Issue #1 SB - 13 | 09 - 15 September | Lyon, France.

Tuesday 12 September 2000

Title: Forum on Additionality and Project-Based Mechanisms
Sponsor: CC:Forum
Contact: Kai-Uwe Barani Schmidt <kschmidt@unfccc.int>
Internet: http://www.unfccc.int

Kai-Uwe Barani Schmidt, FCCC Secretariat, introduced the two presentations: "Additionality under mechanisms" and "Alternative approaches to project additionality". Robert Kleiburg, Shell International Limited, presented the company's work on pilot CDM projects. He outlined a case study on rural electrification in the Philippines and discussed the various factors that influence additionality, including emissions, finance, investment and technology. He emphasized the challenges of investment additionality and suggested ways forward through benchmarking projects. Jane Ellis, OECD, raised the issue of administrative and time constraints for monitoring project additionality. Hesphina Rukato, Minerals and Energy Policy Center, South Africa, said that the Philippine case was a useful example for South Africa, where rural electrification is a national priority.

Paul Stolpman (pictured above right), US Environmental Protection Agency, outlined a US proposal for measuring additionality. He recommended that the approach should aim to: contain an objective determination of additionality and baseline units (BAU); encourage investments in cleaner technology; and limit transaction costs. He suggested that the key to a successful CDM would be to develop baselines that account for national circumstances, promote the best performing technologies, and adjust CERs to circumstances. Patricia Iturregui, National Commission of the Environment (CONAMA), Peru, illustrated an argument that the baseline should equal Annex I average project emissions.

Title: Issues and opportunities for investing in the Clean Development Mechanism
Sponsor: Institute for Global Environmental Strategies (IGES)
Contact: Aki Maruyama <maruyama@iges.or.jp>
Internet: http://www.iges.or.jp

Taka Hiraishi, Co-Chair of the Intergovernmental Panel on Climate Change, introduced three speakers from IGES and invited participants to focus on scientific and economic issues. Aki Maruyama (right) examined the "Barriers to CDM investment and possible public support measures." She concluded that the CDM could help direct foreign direct investment towards climate friendly investment if public funding could be used to address the risks and costs associated with the CDM. She proposed that risk management could be addressed using public funding to focus on those areas the CDM cannot address and by supporting measures to facilitate private sector investment in the CDM. Tae Yong Jung presented a paper compiled with Shinji Kaneko, IGES, on the "Economic effect of international transactions", providing initial results from a case study on Japan's bilateral transactions with China.

Naoki Matsuo presented a "Proposal for a prompt start of Annex I emission reduction projects." He outlined a possible compromise decision at COP-6, which would create coherence between the CDM and JI by applying similar levels of rigor, using a common institutional home and providing for a preliminary pilot phase, with crediting, for post-2008 Joint Implementation. Matsuo also presented a paper in which he identified the difficulties of identifying profitable project additionality and argued for baseline standardization to establish consistency, credibility and reduce transaction costs.

Title: Carbon Sequestration, Biodiversity and Sustainable Livelihoods
Sponsor: The World Conservation Union (IUCN)
Contact: Brett Orlando <borlando@iucnus.org>
Internet: http://www.iucn.org

Brett Orlando, Climate Change Program Officer, IUCN, explained that people should be viewed as an integral part of highly complex and diverse forest systems. He noted that many countries view forests as a crop and fail to understand that forests provide a broader range of services. The IUCN supports the application of an ecosystem approach, valuing forests and other ecosystems for their full range of services to society.

Sergio Jaurequi, representative of Bolivia (photo above right), emphasized that COP-5 of the Convention on Biological Diversity adopted a decision to ensure that future carbon sequestration activities are consistent with and supportive of the conservation and sustainable use of resources of biological diversity. He noted that deforestation resulting from indigenous peoples' settlement practices created a need for alternative ways of improving the quality of life for such communities.

Speaking for indigenous people, Hendro Sangkoyo, Consortium for Community Forest Systems, noted that local communities and indigenous people are largely excluded from deliberations despite living on the frontline of climate change impacts.

Title: Update on the Prototype Carbon Fund, and lessons learned from the Latvia Liepaja project
Sponsor: The World Bank
Contact: Ken Newcombe <knewcombe@worldbank.org>
Internet: http://www.prototypecarbonfund.org

Ken Newcombe, Prototype Carbon Fund (PCF) (photo right), outlined the modalities of the fund. It aims to pool insight and experience from the private and public sectors to mobilize additional resources for sustainable development and address climate change concerns. Contributing countries, of which there are currently six, will receive a pro rata share of the emissions reductions, verified and certified in accordance with carbon purchase agreements reached with the respective countries hosting the projects. He emphasized that the PCF does not invest in a project, rather it purchases the emission reductions resulting from the project. The investment pool currently stands at $145 million and there are 25 projects in the pipeline.

Ilze Purina, Ministry of the Environment, Latvia, outlined her first hand experience of a project in which the PCF was involved. Drawing on existing relations with the World Bank, Purina described the PCF's involvement in a Landfill Gas (LFG) Project in the city of Liepaja. Challenges included: establishing baselines; the absence of a domestic legal framework regarding LFG; understanding the global framework; and negotiating the carbon purchase contract. Ultimately, the PCF's purchases of emissions reductions accounted for 4 percent of the total budget of over $16 million.

Newcombe noted that the greatest demand is for smaller projects and proposed that bundling projects through intermediaries may offer a solution to control transaction costs.

Discussion: Exchanges focused on: private sector involvement, sustainable development objectives, risks and benefits, methods for establishing baselines, and the differences beetween the PCF and the operation of the GEF.

Title: Potential, strategy and activities: Russian Federation United Energy System (RAO-UES) and the implementation of the FCCC and the Kyoto Protocol
Sponsor: Center for Preparation and Implementation of International Projects on Technical Assistance (CPPI)
Contact: Marina Martynova Ph.D., CPPI <martynov@npafem.msk.ru>

Alexander Averchenkov (CPPI), moderator, noted the Russian Federation's potential for achieving GHG emissions reductions at low cost.

Den Dudek, Environmental Defense, recommended that Russia pursue its reduction of GHG emissions by developing its domestic institutions, establishing an inventory and registry, and by creating a carbon investment facility.

Alexander Khanykov, representing Russia's largest energy company, United Energy System (RAO-UES), proposed that his company's activities in the energy sector and its GHG emission reduction potential suggested the need to create an Energy Carbon Fund. His colleague, Mikhail Rogankov, described the main elements of the company's action plan for GHG emissions reduction, including its technical expertise for the development of a company-wide GHG inventory and the creation of a database for potential JI projects.

Marina Martynova, CPPI (photo above right), outlined the Centre's capacity building initiative for the energy sector. The initiative includes priority areas such as the National Russian Strategy on GHG reduction, the Russian Federal Order on Emissions Trading, institutional assessment, the preparation of a Russian Carbon Fund, and business awareness raising.

Alexander Golub, Environmental Defense, described the organization's work with RAO-UES to develop an emissions reduction strategy by conducting an independent analysis. Alexey Kokorin, WWF Russian Programme Office, noted the prioritization of energy conservation projects. Oleg Pluzhnikov, Russian Ministry of Energy, noted that a new energy strategy would be approved this year. He supported the creation of an inventory and registration system for emissions trading.

Discussion: Participants requested clarification on several technical issues, including the possibility of imposing domestic quotas for emissions trading.

Related links: United Energy System of Russia: http://www.rao-ees.ru

Title: Hybrid liability revisited
Sponsor: Center for International Environmental Law (CIEL)
Contact: Glenn Wiser (CIEL) <glennwiser@aol.com>
Internet: www.ciel.org

Donald Goldberg, Center for International Environmental Law (CIEL), proposed a revised version of CIEL's hybrid liability rule for Article 17. The liability rule will address the question of whether countries who participate in emissions trading can redeem assigned amount units originating from Parties that exceed their targets at the end of the commitment period. The hybrid approach is designed to provide a point of convergence for negotiators who, for the most part, have focused their discussions on the two extremes of pure seller and pure buyer liability.

In sum, CIEL's revised hybrid liability rule would mean: Parties wishing to trade must establish a commitment period reserve of assigned amount units; the reserve is created by projecting a five-year emissions trajectory; a Party's assigned amount, adjusted for acquisitions and transfers of CERs, ERUs, and AAUs and emissions and removals from LULUCF, that is surplus to the reserve may be transferred under issuer, or seller, liability; assigned amount that is not surplus (i.e. part of the reserve) may be transferred under user, or buyer, liability; and the trajectory is adjusted each year to reflect the Party's annual emissions inventory and expert review of the previous year's inventory.

Murray Ward, New Zealand, presented a model international emissions trading system. The model favors transfer and acquisition activities at the "authorized entities" level and discourages trading between governments. He explained that trade among entities would allow the abatement of costs across countries. Christian Albrecht, a member of the Swiss delegation, announced his Government's intention to introduce a revised proposal to overcome any delay in trade by proposing the year 2008 as the date to assess emissions.

Annie Petsonk, Environmental Defense, presented a paper on "The Dynamic Balance Rule", which seeks to address Parties' concerns about over-selling. The Rule shows whether at the end of the commitment period, a Party's actual net emissions exceed its allowable emissions levels, after the transfer of assigned amount units (AAUs).

Title: Climate change and future harvest
Sponsor: The Consultative Group on International Agricultural Research (CGIAR) International Center Working Group on Climate Change.
Contact: Pedro A Sanchez Ph.D. <p.sanchez@cgiar.org>
Internet: http://www.cgiar.org/icraf

Dr. Pedro Sanchez, (photo right) International Centre for Research on Agroforestry (ICRAF), on behalf of the CGIAR International Center Working Group on Climate Change, presented a paper linking the Clean Development Mechanism (CDM) with food security and poverty reduction in the Tropics. He explained that the CGIAR centers focus on interdisciplinary research and development on how to achieve food security and reduce rural poverty through supporting adaptation and mitigation research in developing countries. He identified agroforestry alternatives to slash and burn agriculture, which achieve a dual objective of improving farmer profitability and increasing system carbon stocks over time. Such carbon sequestration could provide an additional source of income for farmers through the CDM or through emerging carbon markets. He suggested the need for pilot CDM projects with farming communities and investors from the North and proposed that CGIAR centres could act as honest brokers for farmers.

The panel was invited to comment on the issues. On linking poverty reduction to the CDM, Anne-Marie Izac, ICRAF, stressed the importance of focusing on the needs of small-scale farmers. Dr Sheehy, International Rice Research Institute (IRRI), spoke of the links between population growth and poverty, and the complexities underlying food production yields. He stressed the need to maximize crop yields while minimizing pollution, and that carbon sequestration should be a major part of the CGIAR research agenda. Miles Fischer, International Center for Tropical Agriculture (CIAT), spoke about the potential for carbon sequestration in South America, and emphasized the opportunity for a win-win scenario. In agreement, John Kadyszewski, Winrock International, highlighted the win-win potential of carbon credits for conversion to more carbon efficient agricultural systems. He suggested that the CGIAR centres could provide important quality data and capacity building for CDM activities.

Discussion: Participants raised issues of vulnerability and risk in assuming benefits from the CDM accruing to farmers and stressed the importance of adaptation rather than mitigation. A US official highlighted the importance of focusing on the sustainable development component of the CDM, while another US official suggested researching the potential of marrying mitigation and adaptation strategies. The IUCN highlighted the general lack of focus on trade-offs in the discussions on climate change.

Title: Carbon measurements in the United States: agriculture and forestry
Sponsor: US Delegation
Contact: James Hrubovcak <jhrubovcak@oce.usda.gov>
Internet: http://www.usda.gov

This technical presentation on carbon measurement in the United States was introduced by Richard Birdsey, the Global Change Program. He provided an overview of the US forest inventory, and described methods for estimating carbon according to criteria in Articles 3.3 and 3.4 of the Kyoto Protocol. He outlined the three stages of compiling an inventory sample: remote sensing, ground sampling and forest health monitoring. Linda Heath addressed approaches to the estimation of carbon change and stock changes, noting the IPCC guidelines on uncertainty. Marlon Eve, US Department of Agriculture, outlined approaches to enhancing carbon storage in agricultural soils. For croplands the possibilities include: increased crop intensity; reduced tillage; the introduction of hay to crop rotation; fertility and water management; and the use of high bio-mass crops. For pasture, they include using a mix of species, and the introduction of legumes and earthworms. Panelists concluded that cropland soils in the United States sequester approximately 16 MMT carbon per year as a result of changes in land use and management. Grazing lands sequester about 6 MMT per year.