaller projects. However, lower prices for credits with finite lifetimes may prevent the establishment of CDM forestry projects. Also, plantation projects with low risk of unexpected carbon loss and sufficient capacity for insuring or buffering the risk of carbon re-emission would benefit from equivalence-adjusted average carbon storage accounting rather than from temporary crediting.     

Inter-trading permanent emissions credits and rented temporary carbon emissions offsets: some issues and alternatives

Permit trading among polluting parties is now firmly established as a policy tool in a range of environmental policy areas. The Kyoto Protocol accepts the principle that sequestration of carbon in the terrestrial biosphere can be used to offset emissions of carbon from fossil fuel combustion and outlines mechanisms. Although the lack of guaranteed permanence of biological offsets is often viewed as a defect, this paper argues that the absence of guaranteed permanence need not be a fundamental problem. We view carbon emissions as a liability issue. One purpose of an emissions credit system is to provide the emitter with a means to satisfy the carbon liability associated with her firm's (or country's) release of carbon into the atmosphere. We have developed and here expand on a rental approach, in which sequestered carbon is explicitly treated as temporary: the emitter temporarily satisfies his liability by temporarily “parking” his liability, for a fee, in a terrestrial carbon reservoir, or “sink,” such as a forest or agricultural soil. Finally, the paper relates the value of permanent and temporary sequestration and argues that both instruments are tradable and have a high degree of substitutability that allows them to interact in markets.     

Inter-trading permanent emissions credits and rented temporary carbon emissions offsets: some issues and alternatives

Permit trading among polluting parties is now firmly established as a policy tool in a range of environmental policy areas. The Kyoto Protocol accepts the principle that sequestration of carbon in the terrestrial biosphere can be used to offset emissions of carbon from fossil fuel combustion and outlines mechanisms. Although the lack of guaranteed permanence of biological offsets is often viewed as a defect, this paper argues that the absence of guaranteed permanence need not be a fundamental problem. We view carbon emissions as a liability issue. One purpose of an emissions credit system is to provide the emitter with a means to satisfy the carbon liability associated with her firm’s (or country’s) release of carbon into the atmosphere. We have developed and here expand on a rental approach, in which sequestered carbon is explicitly treated as temporary: the emitter temporarily satisfies his liability by temporarily “parking” his liability, for a fee, in a terrestrial carbon reservoir, or “sink,” such as a forest or agricultural soil. Finally, the paper relates the value of permanent and temporary sequestration and argues that both instruments are tradable and have a high degree of substitutability that allows them to interact in markets.     

Temporary sequestration credits: an instrument for carbon bears

Abstract

Temporary crediting of carbon storage is an instrument that allows entities with emissions reductions obligations to defer some obligations for a fixed period of time. This instrument provides a means of guaranteeing the environmental integrity of a carbon sequestration project. But because the user of the temporary credit takes on the liability of renewing it, or replacing it with a permanent credit, the temporary credit must sell at a discount compared to a permanent credit. We show that this discount depends on the expected change in price of a permanent credit. Temporary credits have value only if restrictions on carbon emissions are not expected to tighten substantially. The intuition is illustrated by assessing the value of a hypothetical temporary sulfur dioxide sequestration credit, using historical data on actual SO₂ allowance prices.     

Additionality reconsidered: lax criteria may not benefit developing countries

Abstract

International negotiation on the additionality issue of the CDM (Clean Development Mechanism) seems to be proceeding without sufficient information or understanding. Especially apparent is a lack of recognition that the non-additional CERs (certified emission reductions) generated by relaxing the additionality criteria may lead to economic losses for developing countries. This article quantitatively reconfirms the effects of non-additional CERs on the international community, while clarifying that the generation of non-additional CERs in excess of a certain number will eventually lead to negative consequences for developing countries, even if these countries were able to acquire all the non-additional CERs. Furthermore, the Discussion section demonstrates that future system design would significantly affect the benefits of developing countries as well as the overall environmental integrity of the Kyoto mechanisms.     

Standardization of baseline and additionality determination under the CDM

Clean Development Mechanism (CDM) project developers have long complained about the complexities of project-specific baseline setting and the vagaries of additionality determination. In response to this, the CDM Executive Board took bold steps towards the standardization of CDM methodologies, culminating in the approval of guidelines for the establishment of performance standards in November 2011. The guidelines specify a performance standard stringency level for both baseline and additionality of 80% for several priority sectors and 90% for all other sectors. However, an analysis of 14 large-scale CDM methodologies that use performance standard approaches challenges this top-down approach to the performance standard design. An appropriate performance standard stringency level strongly depends on sector and technology characteristics. A single stringency level for baseline and additionality determination is appropriate only for greenfield projects, but not for retrofit ones. Overly simple, highly aggregated performance standards are unlikely to ensure high environmental integrity, and difficult questions regarding stringency and updating frequency will eventually have to be addressed on a rather disaggregated level. A careful balance between data requirements and the practicability of performance standards is essential because the heavy data requirements of the existing performance standard methodologies have been the key barrier to their actual implementation.

Policy relevance

CDM regulators have been pushed by many stakeholders to standardize baseline setting and eliminate project-specific additionality determination. At first glance, performance standards seem to provide the perfect solution for both tasks. However, a one-size-fits-all political decision – e.g. the average of the top 20% performers as enshrined in the Marrakech Accords – is inappropriate. Substantial disaggregation of performance standards is required both technologically and geographically in order to limit over- and under-crediting and close loopholes for non-additional projects. As a lack of reliable and complete data has been and will be a key bottleneck for the development of performance standards, international support for data collection will be indispensable, but costly, and time-consuming. Empirically driven, techno-economic assessments of performance standard stringency levels must be the central task of the future work on standardized methodologies, and should not be sidelined by perceived needs of policy makers to take bold decisions under time pressures.     

Time to market in the CDM: variation over project characteristics and time

Not only is the carbon market inundated with Certified Emissions Reductions (CERs) issued by successful projects, it is also littered with failed projects, that is, projects that either fail to be registered under the Clean Development Mechanism (CDM) or projects that have been successfully registered but fail to issue CERs. By relying on a novel application of survival analysis in the context of the CDM, this article shows that half of all projects that start the Global Stakeholder Process fail to issue CERs, while the other half have a median time to market of four years. Furthermore, it is shown that some of the best projects, in terms of being additional, are those that are least likely to make it to market, whereas some of the worst projects, in terms of not being additional, are the ones that are most likely to make it to market. This presents a fundamental challenge for the CDM and future offset schemes that rely on the same design as the CDM. In contrast with previous studies, it is shown that, when project characteristics are controlled for, not all durations measured along the CDM project cycle have increased over time.

Policy relevance

This article develops a novel method for analysing durations measured along the CDM project cycle that avoids the biases of previous studies, and corrects for some misconceptions of what the delays faced by CDM projects are and how these delays have changed over time. Developing an understanding of the delays is important in order not to draw the wrong lessons from the CDM experience. As the leading example of an offset scheme, both in terms of geographical scope and sectoral coverage, and some would say institutional complexity, the CDM serves as a benchmark and reference for all future offset schemes, among others, for the New Market Mechanisms (NMMs) and the Chinese domestic offset programme. While the NMMs are still very much in development, China has announced that it will rely on the methodologies and procedures developed under the CDM for generating offsets for their regional carbon trading schemes.     

Credited forest carbon sinks: how the cost reduction is allocated among countries and sectors

Forest carbon sinks have been included in the Kyoto Protocol as one of the mechanisms for mitigating climate change. Consequently, credited sinks decrease the need to reduce emissions.We analyse in detail both the economywide and the sectoral effects of inclusion of carbon sinks as agreed upon in Bonn and Marrakesh for the first commitment period of 2008–2012. The focus of our analysis is the special treatment for Canada and Japan that allows them larger sinks. The analysis is performed with the multi-region computable general equilibrium (CGE) model GTAP-E.

New Zealand benefits most from the inclusion of sinks as it gains large carbon sinks from afforestation. Also in Sweden, Canada and Japan the costs of achieving the emission target are considerably reduced. Of these countries, only Canada has high costs without sinks. Thus credited sinks partly reduce the difference in economic burden of achieving the Kyoto target among countries. Even though larger sinks clearly benefit Canada and Japan, their effect on other countries, either on the economywide or on the sectoral level, remains marginal. Allowing larger sinks is, indeed, of relatively minor importance for the world economy and emission reduction, compared to the US withdrawal from the Kyoto Protocol.     

Credited forest carbon sinks: how the cost reduction is allocated among countries and sectors

Forest carbon sinks have been included in the Kyoto Protocol as one of the mechanisms for mitigating climate change. Consequently, credited sinks decrease the need to reduce emissions. We analyse in detail both the economywide and the sectoral effects of inclusion of carbon sinks as agreed upon in Bonn and Marrakesh for the first commitment period of 2008–2012. The focus of our analysis is the special treatment for Canada and Japan that allows them larger sinks. The analysis is performed with the multi-region computable general equilibrium (CGE) model GTAP-E.New Zealand benefits most from the inclusion of sinks as it gains large carbon sinks from afforestation. Also in Sweden, Canada and Japan the costs of achieving the emission target are considerably reduced. Of these countries, only Canada has high costs without sinks. Thus credited sinks partly reduce the difference in economic burden of achieving the Kyoto target among countries. Even though larger sinks clearly benefit Canada and Japan, their effect on other countries, either on the economywide or on the sectoral level, remains marginal. Allowing larger sinks is, indeed, of relatively minor importance for the world economy and emission reduction, compared to the US withdrawal from the Kyoto Protocol.     

陆地生态系统固碳速率立体监测方法:进展与挑战

全球CO₂浓度增加造成的全球变暖已成为人类亟需解决的问题,陆地生态系统在过去几十年一直扮演着重要的碳汇角色,吸收了30％左右的人类活动排放CO₂。本文调研分析了陆地生态系统固碳速率空间估算方法,包括样地调查、通量监测、模型模拟、遥感估算等,梳理了各种估算方法的研究现状与进展。样地调查、通量观测等方法可以提供点尺度的固碳速率直接测量信息,但存在观测样本有限、空间代表性不足等问题。模型模拟方法可以从机理的角度描述陆地碳、水、能量循环,模拟预测陆地生态系统固碳速率的状态和变化。然而,在模型建立过程中,抽象和简化会引入结构与假设的不确定性,以及模型驱动数据引入的不确定性等问题是碳循环模型模拟方法面临的重大挑战。卫星遥感具有全球覆盖、分辨率精细、时间序列观测等优点,结合机器学习方法,为地球大数据驱动的全球碳源汇估算提供了新的研究范式。但是,当前各种固碳速率的监测方法还没有满足高度时空异质性的陆地生态系统固碳量监测需求,未来需要整合地面观测、模型模拟和卫星遥感等多种技术手段,提供区域和全球尺度的陆地生态系统碳汇精确估算方法体系和科学数据产品。     

弱光层异养过程对海洋储碳的影响:进展、挑战和展望

海洋是地表系统最大的碳库和重要碳汇区。海洋生物泵通过一系列复杂的生物地球化学过程将CO₂转化成颗粒有机碳（Particulate Organic Carbon,POC）并输送到深海,是海洋储碳的重要途径。弱光层（真光层底部到1 000 m）的生物异养过程消耗了超过70%从真光层输出的POC通量,决定了生物泵的储碳效率,因此准确定量弱光层的再矿化速率对评估海洋碳汇有重要意义。本文针对海洋生物泵储碳问题,聚焦弱光层异养过程对海洋储碳的影响机制,对全球弱光层再矿化定量工作进行评述,综合分析弱光层POC的衰减、再矿化等问题,并展望了相关新技术的应用。     

Modelling long-term HFC emissions from India's residential air-conditioning sector: exploring implications of alternative refrigerants,best practices,and a sustainable lifestyle within an integrated assessment modelling framework

India's growing role in the global climate debate makes it imperative to analyse emission reduction policies and strategies across a range of GHGs, especially for under-researched non-CO₂ gases. Hydrofluorocarbons' (HFCs) usage in cooling equipment and subsequent emissions are expected to increase dramatically in India with the phase-out of hydrochlorofluorocarbons (HCFCs) as coolants in air-conditioning equipment. We focus on the residential air-conditioning sector in India and analyse a suite of HFC and alternative coolant gas scenarios for understanding the implications for GHG emissions from this sector within an integrated assessment modelling framework. We find that, if unabated, HFC410A emissions will contribute to 36% of the total global warming impact from the residential air-conditioner sector in India in 2050, irrespective of the future economic growth trajectory, and the remaining 64% is from energy to power residential air-conditioners. A move towards more efficient, low global warming potential (GWP) alternative refrigerants will significantly reduce the cumulative global warming footprint of this sector by 37% during the period 2010–2050, due to gains both from energy efficiency as well as low GWP alternatives. Best practices for reducing direct emissions are important, but only of limited utility, and if a sustainable lifestyle is adopted by consumers with lower floorspace, low GWP refrigerants, and higher building envelope efficiencies, cumulative emissions during 2010–2050 can be reduced by 46% compared to the Reference scenario.

Policy relevance

Our analysis has important implications for Indian climate policy. We highlight that the Indian government's amendment proposal to the Montreal Protocol is a strong signal to the Indian market that the transition away from high GWP refrigerants towards low/zero GWP alternatives will happen sooner or later. The Bureau of Energy Efficiency should extend building energy conservation code policy to residential buildings immediately, and the government should mandate it. Government authorities should set guidelines and mandate reporting of data related to air-conditioner coolant recharge frequency and recovery of scrapped air-conditioner units. For contentious issues like flammability where there is no consensus within the industry, the government needs to undertake an independent technical assessment that can provide unbiased and reliable information to the market.     

城市化、产业结构、能源消费、经济增长与碳排放的关联性分析——基于中国省际收入水平异质性的实证研究

在全国推崇节能减排,寻求低碳经济发展的大环境下,探究不同收入水平下各影响因子与碳排放的关联性有助于区域异质性碳减排政策的制定。根据2002—2016年的经济发展水平数据,将中国30个省及直辖市（不包含西藏及港、澳、台地区）划分为4个不同收入水平,分别建立面板向量自回归（PVAR）模型,并运用面板格兰杰因果检验、脉冲响应和方差分解探究城市化、产业结构、能源消费、经济增长与碳排放之间的关联性。研究结果表明,处于不同收入水平下的省份各影响因子与碳排放之间的关系存在异质性。收入水平较高的省份当前城市化水平已产生显著的减排效应,而欠发达地区仍处于城市化进程加速碳排放阶段;4个收入水平下能源消费均会长期影响碳排放,但欠发达地区更加需要摆脱能源依赖的经济发展路径,并且提高能源利用率从而降低碳排放;非高收入水平省份产业结构对碳排放造成的影响明显高于高收入水平省份。此外,实证结果表明,中国仍处于碳排放与经济发展的同步增长阶段,减排政策将会对经济增长产生负向反馈,故现有减排路径的选择需要高度审慎的设计与实施。