5 Preface Executive Summary

Step 8: Estimation of decrease in carbon stock and increase in GHG emissions due to leakage
In this step the issue of leakage is addressed by trying to estimate the likely impacts of the project scenario on the defined leakage area. Again it is necessary to do this ex ante in order to help in designing and introducing measures to combat leakage, to identify possible areas where significant leakage will occur and to help in making projections on revenues to be made from carbon emission reductions. Two sources of leakage are considered:

1. 
   Displacement of baseline activities from project area to baseline area
   
2. 
   GHG emissions resulting from leakage prevention measures
   

As a result of the project activities this may cause agents to simply move their activities to other areas and engage in the same destructive practices. It is therefore critical to monitor this. If the carbon stocks in the identified leakage belt decreases more than expected this is a clear indication of leakage due to displacement of baseline activities. In order to estimate the possible impacts of activity displacement on carbon stocks outside the project boundary the following sources of leakage must be estimated and where potentially significant, monitored:

1. 
   Displacement of grazing; for this use the CDM EB approved ‘tool for the estimation of GHG emissions related to the displacement of grazing activities in A/R CDM project activities’;
   
2. 
   Displacement of agricultural activities; for this use the CDM EB approved methodology for ‘reforestation or afforestation of land currently under agricultural use (AR – AM0004, section on estimation of leakage due to conversion of land to crop land, based on area of conversion)’;
   
3. 
   Increased use of non-renewable biomass; for this use CDM-EB approved tool for the calculation of GHG emissions due to leakage from increased use of non-renewable woody biomass attributable to an A/R CDM project activity.
   

If leakage prevention measures are introduced, which includes activities such as agricultural intensification then the GHG emissions associated with these activities need to be estimated ex ante and if significant monitored. The main GHG emissions from leakage prevention measures which are flagged up and which may need to be captured include:

1. 
   Nitrous oxide from nitrogen fertilizer which can be estimated using the CDM-EB approved tool ‘estimation of direct nitrous oxide emissions from nitrogen fertiliser’ for A/R CDM project activities;
   
2. 
   Methane and nitrous oxide from livestock intensification. Here various methods are proposed to estimate this;
   
3. 
   Consumption of fossil fuels where the latest CDM-EB approved tool for ‘estimation of GHG emissions related to fossil fuels combustion in A/R CDM project activities’. The information for each of the three possible sources then needs to be tabulated and aggregated.
   

Finally for those carbon stocks which are deemed significant they should be summed together to produce total decreases in carbon stocks due to activity displacement. These should be put into a table. This information provides an ex ante estimate of leakage due to activity displacement and allows the estimation of total leakage.

In order to monitor ex post activity displacement it is necessary to monitor against the baseline for the leakage belt. This baseline needs to be derived in the same way the baseline was determined for the project area discussed in steps 4 to 6.
Summary of step 8

1	Estimation of increases in GHG emissions due to leakage prevention measures
2	Estimation of decreases in carbon stocks due to displacement of baseline activities
3	Estimation of total leakage

Step 9: Ex-ante net anthropogenic GHG emission reductions

In order to estimate the net GHG emission reduction of a RED project activity, the following equation is used:

Carbon RED = Carbon BASELINE – Carbon ACTUAL – Carbon LEAKAGE
In the absence of regulatory guidance on how to quantify carbon credits based on carbon stock changes and GHG emission reductions in RED project activities no specific methods are provided. Project proponents are encouraged to explore possible approaches.

Appendix II Key Issues in designing pro-poor REDD agreements
1. Provision of information is required at national and local levels to ensure equitable negotiation of REDD agreements. Information should at a minimum contain basic details of how REDD mechanisms work, realistic expectations of benefits and possible implications.

2. Provision of upfront finance and other mechanisms for reducing costs to help improve the equity of benefit distribution in REDD. This may help bridge the gap between project/programme initiation and payments for the delivery of emission reductions.

3. Use of ‘soft’ enforcement and risk reduction measures: ‘Hard’ enforcement measures such as financial penalties are likely to affect the poor disproportionately. Project investors and/or developing country governments should apply ‘soft’ measures such as non-binding emission reduction commitments where possible.

4. Prioritise ‘pro-poor’ REDD policies and measures: Whilst different REDD options may give rise to similar levels of emissions reductions, impacts on the poor will be varied. To ensure social benefits, a strong ‘pro-poor’ political commitment is required from the outset.

5. Provide technical assistance to national and local governments, NGOs and the private sector: technical assistance will be needed to increase investment and the visibility of the poor. Key areas include: establishing reference scenarios/levels for measuring performance; improved data collection on small-scale enterprise and subsistence values; financial systems and verification services for REDD; and landscape planning approaches.

6. Support to strengthen local institutions and improve access to legality: To ensure ‘voice and choice’ in REDD design and implementation, improved access to appropriate legal support will be crucial for poor people. This is especially the case with REDD, where new and unfamiliar legal structures may be required, and where approaches may be experimental.

7. Maintain flexibility in the design of REDD mechanisms: Flexibility, for example, including the use of nationally specific standards or regular review processes, will be crucial to minimise risks such as communities being locked into damaging long-term commitments.

8. Clear definition and equitable allocation of carbon rights: rights to own and transfer carbon will be essential for REDD emissions trading. As these will govern land management over long timescales, consultation will be needed in their formulation. Where national governments retain carbon rights, equitable benefit sharing agreements will be needed.

9. Development of social standards for REDD and application of existing extra-sectoral standards to REDD systems could improve benefits for the poor by ensuring that processes such as public consultation are thoroughly carried out. Standards should also be developed for ongoing social impact assessment at project and national scales.

10. Balance rigour and simplicity: Mandating complex standards can have perverse effects in market systems, such as reduced access to markets by small producers. REDD-related standards need to be simple and accessible but also robust.

11. Ensure broad participation in the design and implementation of REDD, for example, through improving access to international debates by developing countries and NGOs. It will be important to consider the most appropriate level at which to assign decision making powers over REDD to achieve maximum participation of the poor.

12. Measures to improve the equity of benefit distribution: Issues such as risk aversion and cost-effectiveness are likely to lead to highly variable benefit distribution. Use of tools such as taxes to redistribute benefits and strengthening of local institutions may improve equity.

13. Avoid perverse effects of REDD due to limited direct benefits: Incentive schemes where benefits are concentrated can create perverse effects such as in-migration and conflict. Benefits will therefore need to be distributed across wide areas and actors, and combined with strong accountability measures to ensure that beneficiaries are legitimate.

14. Ensure accountability and transparency in REDD processes, for example through third party verification and strengthened democratic processes. This could help reduce perverse effects such as corruption that can adversely affect the poor.

15. Alignment with international and national financial and development strategies, such as Poverty Reduction Strategies. This could help to raise the profile of the poor within REDD and improve sustainability by integrating REDD into wider processes.

16. Ensure longevity in REDD mechanisms: Stable and predictable benefits associated with REDD could provide increased security to the poor. At community and individual levels, benefits need to be distributed over the lifetime of REDD projects and assumptions about the sustainability of alternative livelihood approaches should be critically evaluated.

17. Use of broad definitions for land use types that can be included in REDD systems could help increase overall coverage of REDD, thereby increasing income and growth potential, and could facilitate inclusion of potentially pro-poor activities such as agroforestry.

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1 Australian National University (2008), "Green Carbon, the role of natural forests in carbon storage", Canberra.

2 Santelli, M and Moutinho, P et al, (2005), ‘Tropical deforestation and the Kyoto Protocol, Climate Change 71(3): 267-276.

3 Dutschke, M and Wolf, R (2007), Reducing emissions from deforestation in developing countries: the way forward, GTZ, Eschborn.

4 GOFC-GOLD (2008), Reducing greenhouse gas emissions from deforestation and degradation in developing countries: a sourcebook of methods and procedures for monitoring, measuring and reporting, GOFC-GOLD report version COP 13-2, (GOFC-GOLD Project Office, Natural Resources Canada, Alberta, Canada).

5 UNFCCC/FCCC/SBSTA/2007/ MISC.14, 2007. UNFCCC website www.unfccc.int.

6 UNFCCC/CP/2007/6/Add.2.

7 See GOFC-GOLD (2008), Reducing greenhouse gas emissions from deforestation and degradation in developing countries: a sourcebook of methods and procedures for monitoring, measuring and reporting, GOFC-GOLD report version COP 13-2, (GOFC-GOLD Project Office, Natural Resources Canada, Alberta, Canada).

8 Taken from a presentation by the Ministry of Forestry by the Republic of Indonesia. http://www.oecd.org/dataoecd/39/12/40633791.pdf.

9 Peskett (2006), How Did Forest Fare In Nairobi? ODI Blog Friday, 15 December 2006.

10 Alvarado, L, X,R and Wertz-Kanounnikoff, S (2007), ‘Why are we seeing REDD? An analysis of the international debate on reducing emissions from deforestation and degradation in developing countries’.

11 Neeff, T. Eichler, L. Deecke, I and Fehse F (2007), Update on markets for forestry offsets, CATIE, 2007.

12 Adapted from Peskett (2008), Making REDD work for the poor (draft 2 for the poverty and environment partnership, ODI, London and Dutschke, M and Wolf, R (2007), Reducing emissions from deforestation in developing countries: the way forward, GTZ, Eschborn.

13 A presentation by Lucio Pedroni, The “Nested Approach” A flexible mechanism to reduce emissions from deforestation for the International Roundtable on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries Brussels (Belgium), 24-25 Oct, 2007.

14CATIE (2007). The “Nested Approach”: A flexible mechanism to reduce emissions from deforestation. Available from http://www-personal.umich.edu/~thoumi/Research/Carbon/Forests/Forests,%20AD% 20Critiques/Nested%20Approach%20to%20REDD.pdf

15Ebeling, J., T. Neeff, S. Henders, C. Moore, F. Ascui, L. Peskett, J. Fehse, A. Sari, D. Wolfowitz, D., and Z. Harkin (2008). REDD policy scenarios and carbon markets. Report prepared for the Indonesian Forest Carbon Alliance (IFCA). Ecosecurities: Oxford, UK. 136 pages.

16 Nöel Kempff Mercado Project Design Document. CDM-A/R-PDD version 1. http://conserveonline.org/workspaces/climate.change/ClimateActionProjects/NöelKempff/NKPDD.

17 Combating Climate Change in Bolivia: Nöel Kempff Climate Action Project. A Nature Conservancy fact sheet. http://www.nature.org/initiatives/climatechange/work/art4253.html.

18 Seifert-Granzin, J. The Nöel KempffClimate Action Project: Challenges for project based approaches in future REDD schemes. An FAN Bolivia presentation at Conservation Finance Workshop. Vilm, 29 Jul – 3 Aug, 2007. www.bfn.de/fileadmin/MDB/documents/ina/vortraege/22_FAN_Nöel_Kempff-Seifert-Grenzin.pdf

19 Combating Climate Change in Bolivia: Nöel Kempff Climate Action Project. A Nature Conservancy fact sheet. http://www.nature.org/initiatives/climatechange/work/art4253.html.

20 SGS. The Nöel Kempff Climate Action Project.: Validation and Verification Report. Summary. Nov 2005. www.fanbo.org/serviciosambientales/proyectos/redd/ SummaryFinalVerificationReportNKCAP27Nov.pdf

21 May, P., Boyd, E., Veiga, F., and Chang, M. Description and analysis of the Nöel Kempff Mercado Climate Action project. In “Local sustainable development effects of forest carbon projects in Brazil and Bolivia: A view from the field.” IIED Environmental Economics Program. Jan 2004, pp. 71-89.

22 Nöel Kempff project methodology document. http://conserveonline.org/workspaces/climate.change/ ClimateActionProjects/NöelKempff/NKPDD.

23 SGS. The Nöel Kempff Climate Action Project.: Validation and Verification Report. Summary. Nov 2005. www.fanbo.org/serviciosambientales/proyectos/redd/ SummaryFinalVerificationReportNKCAP27Nov.pdf

24 May, P., Boyd, E., Veiga, F., and Chang, M. Description and analysis of the Nöel Kempff Mercado Climate Action project. In “Local sustainable development effects of forest carbon projects in Brazil and Bolivia: A view from the field.” IIED Environmental Economics Program. Jan 2004, pp. 71-89.

25 Seifert-Granzin, J. The Nöel KempffClimate Action Project: Challenges for project based approaches in future REDD schemes. An FAN Bolivia presentation at Conservation Finance Workshop. Vilm, 29 Jul – 3 Aug, 2007. www.bfn.de/fileadmin/MDB/documents/ina/vortraege/22_FAN_Nöel_Kempff-Seifert-Grenzin.pdf

26 Combating Climate Change in Bolivia: Nöel Kempff Climate Action Project. A Nature Conservancy fact sheet. http://www.nature.org/initiatives/climatechange/work/art4253.html.

27 SGS. The Nöel Kempff Climate Action Project.: Validation and Verification Report. Summary. Nov 2005. www.fanbo.org/serviciosambientales/proyectos/redd/ SummaryFinalVerificationReportNKCAP27Nov.pdf

28 Carbon Monitoring. Nöel Kempff Mercado Climate Action Project. Website. http://www.Nöelkempff.com/ English/CarbonMonitoring.htm.

29 SGS. The Nöel Kempff Climate Action Project.: Validation and Verification Report. Summary. Nov 2005. www.fanbo.org/serviciosambientales/proyectos/redd/ SummaryFinalVerificationReportNKCAP27Nov.pdf

30 SGS. The Nöel Kempff Climate Action Project.: Validation and Verification Report. Summary. Nov 2005. www.fanbo.org/serviciosambientales/proyectos/redd/ SummaryFinalVerificationReportNKCAP27Nov.pdf

31 Combating Climate Change in Bolivia: Nöel Kempff Climate Action Project. A Nature Conservancy fact sheet. http://www.nature.org/initiatives/climatechange/work/art4253.html.

32 Combating Climate Change in Bolivia: Nöel Kempff Climate Action Project. A Nature Conservancy fact sheet. http://www.nature.org/initiatives/climatechange/work/art4253.html.

33 Peterson, A., Gallagher L., Huberman D., and Mulder, I. “Seeing REDD: The Opportunity for a Climate-Conservation Double Dividend Through Avoiding Deforestation. A UNEP/IUCN presentation. www.unep.ch/etb/events/pdf/Presentation1_WRGI2%20event.ppt.

34 Ibid.

35 Dutschke, M., and Wolf, R. “Reducing Emissions from Deforestation in Developing Countries: The way forward.” GTZ. April 2007. www.gtz.de/de/dokumente/en-climate-reducing-emissions.pdf.

36 Llana, S.M. “Bolivia gets clean by staying green: Project pays Bolivia for the forests it does not cut - a potential model in the battle against climate change.” Christian Science Monitor. June 5, 2008. editionhttp://features.csmonitor.com/environment/ 2008/06/05/bolivia-gets-clean-by-staying-green/.

37 Peterson, A., Gallagher L., Huberman D., and Mulder, I. “Seeing REDD: The Opportunity for a Climate-Conservation Double Dividend Through Avoiding Deforestation. A UNEP/IUCN presentation. www.unep.ch/etb/events/pdf/Presentation1_WRGI2%20event.ppt.

38 May, P., Boyd, E., Veiga, F., and Chang, M. Description and analysis of the Nöel Kempff Mercado Climate Action project. In “Local sustainable development effects of forest carbon projects in Brazil and Bolivia: A view from the field.” IIED Environmental Economics Program. Jan 2004, pp. 71-89.

39 Ibid.

40 Dutschke, M., and Wolf, R. “Reducing Emissions from Deforestation in Developing Countries: The way forward.” GTZ. April 2007. www.gtz.de/de/dokumente/en-climate-reducing-emissions.pdf.

41 World Bank. Pilot Program to Conserve the Brazilian Rain Forest (PPG7). News updated Dec 2005. http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:20757004~pagePK:64257043~piPK:437376~theSitePK:4607,00.html.

42 Dutschke M., and Wolf, R. Lessons Learned on Avoided Deforestation. A Presentation at UNFCCC Workshop on reducing emissions from deforestation in developing countries. Cairns, Mar 2007. GTZ.

43 World Bank. Pilot Program to Conserve the Brazilian Rain Forest Report: Mid-Term Review of Institutional Arrangements. Summary. http://www.worldbank.org/rfpp/docs/ir/c1.htm.

44 Dutschke M., and Wolf, R. “Reducing Emissions from Deforestation in Developing Countries: The way forward.” GTZ. April 2007. www.gtz.de/de/dokumente/en-climate-reducing-emissions.pdf.

45 Dutschke M., and Wolf, R. Lessons Learned on Avoided Deforestation. A Presentation at UNFCCC Workshop on reducing emissions UNFCCC Workshop on reducing emissions from deforestation in developing countries from deforestation in developing countries. Cairns, Mar 2007. GTZ.

46 Dutschke M., and Wolf, R. “Reducing Emissions from Deforestation in Developing Countries: The way forward.” GTZ. April 2007. www.gtz.de/de/dokumente/en-climate-reducing-emissions.pdf.

47 Ibid.

48 Congo Basin Forest Partnership. A Partners for Sustainable Development website, updated Apr 2004. http://webapps01.un.org/dsd/partnerships/public/partnerships/14.html.

49 Congo Basin Forest Partnership. Objectives. http://www.cbfp.org/.

50 The Economist. The unkindest cut. Feb 14 2008. http://www.economist.com/opinion/ displaystory.cfm?story_id=10688618.

51 Butler, J. “Carbon traders, not conservationists, could save Cameroon rainforest.” Mongabay online journal. Feb 15 2008. http://news.mongabay.com/2008/0215-cameroon.html.

52 Leape, J. Forest harmony. Letter to the editor. Economist. Mar 6 2008.

53 Bowan-Jones, E. Reducing Carbon Emissions from Deforestation in the Ulu Masen Ecosystem, Aceh, Indonesia. FFI presentation, undated.

54 FFI & Carbon Conservation Reducing Carbon Emissions from Deforestation in the Ulu Masen Ecosystem, Aceh, Indonesia. A project design note for CCBA Audit. Dec 2007.

55 Butler, R. First rainforest-for-carbon-credits deal becomes a reality. Mongabay online journal. Feb 7 2008. http://news.mongabay.com/2008/0207-carbon_conservation.html.

56 SmartWood/Rainforest Alliance. Validation Audit Report for Climate, Community and Biodiversity Project Design Standards for Ulu Masen Ecosystem, Aceh Indonesia. Jan 17 2008.

57 FFI & Carbon Conservation Reducing Carbon Emissions from Deforestation in the Ulu Masen Ecosystem, Aceh, Indonesia. A project design note for CCBA Audit. FFI & Carbon Conservation. Dec 2007, p8.

58 FFI. Aceh Forest & Environment Project. Annual Progress Report 2007.

59 Niles, J. It's Not Easy Being Green in Aceh, Indonesia. An opinion published by The Katoomba Group’s Ecosystem Marketplace online journal. Oct 25 2007. http://ecosystemmarketplace.com/pages/ article.opinion.php?component_id=5358&component_version_id=7777&language_id=12.

60 Balch, O. Forests: A carbon trader's gold mine? ClimateChangeCorp online news. 7 May, 2008.

61 The Juma Sustainable Development Reserve Project: Reducing Greenhouse Gas Emissions from Deforestation in the State of Amazonas, Brazil. A project design document (PDD) for the Climate, Community & Biodiversity Alliance (CCBA) Standard. May 2008, p. 5.

62 Global Lodging Leader Announces Integrated Strategy to Address Climate Change. A Conservation International press release dated 7 Apr 2008. http://www.conservation.org/newsroom/pressreleases/Pages/ CI_Marriott_green_hotels_announcment.aspx.

63 The Juma Sustainable Development Reserve Project: Reducing Greenhouse Gas Emissions from Deforestation in the State of Amazonas, Brazil. A project design document (PDD) for the Climate, Community & Biodiversity Alliance (CCBA) Standard. May 2008, p. 5.

64 The Juma Sustainable Development Reserve Project: Reducing Greenhouse Gas Emissions from Deforestation in the State of Amazonas, Brazil. A project design document (PDD) for the Climate, Community & Biodiversity Alliance (CCBA) Standard. May 2008, p. 3-4.

65 The Juma Sustainable Development Reserve Project: Reducing Greenhouse Gas Emissions from Deforestation in the State of Amazonas, Brazil. A project design document (PDD) for the Climate, Community & Biodiversity Alliance (CCBA) Standard. May 2008, p. 6-7.

66 The Juma Sustainable Development Reserve Project: Reducing Greenhouse Gas Emissions from Deforestation in the State of Amazonas, Brazil. A project design document (PDD) for the Climate, Community & Biodiversity Alliance (CCBA) Standard. May 2008, p. 6.

67 The Juma Sustainable Development Reserve Project: Reducing Greenhouse Gas Emissions from Deforestation in the State of Amazonas, Brazil. A project design document (PDD) for the Climate, Community & Biodiversity Alliance (CCBA) Standard. May 2008, p. 86.

68 Marriott and Brazilian State of Amazonas Partner to Protect Rainforest. A Marriott press release dated 7 Apr 2008. http://www.marriott.com/news/detail.mi?marrArticle=312511.

69 World Bank Forest Carbon Partnership Facility. www.carbonfinance.org.

70 First Countries Named to Benefit from Forest Carbon Partnership Facility. A World Bank press release. http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:21846447~menuPK:34463~pagePK:34370~piPK:34424~theSitePK:4607,00.html.

71 Gardner, T. “U.N. launches program to cut deforestation emissions” Reuters online. http://www.reuters.com/article/environmentNews/idUSTRE48N91C20080924.

72 http://www.regjeringen.no/en/dep/md/Selected-topics/klima/why-a-climate-and-forest-initiative.html?id =526489

73 Forests Now Declaration. http://www.forestsnow.org/.

74 New Forests Signs Agreement to Establish REDD Project in Papua, Indonesia. A New Forest press release. May 2008. http://www.newforests-us.com/index.html.

75 Voluntary Carbon Market Tripled in 2007. Carbon Finance. Print version. May 2008. Vol 5, Issue 5, Pg 5.

76 http://carbonfinance.org/Router.cfm?Page=BioCF

77 See http://www.v-c-s.org/docs/VCS%202007.pdf

78 Kollmuss, A, Zink, H and Polycarp, C (2008), Making sense of the voluntary carbon market: a comparison of carbon offset standards, WWF Germany

79 See http://www.v-c-s.org/docs/VCS%202007.pdf

80 Kollmuss, A, Zink, H and Polycarp, C (2008), Making sense of the voluntary carbon market: a comparison of carbon offset standards, WWF Germany

81 See http://www.v-c-s.org/docs/AFOLU%20Guidance%20Document.pdf

82 Kollmuss, A, Zink, H and Polycarp, C (2008), Making sense of the voluntary carbon market: a comparison of carbon offset standards, WWF Germany

83 See http://www.v-c-s.org/docs/VCS%202007.pdf

84 See http://www.v-c-s.org/docs/VCS%202007.pdf

85 Goto http://carbonfinance.org/docs/REDD_Mosaic_Methodology.pdf

86 http://www.climate-standards.org/pdf/2007_11_02_CCBS_factsheet_Web.pdf

87 http://www.climate-standards.org/pdf/2007_11_02_CCBS_factsheet_Web.pdf

88 http://www.climate-standards.org/pdf/2007_11_02_CCBS_factsheet_Web.pdf

89 http://www.climate-standards.org/images/pdf/CCBStandards.pdf

90 Gibbs, Brown, and Niles 2007. Monitoring and estimating tropical forest carbon stocks: making REDD a reality. Environmental Research Letters. DOI:10.1088/1748-9326/2/4/045023.

91 GOFC-GOLD 2008. Reducing greenhouse gas emissions from deforestation and degradation in developing countries: A sourcebook of methods and procedures for monitoring, measuring, and reporting. Available at http://www.gofc-gold.uni-jena.de/redd/.

92 In order to be sufficiently conservative, The World Bank Biocarbon Fund RED methodology suggests that the emissions reduction credits claimed by a project should be reduced by an amount that is equal to the sum of the magnitudes of the 95% confidence intervals of the emissions estimates of both the baseline and project scenarios. Methodology available from