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close this bookCarbon Counts: Estimating Climate Change Mitigation in Forestry Projects (WRI, 1997, 32 pages)
close this folderII. Leakage
View the document(introduction...)
View the documentCauses of Leakage
View the documentLeakage Index
View the documentApplication of the Index

Causes of Leakage

A project may fail to meet its carbon sequestration target because of unforeseen circumstances that are beyond the control of project participants; improperly defined key parameters, such as time horizon, project boundaries, or baselines; or inappropriate project design and activities in light of the land-use patterns in and around the project site.

Unforeseen Circumstances

Extreme weather, political instability, climate change, pests, disease, or fire are unforeseen circumstances that project designers and implementors cannot control. Such circumstances can be dealt with at two levels: the individual project level and a broader multi-project, national, or international level. Project failure at the macro level can be guarded against in at least three ways: creating a diverse portfolio of projects that hedge against individual project failures, pinning carbon reduction credits to national baselines, or creating insurance funds that would provide funding for a replacement project should one fail. (11) Each of these options would mitigate the consequences of an individual project failure.

Of the three options, the portfolio strategy is the only one currently being used. To sequester nearly 100 million tons of carbon, FACE, (the financing arm of the Netherlands' state utility), has set up projects in seven countries. FACE has sufficiently diversified so that the failure of one project will not seriously hamper its carbon mitigation effort. Utilities that do not have the resources to invest in more than one forestry project can still reduce the risks of an individual project failure by working in concert. In the United States, for example, 40 utilities have jointly invested in the nonprofit UtiliTree Carbon Company to provide more than $2 million for five or six forestry-based projects. (12)

The portfolio concept can be applied not just to the number but also to the types of projects. Because natural forests are usually adapted to naturally occurring events typical to their region, projects that maintain these forests may therefore be more resilient than projects focussing solely on tree plantations, which tend to be more susceptible to drought, fire, and disease. (13)

Our project review indicated some guidelines for dealing with these and other unforeseen circumstances at the individual project level. One guideline is to provide benefits to the people living in the project area Projects that fail to provide local benefits can solidify political opposition and increase the projects' risk of failure.

Conversely, projects that provide such benefits can create incentives for local people to overcome risks and even expand projects' impacts.

The CARE/Guatemala project, which increased fuelwood availability and agricultural productivity by providing trees through CARE-sponsored tree nurseries, has persisted during years of political strife and uncertainty because it involved local people as stakeholders in its success. Moreover, these people have adopted the project's techniques in areas beyond its boundaries by setting up their own tree nurseries, thereby potentially increasing the amount of carbon sequestered (sometimes called positive leakage) and providing other ancillary benefits.

Other projects have used different methods to enhance their success. The RUSAFOR project, for example, contains both a stick and a carrot. RUSAFOR has built loss provisions into its contract with the Russian Forest Service, stipulating that the Service will replant trees if the original ones do not survive. Also, the project splits any future carbon credits evenly between the United States and Russia.

In conclusion, the mere existence of risk from unforeseen circumstances is not a sufficiently compelling reason to exclude forestry and land-use projects from a joint implementation program. The strategies outlined above can reduce the risk of a project's failure to an acceptable level. Furthermore, risk is not endemic to forestry projects, but is also a concern for energy-based, greenhouse gas offset projects. To date, no forestry or land-use projects to sequester carbon have failed.

Improperly Defined Key Parameters

One of the challenges of avoiding leakage is to correctly define a project's three key parameters. One is the baseline - what would happen in the project's absence. It is the foundation for estimating the project's net carbon sequestration benefits. The second parameter is the appropriate project lifetime. And the third parameter is the project's boundaries which may differ from the project's physical boundaries, the area where carbon sequestration activities are directly implemented. The impact of these activities may extend beyond the physical boundaries. The Leakage Index, presented in a later section, describes the various drivers of land-use change and project components that help to define a project's boundaries. These three parameters are particularly important in helping project designers more accurately estimate carbon benefits, discover potential sources of leakage, and design projects to minimize or eliminate this problem. (14)

Baseline

Net carbon sequestration is difficult to estimate, in part because of the conjectural nature of baseline projections. The case studies suggest a few guidelines for constructing reasonable projections.

First, estimates of what would happen in the project's absence should be based on existing forest trends and an identifiable cause. In the Krkonose project, in the Czech Republic, such estimates were aided by the existence of historic data on the Krkonose forest's decline and a clear understanding of the decline's cause - acid rain resulting from emissions from nearby power plants. The CARFIX project in Costa Rica used LANDSAT data collected during a 5-year interval to refine its baseline projections.

Second, barriers to positive change should be analyzed to strengthen the case for a likely baseline scenario. The point of this action is to determine if the social benefits offered by forestry projects could be realized without outside intervention. Although agroforestry or sustainable forestry projects generally provide environmental and social benefits, small landowners, who typically have little access to capital, may be unable to wait for these benefits because they need to support themselves today. (15) Both the original CARE/Guatemala and CARFIX projects provided interim income until the projects' benefits could be realized. Furthermore, without such external funding, there would be no incentives to produce nonmarket goods such as sequestered carbon.

Third, reforestation projects should include evidence of barriers to natural forest regeneration such as intensive cropping, pollution, soil degradation, perverse forest policies, pests, or fire. Because forests eventually rebound from disruption, project planners must make a compelling case that the area would not regenerate naturally. Baseline assumptions remain a thorny issue for reforestation and afforestation projects.

Project Lifetime

Picking an appropriate lifetime for a project is also an important parameter in developing an accurate estimate of expected future net carbon benefits. Two issues are associated with choosing an appropriate time horizon. The first is deciding which time horizon most accurately measures the effects of project activities, and therefore most accurately estimates the net reduction of greenhouse gases. Different time horizons will yield different net estimates. The second is ensuring that the project continues long enough to mitigate the global warming potential of greenhouse gas emissions but not so long that the project becomes unreasonable in terms of risk and monitoring. The following three options address each of the above issues to varying degrees.

Under the first option, referred to as "lifetime of an emitting activity," the project would be linked to the lifetime of a power plant's operations or other emitting activities that the project was designed to mitigate. The CARE/Guatemala project, for example was linked to the 35-year lifetime of the AES-power plant it was offsetting. However, a 35-year time horizon may be surpassed in duration by the entire lifetime of certain carbon forestry projects, such as RUSAFOR, which is situated in a slow-growing boreal zone. (16) One advantage of such a time horizon is that the carbon emitter, who is typically the project investor, can play a monitoring role, as is the case with CARE/Guatemala.

Under the second option, referred to as "lifetime of a project," only the carbon sequestered for the exact duration of project activities would be estimated. In this case the time horizon would vary significantly from project to project as, for example, from 3 years for the logging project in Malaysia to 60 years for RUSAFOR. However, only counting carbon for the duration of project activities, which do not include monitoring, carries the risk of miscalculating project impacts. As Figure 2 illustrates, the potential differences in net carbon sequestration estimates can be large, depending on the time period used for calculation. If estimates are calculated only for the first 5 years, the difference between the estimate for conventionally logged land and that for reduced-impact logged land will be greater than under a longer time frame. Also, if the conventionally logged land regenerates, this difference will decrease.

Under the third option, referred to as, "lifetime of carbon dioxide in the atmosphere," the project's lifetime is estimated to be 50-200 years, the length of time that carbon dioxide persists in the atmosphere. (17) However, assuming continued carbon sequestration over a time horizon reaching the upper end of this range is unreasonable given the impossibility of accounting for uncertainties about events and activities that far into the future.


Figure 2. Reduced Impact Logging (RIL) Carbon

For the purpose of estimating a project's net carbon mitigation, the time frame should neither mask future land-use trends nor render parameter estimates meaningless. It is necessary to balance a reasonable time frame for future projections against the need to sequester greenhouse gas emissions that persist for hundreds of years. Given a changing landscape, using too long a time horizon renders parameter estimates undependable, reducing the reliability of a project's carbon estimates.

In terms of tracking carbon, a project's lifetime should last until the time at which the carbon dioxide could have cycled out of the atmosphere, a minimum of 50 years. In this way, the project is most likely to have reduced the atmospheric concentration of greenhouse gases. Ideally, the project will be designed to provide local benefits that will ensure the continuation of project activities.

Boundaries

Properly defining project boundaries is absolutely critical to avoid leakage. Choosing an appropriate project boundary for making carbon sequestration estimates requires determining the spatial relationship between the demand causing land-use change, and the supply source. Project activities can have impacts at a project level, a local/regional level, or a global level.

Small pilot projects on land with little or no competing uses need only consider the area of direct project activities because the project's impact is unlikely to extend beyond its immediate boundaries. Projects in Russia and the Czech Republic fall into this category. Krkonose is situated in a national park, where there is no danger of encroachment, so there are no alternate land uses to displace. FACE is funding efforts on 15,000 hectares, and only the dynamics of those hectares need to be considered.

More often, competing land uses will mean that a project's impact extends beyond its own borders to the local area or region. The Olafo and CARE projects in Guatemala, and CARFIX are in this category. In dynamic settings where factors such as population growth, agricultural productivity, fuelwood needs, and concerns about deforestation interact, the project's impacts will extend beyond the areas of direct intervention. Developing an agroforestry project in a region of subsistence agriculture, requires more than planting X number of trees on X number of hectares and calculating the carbon sequestered. A project developer must also consider what type of land is converted to agroforestry. If it is agricultural land, will agroforestry increase productivity? If not, will farmers need to clear more land than was previously thought necessary?

For some projects, notably those involving logging or agricultural production for export markets, the demand and supply dynamic will be essentially global in that the projects cannot control demand and cannot affect the quantity consumed. If the Malaysia logging project reduces output, the world market will consume the same amount of timber; it just won't come from the Malaysian project site.

Inappropriate Project Design

The spatial relationship between supply and demand not only determines the appropriate project boundaries but also structures the process of identifying and avoiding leakage during the project design and evaluation phase. Potential types of leakage are activity shifting, market effects, and project construction effects. (18) Unlike unforeseen circumstances, these manifestations can largely be anticipated and avoided. Some or all are listed in the guidelines issued by the U.S. Initiative on Joint Implementation and by the U.S. Department of Energy for reporting greenhouse gas offset projects.

Activity shifting occurs when the activity causing carbon loss in the project area is displaced to another location. As an example, consider a project that buys out farmers and preserves the former agricultural land and surrounding forest. In response, farmers may resume agricultural activities in a neighboring forest rather than move to a city or take up another occupation. If farmers resume such activities elsewhere, the project has merely displaced the source of carbon emissions. Similarly, the Malaysia logging project which reduced damage from logging, may increase timber harvests elsewhere by decreasing the project site's short-term timber output.

Market effects occur when demand is unmet because a project reduces supply or because it unexpectedly increases demand. A United Nations Development Programme proposal for a carbon sequestration and biodiversity project in an arid area of the Sudan refers to such effects. According to the proposal, increased fuelwood and other resulting improvements might encourage immigration, increasing pressure on the new fuelwood source and undercutting net carbon savings. (19)

The case of Carton de Colombia, a pulpwood producer, provides a useful example of market effects, even though it was not a carbon storage project, but resembles such a project. Carton de Colombia, aimed to maintain a sustained yield through natural regeneration and by minimizing damage to residual trees in a lowland tropical forest on Colombia's Pacific Coast. (20) However, the job opportunities created by the pulpwood producer triggered an influx of colonists, who could not all be absorbed and employed. As a result, timber poaching and conversion of recently harvested areas to agriculture nullified potential project gains.

Construction effects occur when a project increases the energy-intensiveness of an activity by, for example, mechanizing agriculture, or introducing new emissions-producing activities by requiring major infrastructural developments such as large dam construction. With the exception of biomass projects for energy production, it is unlikely that a forestry project requiring such a large construction effort would be cost-effective enough to implement for carbon sequestration benefits alone. This study did not examine any such projects.

Of the three potential types of leakage, thus far only two-activity shifting and market effects-have emerged from our case studies as a concern. They are both related to unmet demand. Activity shifting will only occur if project boundaries are not configured to include relevant demands. Market effects are associated with a demand shift in which the project itself provokes an increase in demand and upsets original assumptions and hence carbon sequestration estimates.

The next two sections present a conceptual framework, the Leakage Index, that helps determine when leakage is likely to be an issue and uses case studies to illustrate the index.