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Trading Carbon : December - January 2011
Compliance schemes that are emerging outside of the EU are also showing more of an appetite to allow the use of forestry credits. For example, California's trading scheme, which is due to begin in 2013, allows credits from some domestic forestry projects for compliance use. Whether or not international forestry credits would be permitted in the future is uncertain. "We are hopeful forestry projects like ours will be eligible for the California scheme, but the jury is still out, and it is too soon for us to get excited about this," Farmer said. Reducing emissions from deforestation and forest degradation (REDD) has also been touted as a potential source of carbon finance for Africa. In October, the UN approved $4 million in funding to help support Nigeria's national REDD programme, making it the fourth African country, after the Democratic Republic of the Congo, Tanzania and Zambia, to receive 14 COVER STORY "If there had been a market for CDM forestry credits in a compliance scheme then we would have seen many more projects," said Kevin Whitfield, head of carbon at South Africa-based bank Nedbank. Forestry projects have, so far, proved unpopular in the CDM, because c urrent EU r ules state that CERs from this type of scheme cannot be used for compliance in the bloc's ETS. Other issues have also held back investments in these project types. "There are a range of other issues that need to be addressed before forestry can take off, not least, those surrounding land titles and the legal and regulatory frameworks for these," said Standard Bank's Sinclair. However, UCB's Farmer is ploughing ahead with its so- called FEADER (Forestry for East African Development & Emissions Reductions) project. The scheme is in early stage development, but it plans to use one of the afforestation/ reforestation methodologies already approved for use under the CDM to help to prove the integrity of the project. "We are seeing how far we can use the CDM, because it is a clearly recognisable international brand that stands for UN quality. For some forestry projects, you are looking at timelines over 60 years and we can at least be confident there will still be a UN in 60 years time," he said. The credits will be sold to large corporations keen to highlight the green credentials of their offset schemes, he added. "It is a way of using the CDM's credibility while still satisfying the voluntary market demand for green leaves in its projects," Farmer said. If there had been a compliance market for forestry credits we would have seen more projects Kevin Whitfield, Nedbank Dec 2011/Jan 2012 www.pointcarbon.com Africa Asia South America Other 1% 8% 20% 71% Figure 2: Pre-registered CDM projects by region Project developers have complained that issues surrounding the availability of designated operation entities (DOEs) -- those responsible for auditing emission reduction schemes -- have hampered attempts to scale up their activity in Africa. But Werner Betzenbichler, general manager of the DOEs and Independent Entities Association, expects more auditors to become active in the continent as the focus of new CDM projects shifts to the least developed countries. "More and more auditors are seeing that the CDM will continue in Africa and it will, therefore, become a question of how to relocate their resources," he said. The frst and only Africa-based DOE, Carbon Check Pyt, gained accreditation by the CDM's Executive Board in April. At the time of its approval, company CEO Adam Simcock said its accreditation "could boost carbon credit generation business throughout Africa". He noted that the fact it is a South African Rand-based company in a Rand-based economy will help it to be more cost effcient for developers. Developers have said transaction costs for operating in the continent have also held back their ambitions in the past, and their concerns have been backed up by a recent UN Framework Convention on Climate Change report. The 2010/2011 annual activity report of DOEs, released in an annex to the agenda for the executive boards' 65th meeting held in November, showed fees for work done by auditors in African countries were much higher than in other regions. Average fees for CDM validation in Africa for the period from July 1, 2010, to June 30, 2011, were $42,158 per project compared with $31,866 for the Asia Pacifc region, $32,632 for Latin America and the Caribbean and $38,465 for Eastern Europe. Meanwhile, average fees for verifcation work in the continent, at $29,944 were also signifcantly up on the $20,152 for Asia Pacifc, $23,200 for Latin America and $26,023 for Eastern Europe. "In principle, projects in Africa are not that different, the diffculties, however, are with the logistics, the infrastructure and travel," Werner said, adding that these issues mean the cost of carrying out work in the continent is often higher than in its peers. Auditor's in Africa SOURCE: THOMSON REUTERS POINT CARBON