Why are there so few afforestation and reforestation Clean Development Mechanism projects?

Land Use Policy 27 (2010) 880–887

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Why are there so few afforestation and reforestation Clean Development Mechanism projects? Sebastian Thomas, Paul Dargusch ∗ , Steve Harrison, John Herbohn School of Integrative Systems, University of Queensland St Lucia, QLD 4072, Australia

a r t i c l e

i n f o

Article history: Received 31 July 2009 Received in revised form 30 November 2009 Accepted 1 December 2009 Keywords: Emissions offsets Carbon markets Climate policy Forestry Afforestation

a b s t r a c t Of the more than 1600 Clean Development Mechanism (CDM) projects that are currently registered with the United Nations Framework Convention on Climate Change (UNFCCC), only four are afforestation or reforestation projects. This paper asks why there are so few CDM afforestation or reforestation (CDM A/R) projects given the many economic, social and environmental benefits that such activities potentially offer. The authors discuss the question from two perspectives: namely the constraints to the development of CDM A/R projects and the features of ‘successful’ CDM A/R projects. Constraints to the development of CDM A/R projects include financial, administrative and governance issues. Analysis of the four registered CDM A/R projects suggests that ‘successful’ CDM A/R applications are likely to be characterized by the following: initial funding support; design and implementation guided by large organizations with technical expertise; occur on private land (land with secured property rights attached); and most revenue from Certified Emission Reductions (CERs) is directed back to local communities. It is argued that the CDM needs to be reformed to support the development of more CDM A/R projects, particularly with regards to incorporating greater flexibility, simplifying the methodological and documentation procedures of CDM registration, and redefining the role of the UNFCCC in CDMs from one of adjudication to one of facilitation. © 2009 Elsevier Ltd. All rights reserved.

Introduction The stated intention of the United Nations Framework Convention on Climate Change (UNFCCC) Clean Development Mechanism (CDM) is to allow emission reduction or removal projects in developing countries to earn Certified Emission Reductions (CERs) which can be traded in international markets established under the terms of the Kyoto Protocol. Industrialized countries are able to purchase CERs in order to meet their emission reduction obligations. The CDM is further intended to facilitate sustainable development and poverty alleviation in developing nations (UNFCCC, 2009). The inclusion of land use, land use change and forestry (LULUCF) in international agreements is also seen as a means of encouraging ‘climate friendly’ land use, particularly in developing states (Cowie et al., 2007a). Afforestation and reforestation projects (A/R) are one of a suite of approaches possible under the CDM intended to address the challenge of climate change (Pacala and Socolow, 2004). Note that A/R projects are the only forestry-based projects currently

∗ Corresponding author. Tel.: +61 448606257/733657081; fax: +61 733659016. E-mail addresses: [email protected] (S. Thomas), [email protected] (P. Dargusch), [email protected] (S. Harrison), [email protected] (J. Herbohn). 0264-8377/$ – see front matter © 2009 Elsevier Ltd. All rights reserved. doi:10.1016/j.landusepol.2009.12.002

allowed under the CDM. Natural forest-based projects are currently excluded from the CDM. The forestry sector accounts for more than 17% of total global greenhouse gas (GHG) emissions (IPCC, 2007). Small-scale forestry is increasing in developed countries (Zhang et al., 2009), and forest industries are seen as having the potential, with effective management, to operate as a net sink for carbon (Masera et al., 1997; Palm et al., 2009; Parks et al., 1997; Pearce et al., 2003). Schlamadinger and Johns (2007) asserted that A/R projects have the most potential in developing countries due to the higher growth rates of tropical forests, the availability of land, and synergies with the need for future biomass. There has been criticism of offset projects at a fundamental level as allowing developed countries a cheap way to avoid reducing emissions (Boyd et al., 2007; Bullock et al., 2009). In response to these concerns the CDM sets a cap on an industrialized country’s inclusion of CDM A/R CERs in its emissions accounting of 1% of the country’s base year emissions (Hendrick and Black, 2007). In November of 2008 there were more than 1200 registered CDM projects, with a further 3000 awaiting registration. In mid2009 the number of registered projects had increased to 1665, of which only four are CDM A/R projects. There are two other CDM A/R projects awaiting registration. The purpose of this paper is to examine why afforestation and reforestation projects represent such a small proportion of CDM project activity (0.2% of total).

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This is an issue of significance. The terrestrial uptake of carbon is decreasing and this trend may be enhanced with the impacts of climate change (Houghton, 2007). Long-term tree presence promotes storage of protected carbon deeper in the soil profile. Agroforestry practices involving the incorporation of trees into farming enhance organic soil carbon sequestration and have further ancillary benefits (Takimoto et al., 2009). Forestry activities have the potential to sequester and store large quantities of carbon. The advantages of forestry-based carbon sequestration are well-documented and include high cost-effectiveness, projects that are easily reversible, products that can function as alternatives for other materials (including fuel wood, timber for construction, biomass for energy purposes), and employment (Baral and Guha, 2004; Van Kooten et al., 1997; Lal, 2009; Sampson and Sedjo, 1997). Forestry is attractive because trees hold larger quantities of C than other vegetation (Houghton, 2007). Research suggests that there is approximately 750 million hectares (Mha) of land suitable for CDM A/R projects (Zomer et al., 2008a). In order to meet the 1% cap set by the FCCC, between 4 and 8 Mha of fast-growing trees would need to be planted, a tiny fraction of the total land available. In addition to climate change mitigation, the potential benefits of greenhouse gas sequestration through A/R projects include improved soil quality, provision of biomass sources for energy, improvements in water quality, decreases in soil erosion, reduction in waterway sedimentation, improvement in soil health, biodiversity protection, food security, and creation of additional and diversified income streams through carbon trading (Alkemade et al., 2009; Lal, 2009; Marechal and Hecq, 2006; Méndez et al., 2007). A/R projects can also be effective tools in the social and political empowerment of small communities (Masera et al., 1997). Publications in the area of land use cover the technical aspects (Binkley et al., 1997; Henry et al., 2009), economic considerations (Coomes et al., 2008; Jung, 2005; Sampson and Sedjo, 1997; Solberg, 1997) and sustainability (Boyd et al., 2007; Pearce et al., 2003) of forestry projects, as well as the history of UNFCCC provisions (Schlamadinger et al., 2007a). The current paper not only reviews recent literature but also assesses the characteristics of the forestry projects registered or requesting registration with the UNFCCC CDM. This analysis is based on an examination of project data with the intention of identifying common features. The next section reviews existing literature and discusses the constraints which apply to the design, implementation and longevity of CDM A/R projects. An analysis is then presented of the six A/R projects that are currently registered or awaiting registration in the CDM and the features of these projects are discussed in the context of what might characterize a successful CDM A/R project activity. Pathways for policy reform and practical action that might facilitate the design and implementation of more CDM A/R project activities in the future are then proposed.

A review of the constraints to the development of CDM A/R projects There are considerable constraints to the development of CDM A/R projects, and the likelihood that areas of land will be utilized in CDM A/R activities is dependent on a range of social and economic issues, food security and other factors (Zomer et al., 2008b). The constraints on the development of CDM A/R activities can be broadly classified into: (1) financial constraints, particularly from the landholders’ perspective; and (2) constraints associated with proponents’ lack of the technical knowledge and skills which are required to successfully manage the complex administrative and governance aspects of CDM project development.

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Financial constraints There are a number of important financial considerations associated with CDM A/R projects, including: cash flow and the immediacy of returns; restrictions on the inclusion of CERs from CDM projects in regulated carbon markets; securing finance to enable project development; transaction costs; and issues associated with project profitability. Many of these constraints are similar to those reported elsewhere as constraints on traditional afforestation or reforestation projects. CDM A/R projects do however involve a unique set of financial circumstances, mostly due to the nature of the CDM registration process and the dynamics of markets for emission offsets. Arguably the most critical financial constraint on the development of CDM A/R projects is the length of time it takes to gain revenue from a CDM A/R project. Because newly planted forests take a number of years to yield net sequestration benefits, there can be substantial time delays before payments for sequestered carbon are received—that is, a longer timeframe than other types of CDM activity such as renewable energy projects, and longer than the timeframe normally expected for returns from many traditional alternative land uses such as livestock or crop production (Coomes et al., 2008; Schlamadinger and Johns, 2007). So while A/R projects in due course offer an annual return from carbon sequestration, the delay in returns serves as a disincentive for landholders considering engaging in CDM A/R projects. The delay in the immediacy of returns from CDM A/R projects also imposes a need for proponents to secure finance to cover the costs of the project from conceptualization and initialization until the time when sufficient revenue from the sale of CERs is realized. Many proponents in developing countries are constrained in their capacity to access finance and hence a number of initiatives have been introduced to provide support in this regard. Thus far, the main funding for CDM activities is from the World Bank Group’s (WBG) BioCarbon Fund acting on behalf of Annex 1 governments and corporate buyers (mainly in Japan) (Schlamadinger and Johns, 2007). The WBG has several finance funds: the BioCarbon Fund, the Community Development Carbon Fund (10% of CDCF capital can be committed to small-scale A/R), and the Prototype Carbon Fund (only 10% of project finance is available to the land use sector, and not in developing countries). There are other associated national funding organizations, including the Netherlands CD Facility, and the Italian Carbon Fund. CDM A/R projects also compete for finance with other CDM projects, so factors affecting the attractiveness of other types of CDM projects (biomass, hydropower, renewable energy) will influence the availability of funding for CDM projects (Corbera and Brown, 2008). Furthermore, many of these other types of CDM projects offer earlier returns on investment, so amongst CDM financiers, finance for CDM A/R projects remains difficult to secure. In short, the ability of proponents to secure finance is an important constraint to the development of more CDM A/R projects. The complexity of the CDM application process results in high transaction costs (Jindal et al., 2008; Palm et al., 2009). Transaction cost data, even from registered CDM projects, is difficult to ascertain, given that project proponents are not required by the UNFCCC to disclose those costs (Cacho et al., 2005). Transaction cost estimates of CDM A/R projects range from US$50,000 up to US$200,000 (Schlamadinger et al., 2007a,b). Furthermore, since the carbon market has only recently been established, transaction costs have yet to become stable, and procedures, networks and rules of exchange remain variable (Cacho and Lipper, 2007; Corbera and Brown, 2008; Schlamadinger et al., 2007a). The profitability of forest-based C sequestration projects will depend on the international carbon price, additional income from agroforestry products, and the ongoing costs of monitoring

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(Ramachandran Nair et al., 2009). When carbon prices are high and timber prices low, it will be most profitable to leave the plantations uncultivated in order to preserve higher carbon stock in the forest, thus producing more carbon credits to sell. In the opposite case, optimal management will comprise earlier and more intensive harvesting with more immediate revenue and profit (Gutierrez et al., 2006). It should also be noted that in many cases the actual cost of planting acts as an even greater constraint to the development of many A/R projects. Constraints associated with knowledge, skills and other social factors In developing countries there is often a general lack of the knowledge and technical capacity required to meet the demands of the CDM registration process (Shin et al., 2007). CDM A/R projects must fulfill a range of prerequisites, including the establishment of baselines, proof of additionality, selection of an appropriate methodology (for the project activity), leakage accounting and explication of monitoring and validation procedures. The issue of permanence is important as it applies uniquely to forestry (Marechal and Hecq, 2006); additionality, leakage and measurement are common to other areas. Temporary credits are earned for sequestration benefits from land use activities that are nonpermanent, accounted for in the Kyoto Protocol with annual reporting requirements (established in UNFCCC, 1998 articles 3.3 and 3.4). Limited scope of LULUCF means non-permanence risk is small in the first commitment period, although in countries with exposure to climate change impacts like fire, floods and El Nino events, the risk is much greater (Schlamadinger et al., 2007a). Temporary CERs expire at the end of the commitment period (5 years) while long-term CERs expire at the end of the crediting period for the project activity. To establish additionality (demonstrating that the emission removal or reduction benefits of the project would not have occurred without that project) a baseline (the scenario describing the development in absence of the proposed project) must be set and future scenarios must be evaluated. This requires local historical knowledge and scientific expertise (Palm et al., 2009). It has been argued that in many developing countries additionality should be easily demonstrated by the fact that without the assistance of external NGOs forest plantations would never have been established (Shin et al., 2007). The UNFCCC describes a number of methodologies (nine for large-scale projects, five for small-scale projects, two for consolidated projects) that may be used in CDM A/R activities. These methodologies (procedures for the measurement of carbon sequestration) are complex and difficult, and a variety of estimates of carbon sequestration and carbon losses in different land use systems exist. Mean vegetation sequestration potential estimates range from 0.29 to 15.21 tCO2 e/ha/year, and soil sequestration potential ranges from 1.25 to 173 tCO2 e/ha/year (Ramachandran Nair et al., 2009). Measurement of terrestrial carbon sequestration is imprecise and difficult compared to measurement of fossil fuel direct emissions (Dixon, 1997; Hohne et al., 2007). Leakage (emissions resulting from activities indirectly caused by the project such as construction and transport) must also be accounted for, though this is usually done by assuming a debit in the first year or period of the activity (Palm et al., 2009). Beyond the design of projects and the necessary application procedures, project activities face considerable further challenges. Forest utilization is a complex cross-sectoral activity involving agriculture, timber industry and often hydroelectric stakeholders (Corbera and Brown, 2008). The extent of carbon sequestration depends on site-specific biological, climatic, soil and management factors, species characteristics and ecological interactions (Piao et

al., 2009; Ramachandran Nair et al., 2009). Land users also face the potential impacts of disease, insects (Binkley et al., 1997) and natural disasters such as drought, fire and floods (Boyd et al., 2007; Mattsson et al., 2009), and these potential threats can be powerful disincentives for involvement if they imply loss of income. Indeed, A/R projects can be labor intensive, and involve considerable production risk and price uncertainty. When gauged against alternative activities (such as pasture and cattle farming), these risks make CDM A/R activities an unattractive option. Indeed, it has been argued that in tropical Latin America the current terms of the CDM are conducive to the continued conversion of forested land to cattle pasture and thus provide incentives for deforestation (Coomes et al., 2008). CDM A/R projects require considerable labor, large areas of land and the coordination of a range of stakeholders, from land owners to investors and government authorities. Even at the level of small-scale projects (small-scale CDM A/R activities are defined as those which sequester up to 16,000 tCO2 e annually (UNFCCC, 2008)), community networks are required for projects to succeed. In one study (in Kenya) it was estimated that the number of small farms needed to achieve the critical land area required to meet minimum transaction costs is between 140 and 300 (Henry et al., 2009). While the concept of “bundling” households has been suggested as a means for communities to use home gardens in CDM projects (Mattsson et al., 2009), this would require extensive coordination, collaboration and consensus, not always easy things to achieve, particularly in larger groups. Beyond these community-level networks, project participants would require regional connections with suppliers, buyers, service providers and contractors. Connections between communities and funding bodies, technical advisors and national government agencies would also be vitally important. Successful projects are seen as those which achieve the goals of income provision for participants, restoration of degraded lands, and sustainable development (Boyd et al., 2007; Corbera and Brown, 2008; Palm et al., 2009; Seppala, 2007). These require whole-community involvement in the initial planning phases and throughout their implementation. In cases where there is conflict with other stakeholders (and forest carbon policies are not supported by all sectors of civil society), negotiated integration (of stakeholder objectives) may be the only possible solution (Corbera and Brown, 2008; Seppala, 2007). Projects that do not involve local communities are likely to fail (Boyd et al., 2007). While there are some possibilities for interaction offered to project participants by the UNFCCC through website input and Conferences of Parties (COPs), these are distant and limited forms of interaction. Many governments may be reluctant to go beyond these established CDM provisions and develop their own participatory networks (Corbera and Brown, 2008). In developing countries where a great deal of land is held in common, the issues of land tenure and property rights are potential constraints. In Mexico, for instance, 80% of rural land (usually forest and pasture) is held in common by communities (Corbera and Brown, 2008). There can be a severe disparity between customary and statutory land rights (Jindal et al., 2008; Unruh, 2008). Forestry projects also require the involvement of diverse stakeholders and occupy large areas of land. Stakeholder groups may have conflicting interests, and there is often the likelihood of competition for land use with the agricultural sector or urban development (Shin et al., 2007; Tarun-Acay, 2005). These factors can seriously compromise the viability of CDM A/R projects. The complexity of CDM projects dictates a fundamental need for governance and accountability. Nearly 50% of forests are in countries judged as rampantly corrupt (Irland, 2008), and forestry activities are threatened by the illegal behaviors of nonparticipants. Nearly a quarter of hardwood lumber and 30% of hardwood plywood traded internationally are considered to be ille-

Table 1 Characteristics of CDM A/R projects registered at July 1st 2009. Moldova Soil Conservation Project Moldova

Cooperative A/f Haryana Project India

Cao Phong Project Vietnam

Registration Scale Methodology Area Developer Participants

November 10, 2006 Large AM0001 ver 2 4000 ha Xinghuan Forestry Development Co Farmer groups

March 23, 2009 Small AMS0001 ver 4 370 ha Haryana CDM Tree Farmers’ Society Farmer groups

Funding sources

World Bank BioCarbon Fund, Farmer groups

April 28, 2009 Small AMS0001 ver 4 385 ha Forest Development Fund Vietnam Forest Univeristy and Cao Phong People’s Committee Donation by undisclosed private companies

Revenue recipients

Farmer Groups have complete ownership of CERs revenue April 1, 2006 30 years None 30 years 25,795 tCO2 e 773,842 tCO2 e Restoration of natural forest and plantation Sequestration, biodiversity, soil and water erosion control, income generation for local community Mix of private lands and land owned by private companies

January 30, 2009 Large AM0002 ver 1 20289 ha Moldsilva (State Forest Agency) Moldsilva, World Bank Prototype Carbon Fund and Biocarbon Fund Moldsilva, WBorld Bank Prototype Carbon Fund, World Bank BioCarbon Fund Moldsilva controls revenue from CERs

Project start Credit period Renewals Op. lifetime Sequestration (average/year) Sequestration (credit period) Type of A/R activity Stated outcomes

Land ownership

October 1, 2002 20 years 2 × 20 years plus 40 years operational 100 years 179,242 tCO2 e 3,584,846 tCO2 e Restoration of degraded land through A/R Prevention of land degradation, supply of forestry products, local employment, sequestration, biodiversity State Forest Agency or local councils no private land

Haryana Forest Department

Farmer Groups have complete ownership of CERs July 1, 2008 20 years 2 × 20 years 60 years 11,596 tCO2 e 231,920 tCO2 e Reforestation of cropland Poverty alleviation, biodiversity conservation, prevention of soil erosion All private lands

Developer has ownership of CERs. May 1, 2009 16 years At least 1 >30 years 2,665 tCO2 e 42,645 tCO2 e Reforestation of cropland and grassland Rehabilitation of degraded land, sequestration, improve local income

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Guangxi Watershed Project China

No private lands in Socialist Republic: householders have area-specific land use rights.

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Table 2 Characteristics of CDM A/R projects submitted for registration at July 1st 2009. Andhra Pradesh Reforestation Project India

CETEFOR Project Bolivia

Registration date Scale Methodology Area (ha) Developer

October 29, 2007 Large AM0001 ver 2 3070 ha ITC Ltd

Participants

Tribal farmer groups called ‘Sanghas’

Funding source Revenue recipients

ITC Ltd Farmers receive net benefit (after project costs deducted from gross CERs income)

Project start Credit period Renewals Op. lifetime Sequestration (average/year) Sequestration (credit period) CERs Type of A/R activity Stated outcomes

July 2, 2001 30 years No 32 years 57,792 tCO2 e 1,733,753 tCO2 e Long-term Reforestation of degraded land Create secure long-term income for rural poor; carbon sequestration through reforestation; improve soil erosion control 100% private lands

April 9, 2008 (revised December 2008) Small AMS0001 ver 4 247 ha FECAR (community org); CETEFOR (non-profit); Sicirec Bolivia Ltd (investment fund) 137 farmers + 3 communal areas in syndicates of 20-60 families, total 5 syndicates Sicirec Group BV (Dutch timber fund) Timber sales: 50% farmer families, 50% CETEFOR-Sicirec CERs/VERs: returned to cover project costs February 12, 2008 21 years No 40 years 4,341 tCO2 e 91,165 tCO2 e Temporary Reforestation of cropland and grassland Contribute to sustainable development through more efficient land use and long-term income 95% private lands, remainder communal

Notes

gally harvested (SCA, 2004). Development projects fail or perform poorly when subject to ineffective governance and weak accountability in environmental management (Boyd et al., 2007). Yet in many areas potentially suited to CDM activities issues of legal structure and participant compliance are inherently difficult because of cultural norms and traditions. Legal pluralism (cultural fluidity versus permanence, migration, traditional hierarchies) is a major challenge to the implementation of projects guided by international legal norms. In some African cultural contexts for instance, tree planting signifies or establishes tenure of the land (Unruh, 2008). The evolution of the rules of the CDM is seen as having been a hasty and politicized process (Schlamadinger et al., 2007a) which has left many stakeholders in developing countries unhappy with the structure of the mechanism (Corbera and Brown, 2008). The CDM recognizes projects of particular sizes, ranges and types—it does not account for divergent local conditions, whether unique biophysical factors or cultural attitudes, nor does it recognise forestry activity beyond its own definitions. One study, for example, examined the biogeochemical effects of tree planting in villages in China, and estimated a 9% net increase in closed canopy woody vegetation in villages since the 1940s, a LULUCF impact that only registers under fine-scale observation (<30 m) and not recognizable by any CDM assessment methodology. Yet if this land use change were to be a general and nation-wide shift, it would represent over 200,000 km2 of forest, equivalent to approximately 3 times the global annual rate of deforestation (Ellis et al., 2009). Overall, it is the CDM’s complex structure, onerous monitoring and reporting requirements, and the potential omission of important carbon data (from unrecognized activities) that may be the major contraindications for potential participants in CDM A/R activities (Cowie et al., 2007b).

Analysis of existing A/R CDM projects There are currently only four A/R projects registered under the CDM, and a further two A/R projects that have applied for registration, from more than 1600 registered projects in total.

The following analysis aims to identify features common to the registered or ‘successful’ CDM A/R projects and consider the two projects awaiting registration with these commonalities in mind. Note that by ‘successful’ the authors are referring the success of the project being registered. It remains to be seen whether these successfully registered projects will in fact succeed once implemented fully. Table 1 provides a summary of the analysis for the four projects already registered and Table 2 provides a summary of the analysis for the two projects submitted for registration. Data have been collected mostly from secondary data sources, including various project design documents submitted to the CDM Executive Board by the project proponents. More detailed primary data were collected about the Guangxi Watershed project during a series of discussions with Ms Xiaoxia Jia, the Deputy Director of the Division of UNCCD Implementation and International Cooperation, in the National Bureau to Combat Desertification, State Forestry Administration, China. The four registered CDM A/R projects are: (1) the Guangxi Watershed project in China; (2) the Moldova Soil Conservation project in Moldova; (3) the Haryana Cooperative Afforestation project in India; and (4) the Cao Phong Reforestation project in Vietnam. The two CDM A/R project awaiting registration are: (1) the Andhra Pradesh Reforestation project in India; and (2) the CETEFOR reforestation project in Bolivia. Of the six projects, three are large-scale and three are small-scale, the registered and unregistered projects being evenly divided. Stakeholder involvement and community involvement appear to be fundamental to project success. Three of the four successful projects have been implemented by community groups. The remaining project (in Moldova) is managed by the state forest agency yet has a strong element of community involvement, being implemented in conjunction with local councils and with labor and other services sourced from local communities, hence returning revenue if not operational control. The Chinese, Indian and Bolivian projects are all conducted on private or communal lands. Vietnam does not acknowledge private property, but families and individual operators have land use rights. Project participants (communities and individuals) thus

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have a vested interest in the success of the A/R activities and can be both accountable to and supportive of each other. Again the Moldovan project is unique—the lands are owned by the state or by local councils and operated by the national forest agency in trust. CDM A/R projects are unique in that the CERs they generate are designated as either temporary or long-term, which not only addresses the non-permanence issue inherent to forestry but allows flexibility in the timing of payments. Temporary CERs (tCERs) are valid for the duration of the commitment period after that in which they were issued. This is usually a period of 5 years, although project developers may also apply for temporary credits earned during the project’s operational lifetime but prior to its registration. Long-term CERs (lCERs) are valid for the duration of the project crediting period, either 20 or 30 years. The credit period is used for the purpose of calculating (and verifying) emission reductions and thus CERs earned. The 20-year periods can be renewed once or twice, and thus the operational lifetime of a project could be 20, 30, 40 or 60 years. The Moldova project is intended to operate for a century. All four registered projects will generate tCERs. This suggests that monitoring will be regular and integral to project management. Temporary credits also imply the likelihood of short rotation harvesting and more frequent payment opportunities. All of the projects have been developed by international NGOs or state agencies in collaboration with community groups (excepting again the Moldovan project, although this activity is a national initiative to rehabilitate degraded lands and improve employment opportunities and income levels throughout the country). The involvement of these organizations implies the availability of the technical resources required to meet the demands of registration. Project applications depend on specialized data and skills, ranging from the collation of historical climate records to soil sampling and cartography. The simple fact that CDM project information is only available in English requires another type of technical (linguistic) proficiency that many CDM project proponents do not possess (Xiaoxia Jia, pers. comm.). The participation of community associations is also important: in all projects other than the Moldova and Vietnam activities regional groups (farmers’ associations, community organizations) have a primary role in project management. This demonstrates a significant degree of coordination at the local level. Funding is provided by non-profit NGOs, state agencies and international investors (including World Bank loans). Outside investment may be motivated by philanthropic values, financial interest in revenue derived from CERs or agroforestry products, or a concern for the health of land and communities. It is however clear that CDM A/R projects require significant sums to meet the requirements of FCCC registration. Large-scale investment seems the only means of meeting this need. Both of the CDM A/R projects requesting registration appear to exhibit the key requirements for success. The Andhra Pradesh project is unique in that it generates long-term CERs. It is also an older activity, having commenced on 2001, and could thus expect crediting from that date. Farmers in this project will generate income from agroforestry products during the project activity, but can also expect significant one-off income returned from CERs generated. In summary, the ‘successful’ CDM A/R projects share particular characteristics: access to start-up funding and the likelihood of ongoing financial viability; project design and implementation guided by large organizations with technical expertise; community involvement and integrated participation; private (or easily controlled and managed) land use; most CER revenue directed to local communities; and positive environmental and carbon sequestration outcomes.

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The need to reform the CDM It is clear that while there are considerable economic, social and environmental opportunities in CDM A/R projects there are also major barriers to their successful conception and implementation. The constraints described in this article suggest that reform of the CDM is desirable. Recognizing these weaknesses however does not necessarily require the system to be dismantled. Given that the CDM has been agreed to and accepted and many countries have already developed national schemes within the current framework (Schlamadinger et al., 2007b), revision rather than replacement (in a post-2012 agreement) would seem to be a much better approach. Structural reform of the CDM, capacity building by the UNFCCC and flexibility of institutional mechanisms are the key ingredients of effective solutions to the problems of finance, administration and governance outlined in this paper. There is considerable support for greater inclusivity of recognized project activities under the CDM. Most prominent is the issue of deforestation, which is at present excluded yet accounts for 25% of global emissions (Skutsch et al., 2007). While a discussion of Reductions of Emissions from Deforestation and Degradation (REDD) is beyond the scope of this analysis, it must be noted that any structural reform of the CDM will benefit from consideration of the REDD issue (Jauregui, 2007; Jurgens et al., 2006; Schlamadinger and Johns, 2007; Skutsch et al., 2007). Avoided deforestation is calculated to have a break-even CER value 30% lower than that of reforestation (Coomes et al., 2008). Even without considering the REDD question, there would be advantages for many countries in including more land use activities under the mechanism. Definitions of forest within the CDM are based mainly on percentage crown coverage, and the mechanism does not allow inclusion of other vegetation types. The inclusion of vegetation and agriculture within the CDM would have significant potential positive impacts (Jauregui, 2007; Jindal et al., 2008; Lal, 2009; Schlamadinger et al., 2007b). The inclusion of all lands and associated processes in a country’s accounting would represent a further positive step. The CDM would benefit from a comprehensive approach, considering all land areas (Cowie et al., 2007b) and all carbon pools (such as carbon in harvested wood products) in accounting (Hohne et al., 2007; Schlamadinger et al., 2007b). There have been signs that these omissions are likely to be resolved in future climate agreements. The IPCC has introduced the term Agriculture, Forestry and Other Land Use (AFOLU) which implies a wider scope for this sector (Schlamadinger et al., 2007b; IPCC, 2007). This new approach will be most beneficial if accounting procedures are formalized before targets are set, in order to reduce concerns that this sector might be used as an inexpensive means for Annex 1 countries to avoid emission reduction responsibilities (Schlamadinger et al., 2007b). Another major aspect of necessary reform to the CDM is for simpler methodological and documentation procedures (Hohne et al., 2007; Jurgens et al., 2006; Schlamadinger and Johns, 2007). Registration and monitoring procedures are complex, and clearly a major constraint to the development of CDM A/R projects. Structural reform of the economic environment in which CDM projects operate is also desirable. This economic environment should be more consistent and predictable in order for investment in LULUCF activities to occur, with longer-term price signals than the current 5 years, and incentives for continued improvement in economic systems, such as the abolition of windfall credits, closure of (carbon emission) loopholes and comprehensive global carbon accounting (Schlamadinger et al., 2007a; Schlamadinger and Johns, 2007). At present, the role of the UNFCCC includes establishing an operational framework for the CDM and adjudicating project applications. A complex and bureaucratic system has evolved, with

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limited success in the area of LULUCF. In order to improve the quality of the CDM A/R the UNFCCC should directly promote capacity building in target countries and communities. Rather than operating as a centralized and often impenetrable entity, the UNFCCC CDM could endeavor to develop technical skills and methodological capability in member states. Many communities recognise the value of forestry management and agroforestry (Tarun-Acay, 2005). Successful project activities will be mediated by institutions trusted and controlled by the rural producers themselves, and these activities are most likely to achieve their environmental targets, economic goals, and social benefits when supported by strong rural organizations well trained in technical and managerial practices (Perez et al., 2007). Ideally, communities should have managerial control with ongoing monitoring and support by their Designated National Authority (DNA) to continually improve capacity and prevent or ameliorate corruption and withdrawal from project participation (Tarun-Acay, 2005). The role of the UNFCCC should be to create and strengthen institutional scaffolding which will facilitate not only this regional and national capacity but eventually allow countries to become operationally independent. These outcomes can be achieved through a realistic, adaptive process of governance capacity building, monitoring and accounting (Eliasch, 2008; Irland, 2008; Perez et al., 2007; Safa, 2005). One method of achieving this kind of reform would be to implement targeted pilot projects combining technical infrastructure and knowledge transfer, with capacity building and institutional support (Eliasch, 2008; Perez et al., 2007). This would allow operational responsibilities to be transferred from central governments to local and community authorities, in conjunction with the transfer of the necessary resources and eventual benefits (Boyd et al., 2007). The Eliasch Review (Eliasch, 2008) estimates that capacity building in forty forest nations might cost up to $4 billion over 5 years. In conjunction with such pilot projects, the CDM should acknowledge the need for ongoing, reliable and cost-efficient packages of supports and services ranging from extension advice, seeds, fertilizers and credit to guaranteed and profitable markets for their output (Perez et al., 2007). The CDM should also be reformed to incorporate greater flexibility. Different countries have widely varying conditions and capabilities, and the CDM should be able to accommodate these differences. The choice of definition of forest, for example, has a strong impact on the viability and profitability of projects (Zomer et al., 2008b). The notion that LULUCF measures are context-specific is of crucial importance (Cowie et al., 2007b), and flexibility is vital in the creation of successful projects (Boyd et al., 2007). Accommodation of these differences should be achieved not by an ever increasing range of complex project modalities but through a flexible institutional structure that acknowledged common but differentiated responsibilities, taking specific circumstances into account (Corbera and Brown, 2008; Schlamadinger et al., 2007a), and facilitating the development and implantation of A/R projects in unique contexts. Flexible mechanisms appropriate for different national contexts could be developed for the accounting of emissions, allowing countries to choose base periods at 1990 or a more recent date, or using projections/benchmarks rather than net-net accounting (Schlamadinger et al., 2007b).

Conclusion The CDM exists to contribute to the mitigation of climate change through sequestration of carbon in terrestrial ecosystems. It has the additional aims of encouraging sustainable development, promoting poverty alleviation and improving ecosystem services in project areas. The potential benefits of afforestation and refor-

estation activities in achieving these goals are clear, yet since its inception the CDM has registered only four A/R projects, with two others pending approval. There are significant constraints to the development and implementation of A/R projects, yet these constraints can be surmounted with appropriate, effective and timely reforms of the CDM. It should also be noted that the issues discussed in this paper are not limited to afforestation and reforestation alone, but are relevant across the land use sector. There is now an opportunity for the UNFCCC to reinvent the culture of the CDM, modifying its structural nature, and revising its orientation to become a flexible organization of facilitation rather than adjudication, engaged in capacity building and institutional support. Solutions are required for specific contexts, and there is a clear need to recognise different conditions site by site and project by project. This leads to the idea that rather than centralizing information on standards that must be met, and methodologies from which to choose, the UNFCCC CDM should be engaged in capacity building in developing states to enable individual nations to conduct their own assessments and project design. The role of the UNFCCC evolves, therefore, to be one of training the DNAs of member states within the broad institutional culture of the CDM. A need exists for a more holistic approach in which there is recognition and engagement of diverse stakeholders, the optimization of multiple-use benefits, ongoing efforts to build ecosystem resilience, and long-term management strategies which integrate carbon sequestration, climate mitigation, and the goals of sustainable development (Pandey, 2002; Pearce et al., 2003). Acknowledgements We would like to thank Ms Xiaoxia Jia, the Deputy Director of the Division of UNCCD Implementation and International Cooperation, in the National Bureau to Combat Desertification, State Forestry Administration, China, for her personal comments concerning the Guangxi Watershed project. References Alkemade, R., Van Oorschot, M., Miles, L., Nellemann, C., Bakkenes, M., ten Brink, B., 2009. GLOBIO3: a framework to investigate options for reducing global terrestrial biodiversity loss. Ecosystems 12 (1), 374–390. Baral, A., Guha, G.S., 2004. Trees for carbon sequestration or fossil fuel substitution: the issue of cost vs. carbon benefit. Biomass and Bioenergy 27 (1), 41–55. Binkley, C.S., Apps, M.J., Dixon, R.K., Kauppi, P.E., Nilsson, L.-O., 1997. Sequestering carbon in natural forests. Critical Reviews in Environmental Science and Technology 27 (1), 23–45. Boyd, E., Gutierrez, M., Chang, M., 2007. Small-scale forest carbon projects: adapting CDM to low-income communities. Global Environmental Change 17 (1), 250–259. Bullock, S., Childs, M., Pickens, T., 2009. A Dangerous Distraction: Why Offsetting is Failing the Climate and People. Friends of the Earth, London. Cacho, O.J., Lipper, L., 2007. Abatement and transaction costs of carbon-sink projects involving smallholders. Agriculture and Economic Development Analysis Division, The Food and Agriculture Organization of the United Nations (FAO). ESA Working Paper, 06-13. http://www.fao.org/es/esa/en/pubs wp06.htm. Cacho, O., Marshall, G., Milne, M., 2005. Transaction and abatement costs of carbon-sink projects in developing countries. Environment and Development Economics 10 (5), 1–18. Coomes, O.T., Grimard, F., Potvin, C., Simad, P., 2008. The fate of the tropical forest: Carbon or cattle? Ecological Economics 65 (1), 207–212. Corbera, E., Brown, K., 2008. Building institutions to trade ecosystem services: marketing forest carbon in Mexico. World Development 36 (10), 1956–1979. Cowie, A., Schneider, U.A., Montanarella, L., 2007a. Potential synergies between existing multilateral environmental agreements in the implementation of land use, land-use change and forestry activities. Environmental Science and Policy 10 (1), 335–352. Cowie, A.L., Kirschbaumb, M.U.F., Ward, M., 2007b. Options for including all lands in a future greenhouse gas accounting framework. Environmental Science and Policy 10 (1), 306–321. Dixon, R.K., 1997. Silvicultural options to conserve and sequester carbon in forest systems: preliminary economic assessment. Critical Reviews in Environmental Science and Technology 27 (1), 139–149. Eliasch, J., 2008. Climate Change: Financing Global Forests. Earthscan, London.

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