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ISSUES FOR CONSIDERATION IN DECISIONS ON ALTERNATIVEAPPROACHES TO ADDRESSING NON-PERMANENCE INLULUCF ACTIVITIES
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Assessing Alternative Approaches
Combination of Approaches
Risk assessment - are measuresneeded to guard against non-permanence?
Mechanisms for Replacement
- Buffer
- Commercial Insurance
- Government Guarantee
- Performance Bond
Provide exception tolow risk activities
Do credits expire or are theyassumed to be permanent?
Measures Needed
Temporary Credits
Permanent
Expire
Measures NotNeeded
Liability:Who takes on the liability ? (Buyer v. Seller)
Are full credits awarded, or arethey issued incrementally?
Tonne YearCrediting
Full
Incremental
Regulatory, policy, and financial considerations needed to implement
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•Is the risk screening required?
–Should screening be mandatory for assessing types of risks and theirpotential, if yes, what aspects need to be covered in screening
–Whether activities with low risk should be notified as categorical exceptionsand exempted from permanence requirements (e.g. buffer, insurance etc.),if yes, which categories of activities
–Whether activities with high risk should be excluded from eligible activities(e.g. activities of intentional reversal), if yes, which categories of activities
Issue – Need for Risk Screening
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Liability
Entity
Liability
Examples
Producer/seller
Producer is liable to replace reversedcredits
New Zealand ETS
Buyer
Liability moves to ER holder – similar todefault risk for a bond holder
Expired temporary creditsunder CDM
Customized contracts
Contracts reflecting liability arenegotiated between producer and buyer
Practice in over the countertransactions
System
Program manages liability on behalf ofsellers and buyers, and mechanisms areadopted to pool risks and to replacecredits subsequent to reversal events
Voluntary standards, e.g.VCS, ACR
California AB32 for forestcarbon credits
•Who is liable for reversals ?
–Seller
–Buyer
–System
•a) During contract period, and
•b) Subsequent to contract period
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•How long is the permanent period?
–Policy and permanence requirements
–Permanence period in different standards currently is:40 & 100 years
Issue – Permanence Period
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•What types of reversal risks need to be covered?
–Unintentional
–Unintentional and intentional
–Exclusion of certain intentional reversals
Issue – Coverage of Reversal Risks
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•Does the scale of activities influence the choice ofapproaches?
–Project
–Program/sub-national
–National
Issue – Scale of Activities
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•How feasible are various approaches in real worldsetting?
–Balance of credit accounts
–Financial viability
–Institutional feasibility
–Policy choice and limitations
Issue - Feasibility of Approaches or their Combinations
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•Whether the approaches analyzed are adequate?
•Is there a need for additional approaches?
–If yes, which are these approaches
Issue – Adequacy of Approaches
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•Do various approaches ensure environmentalintegrity?
Issue – Environmental Integrity
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•Should implementing entities be allowed to choosefrom a menu of approaches?
Issue – Choice of Approaches
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•Is there a need for a consistent policy for addressingrisk of non-permanence across multiple land useactivities?
Issue – Consistent Policy Across Land Use Activities
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•How the discussion on non-permanence risk relates tobroad LULUCF mitigation agenda?
Issue – Risk of Non-permanence in context of LULUCF agenda
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•Risk Screening
•Liability
•Permanence period
•Coverage of risks
•Scale of activities
•Feasibility
•Adequacy of approaches
•Environmental Integrity
•Choice among approaches
•Consistency across land uses
•Relation to broad LULUCF agenda
Summary of Issues
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RAMA CHANDRA REDDY
EMAIL: RREDDY1@WORLDBANK.ORG
FOR MORE INFORMATION ON THE BIOCARBON FUND, PLEASE CONTACT:
ELLYSAR BAROUDY
EMAIL: EBAROUDY@WORLDBANK.ORG
WWW.CARBONFINANCE.ORG
Thank you