5.1 Creating an International Framework for ERC
5.2 Building Policy and Institutional Frameworks in Developing Countries
This report has already mentioned most of the major issues and challenges facing forestry sector ERC project opportunities in the Asia-Pacific Region. Some of these challenges are common to all ERC projects across all sectors, while some relate more directly to projects within the Asia-Pacific Region. Others are specific to the forestry sector. This final section presents recommendations on these issues.
Project developers and others promoting the advancement of the ERC concept appear to be at a turning point. Many potential investors, project developers, and host countries are reluctant to participate at this time and have adopted a “wait and see” attitude. The Kyoto agreement indeed moved Parties toward an operational ERC network. However, it is important that follow-up meetings in Bonn and Buenos Aires clarify the policy and market framework for ERC projects. A major issue needing clarification is when credit will be granted and whether credit will be granted for projects initiated prior to 2000. Investors seek an international framework that will provide credible methodologies for quantifying GHG credits and a market system for valuing and trading credits. In the short term, some countries are exploring initiatives to develop consistent approaches for quantifying and valuing credits for ERC projects within specific sectors, such as the forestry sector in Mexico. Eventually, however, all such approaches will have to be reconciled among various countries and between different sectors.
Developing countries in the Asia-Pacific Region are becoming more receptive to ERC projects primarily because they believe it enhances opportunities for increased foreign capital being directed toward their own development priorities. A number of countries are now considering steps, such as domestic programs, to increase their own capacity to promote or facilitate project development. These programs provide for transparent and consistent processes for both advocates and opponents of ERC projects.
Two key policy issues to be addressed for establishing an international framework relate to: 1) commitments by developed and developing countries to reduce GHG emissions; and 2) sharing and pricing carbon credits. Developed countries, as noted earlier, have agreed to legally binding commitments. These commitments will have important implications for ERC projects. The sharing and pricing of carbon credits is a complex issue that will likely be dealt with on a project-by-project basis. Some developing countries seem reluctant to share credit, while others are willing to accept the investment and part with at least some of the credit. Similar to sharing credits, negotiating prices for carbon credits on a project-by-project basis also may not be fair to developing countries. Again, they feel investors will hold a stronger hand when host countries are in need of capital and technology. Developed countries also have greater capacity and expertise for analyzing projects. An interesting perspective is held by Dr. Jyoti Parikh of the Indira Gandhi Institute for Development Research. He uses the analogy of a monopoly versus a free market system when describing the current ERC situation. When there is only one buyer, then they only have to pay for the seller’s incremental cost of abatement (e.g., the cost of afforestation). All the economic “surplus,” or advantage, between what the buyer would be willing to pay and what the seller would be willing to accept, favors the buyer. In a free market system, buyers all pay the same market price, regardless of the seller’s marginal cost. Thus, the economic surplus is shared between buyers and sellers. But without such an international market for carbon credits, how can the Parties to the FCCC ensure that benefits are shared fairly between investor and host countries? Minimum prices for carbon credits – either set internationally or in a given host country – might be useful until a market system is developed.
5.2.1 Domestic Policies and Institutions
5.2.2 Domestic ERC Task Force and Program
5.2.3 Sectoral ERC Workshops
5.2.4 Building Awareness and Understanding of ERC Concepts
5.2.5 Estimating the Project Opportunities in the Region
Several countries in the Asia-Pacific Region recognize they must develop domestic strategies and actively respond to opportunities presented by the Kyoto Protocol. Host country officials, therefore, are examining questions such as: What role should government, the private sector, and NGOs play in an ERC system? What should be the responsibilities of each of these parties? Are additional incentives needed to encourage private sector participation in ERC? Issues negotiated at the international level will, of course, play a significant role in setting such strategies. But there are also initiatives that countries must determine for themselves.
By definition, ERC projects require approval or endorsement by the developing country. Thus, governments are the gatekeepers of ERC project activity in their country. Presumably, these governments can shape ERC project activities to target specific sectors or priorities within sectors and thereby diffuse any sensitivity to issues such as eco-colonialism. In many developing countries in the Region, there is a lack of clear government policy on ERC projects that hampers development of projects. It is unclear, for example, whether governments with their various ministries are supportive of ERC projects or not. Generally, clear guidelines for project submissions or criteria for project evaluation do not exist in developing countries. An institution with clear ERC project criteria and process for reviewing projects is needed. More often than not, little is in place to encourage interested parties in developing projects. On the contrary, too often, contradictory signals and confusing barriers scare off potential project developers. Governments must respond to these negative concerns to become involved in ERC project activities. And they must also involve private sector organizations, industry, and NGOs.
One as yet unanswered question is: Who should participate in developing the domestic policy framework for ERC projects? At the governmental level, ministries such as the agriculture, forestry, energy, commerce, transportation, and finance ministries should be involved. Each of these ministries need to participate in developing an ERC system – not necessarily in the day-to-day activities – but in developing a coherent system for ERC projects, coordinated across the national economy. Because ERC projects are a way to bring private sector investment into sustainable development, industry should also play a significant part in establishing the system, both in setting national criteria and in evaluating and monitoring actual projects. Private sector businesses should not only be consulted, they should be interwoven into developing the ERC system. Their experience and concern is not merely helpful but essential.
NGOs also must play a vital role, not only in terms of their expertise, but by representing the needs of the people, particularly the poor and disenfranchised. Many NGOs, domestic and international, have experience with ERC projects. They can also play key roles in monitoring and evaluating ERC projects, particularly as to their social, institutional, and environmental benefits and as to what exactly these projects are expected to provide at the local level.
As mentioned previously, some countries have been slow to react to ERC issues. Often this can be attributed to a lack of interest or awareness, either on the part of an agency or a single individual within an agency. Regardless of one’s perspective, ERC is an opportunity that deserves serious consideration and debate among several agencies within the government in general. Designating a focal point for ERC project activities is an important first step toward providing a rational mechanism for such debate and consideration.
A “task force” approach, representing various interests and disciplines is one possible approach. In general, government agencies will probably take the lead in establishing such task forces. In some instances, however, private organizations – either industry or NGO – could provide leadership, since they too have critical roles in an ERC system. Whichever type of organization is primarily responsible for leading the effort to develop the system, however, there is need for clear targets and objective and mutually agreeable assessment tools to judge whether an ERC program is succeeding. Monitoring of ERC projects is an additional critical element. Although governments are ultimately responsible for reporting ERC results to the international community, NGOs can assist in monitoring the domestic benefits provided by individual projects and in verifying the results reported.
Significant funding is, of course, required to organize such national task forces and to develop an effective domestic program for ERC activities. Developed countries have agreed to fund incremental costs that developing countries incur in complying with the FCCC. The GEF has placed strong emphasis on institutional capacity building; it seems that an ERC project task force is the best type of institution that developed countries would support, either through the GEF or other funding mechanisms.
A critical element for any domestic ERC program – and a major task of a national task force – is to develop criteria for evaluating project proposals. These criteria should be designed to help screen the development of ERC projects in a host country. They should recognize the development benefits and concerns of projects, and demonstrate flexibility in encouraging a wide range of project types and experiences.
Another key objective of a national task force would be to agree on acceptable methodologies for estimating and monitoring the reduction in GHG emissions from ERC projects in various sectors. A pitfall in the forestry sector has been the lack of fair, uniform, and accepted methodologies. A common concern here is how to estimate emission baselines and how to assess the GHG benefits of different types of forestry projects, particularly the more complex projects involving integrated land-use activities.
Any solidly designed domestic ERC program should also be attentive to investors’ concerns about the risks and credibility of carbon credits associated with projects. It is important, therefore, to consider creating a national framework and mechanisms that facilitate foreign investment in new initiatives, such as the framework earlier described, in Costa Rica. The establishment of a national framework, perhaps with specific sectoral programs, should help position a country favorably as investors explore options among numerous countries.
Although some government agencies, private industry groups and NGOs are well acquainted with ERC, there are many trade associations, NGOs, and government agencies which are not. Moreover, the opportunities for ERC projects, and how to implement them, varies significantly by sector. Domestic ERC programs, therefore, should always have a strong sectoral focus. A key activity for this focus could be sectoral workshops to heighten awareness and knowledge about ERC and to help build the capacity of domestic organizations to first design and then actually carry out ERC projects. Such workshops could also assist in establishing goals for a particular sector, approach international donors and investor groups, and set the framework for tracking progress. The principle should be to devolve ERC project planning, development, and marketing within a specific sector, while freeing the national task force to oversee and coordinate the various sectors.
Ideally, sectoral workshops should include foreign industry representatives and experts in project development, plus domestic industry, NGOs, and government. A forestry sector workshop would thus not only assist in attracting potential foreign investors. It would also allow such foreign representatives to better understand the cultural differences within the Region and the different business practices with which they would have to deal.
Although developing countries in the Asia-Pacific Region are now more open than previously to ERC projects, there is still a great need for more awareness and understanding of climate change issues and opportunities. At the country level, understanding is generally limited to government agencies already involved in FCCC activities. Other government agencies, perhaps from the environment and energy sectors, or NGOs and private groups that could be instrumental in project development, are relatively unaware of the ERC dialogue. A paper by the Indonesian NGO, LATIN, states that public awareness of climate change and ERC issues must be increased, and that “discussion on climate change and specifically AIJ have been minimal... even the academicians of forestry, agriculture and land use are not aware enough of these issues.” There is a great need in developing countries for public education, outreach, and communication activities to broaden awareness and encourage discussion of these issues and programs.
In response to the perceived bias in favor of energy sector projects, advocates of forestry ERC initiatives need to develop better information and communication strategies on forestry opportunities. These strategies should address technical and social concerns about complex forestry projects, and clarify the advantages of ERC projects in this sector relative to the energy sector.
Finally, the need for public education and understanding on ERC projects is also great in developed countries. To build stronger support for programs in developed countries, potential project developers, investors, and the public at large must become more knowledgeable about ERC concepts. Except for the few companies that have shown a strong interest in ERC projects, potential investors in the private sector have a quite limited understanding of the international policy framework, concepts, and opportunities.
As mentioned earlier, significant opportunities exist in the Asia-Pacific Region for forest conservation, reforestation/rehabilitation, improved forest management, plantations, biomass energy/fuelwood, and urban forestry. In many countries, ambitious forest management goals are contained in national forestry action plans developed by the various forestry agencies. These plans have identified – usually in specific terms – existing forest areas under threat, reforestation opportunities, and possible interventions. A major amount of research, for example, has been completed on converting Imperata grasslands to forests. However, these ambitious plans are characteristically under-funded. To credibly estimate the scale of the opportunity for all interventions outlined above – including the carbon implications – would require considerably more assessment.
