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The Verified Carbon Standard v-c-s.org permits the creation of VCU units or carbon credits that are recognised in the voluntary carbon markets (as opposed to compliance markets such as the EU ETS and the NZETS)

Credits are created by applying an approved methodology, making the required measurements which are then independently verified by an approved verifier resulting in the issue of VCU credits.

The methodology is based on the measurement protocols and standards established by the United Nations Framework on Climate Change Clean Development Mechanism (CDM) Executive Board.

The CDM board approves and issues certified emissions reductions (CER) that are acceptable in the EUETS and NZETS as compliance credits for compliance with obligations under the UNFCCC Kyoto Protocol. Such CERS have traded in a range of 6-20 Euro with a current value around 10 Euro.

Forest based CDM credits are not acceptable in the EUETS pre 2012. The result has been the development of the voluntary market under the VCS and other standards for forest credits.

This is generally called REDD or reduced emissions from deforestation and degradation. Plantation forestry in degraded land is an approved subset of this class of credit generation projects under the VCS.

The Market

The compliance market, of which the EUETS is an example, is reported as hundreds of billions of dollars. The market is liquid and options are available.

With post 2012 emissions caps (the EUETS is a cap and trade system) it is expected forest or reduced emissions from deforestation and degradation (REDD) will be the source of credits to offset the increased demand due to increased restrictions on emissions.

REDD emerged from the concept that arguably 20% of global C02 emissions came from deforestation, the majority of that in developing countries. Projects and funding that reduce deforestation or stimulate reforestation have gained support from companies willing to invest on a voluntary basis to improve the public perception of the business. Tesco and Sainsbury are notable participants in this market with the Europeans leading the market’s development.

EITG consortium partners have also created and sold over 250,000 voluntary credits from New Zealand forests in the USA in 2010. These credits have been created from pre 2008 forest growth in permanent forests in New Zealand using the PFSI standard from the NZETS. The US market is notoriously difficult and not a major participant in emissions trading at this stage. EITG has also made direct sales of such units in small volumes to New Zealand business.

Typically the voluntary market has preceded the compliance market and is less liquid and has lower prices. Volumes are lower than the compliance market. Historically over time voluntary markets have evolved into compliance markets. Commentators expect REDD will follow the same path.

REDD Markets from Carbon Forestry 2011[1]

Ex ante Canadian REDD credits from riparian forestry rights sold to German natural gas company, volume of 1Mt[2]

Norwegian Government direct investment in Indonesia for REDD total $1bn

To date REDD has been in small isolated projects. Scale is required and once present is attracting buyers notable opportunities being[3]:

  • Californian Market to allow REDD credits
  • UK Climate investment fund
  • Norwegian Government
  • Macquarie World Bank fund $25-100m (Indonesian REDD)

Buyer Requirements for REDD

  • Community benefits
  • Environmental Issues
  • Transparency
  • Governance

Brasil public private partnership supplying the Californian market.

Indonesian projects, Kalimantan, West Papua with over 100 pilot projects

Developed Country REDD

VCS standard change in forest management from active logging to retention in Tasmania Australia

Canadian forest right to Germany noted above.

[1] www.carbonforestryevents.com held Auckland New Zealand 13-14th July 2011

[2] Murray Ward speech Gtripplec.co.nz

[3] James Schultz CEO Green Collar

REDD Projects Approved

Two major REDD projects under the VCS have been approved

Kenyan Wildlife Works project

Essentially a failed cattle ranch is being granted credits for the regrowth of forest as a conservation project via regeneration. The area is semi arid and natural regrowth is slower that temperate climates resulting in lower credit levels.


Guatemala – Rubber Plantation

A Greenfield rubber plantation to be established in a non traditional rubber growing area has been also approved for VCS credits.


These projects provide good precedents to move forward.

The Core Issue Permanence

Permanence is an issue that has dogged the creation of forest based carbon credits since the idea of carbon credits was floated in the early 1990’s.

Initial projects under the Kyoto precursor AIJ or activities implemented jointly involved Costa Rican forest conservation. EITG consortium partners Trexler and Associates pioneered these early projects selling the credits to US companies.

In the negotiations creating the Kyoto Protocol forestry whilst recognised failed to find favour with the EU. The issue was and is the fact that credits issued may be lost from harvest or other events e.g. fire. Also the EU had few forests from which to generate credits.

The CDM addressed permanence with the concept of temporary credits or tCER. Neither the EU nor New Zealand permits these credits into their ETS. Hence forestry in developing countries as a CDM project has languished with very few registered and no reports of sales in any volume.

In developed countries however, in the NZETS for example some 50mt of forest based carbon credits called NZU have reportedly been sold between $17 and $22 NZD (approximately 8-12 Euro) in the last 12 months according to New Zealand MAF data www.maf.govt.nz

NZU units converted to AAU units have been sold to European Governments (Norway and Denmark) for Kyoto Compliance reportedly at 11 Euro and around 1 million AAU units. These sales were quoted as ‘high quality credits’. Allied standards such as ‘gold standard’ have emerged distinguishing credits by their sustainability attributes and other factors outside the methodologies or an extension of the same. These standards can attract a premium over other similar credits.

In compliance markets such as the NZETS permanence is dealt with by a liability on the part of the forest owner and obligations to file annual returns and the fact an NZU is sovereign issue.

Addressing Issues around Permanence

Permanence is addressed in two ways

  1. Plantation forestry – only 50% of the maximum carbon sequestered during a rotation is permitted to be issued as credits. This represents the long term average carbon stocks on a site.
  2. A risk reserve of 20% of the credits issued is retained across all projects as a risk buffer to underwrite any loss on any participating forest project a so called risk pooling process.

These elements of the VCS standards give buyers confidence in the quality and integrity of the REDD credit under VCS.

In the example we plant 5000ha per annum will create what is accepted to be a ‘normal’ forest. With a normal forest the loss of carbon from harvest is made up from another similar sized compartment being replanted and its regrowth.

As evidenced by the approval of the first two projects and the many projects in the pipeline that the market is accepting of this approach.

Example Applying the VCS REDD Standard

Lets assume there are two REDD projects, reforestation and forest conservation.

Assuming reforestation of 5000 ha planted each year for a period of ten years and using the accepted forest growth tables from the New Zealand ETS for Eucalyptus.

The growth over a 10 year period would yield gross credits per annum as below. Applying the VCS standard for carbon in a plantation forest plus a further credit reserve of 20% and a price of $4USD per VCU credit the annual income.

Example REDD with Planation and $4USD

Adding to that a conservation estate of 50,000 ha the numbers of credits are as above. The value of the annual income based on $4USD per VCU would be as follows for the combined plantation and conservation in USD.

Comparing this to a MAI of 24 (which we assume in the example is an average MAI for the rotation) the carbon sequestered each year would be 12 tonnes [1] and the C02 removed 3.67 times that giving 44 VCU per ha per annum. The MAF tables used in the example range from 29-39 VCU units per annum from years 5-10. The appropriate averaging and credit reserves are then applied to these totals to give the actual VCU issued and able to be sold.

Note: The examples contained herein are indicative only and should not be relied upon as a predictor of the outcome of this or any other project under any standard. The factors used in the examples are based on current accepted values and volumes, in this case the accepted NZETS growth models for Eucalyptus in New Zealand (standardised across New Zealand) and anecdotal reports of VCU prices in voluntary markets as of 2010/2011. Growth in other geographic locations may differ for any number of factors including but not limited to rainfall, soils, silviculture applied, pests and genetics. Specific site measurement using standardised tools will be needed to confirm projected and actual growth in the specific forest compartments. These are subject accepted statistical modelling outlined in the various standards. This is a key aspect of the project plan proposed and is necessary to establish the performance of the proposed project. Such measurements are subject to external audit and verification by approved auditors.

The Concept and Role of Additionality

The fundamental underpinning issue for a project to be approved is additionality. In essence this looks at the viability of the project without carbon credits. This process is viewed from other perspectives as well as simple financial analysis.

As the central and critical analysis from the data supplied to date we propose that there exists a prima facie case for additionality. This is subject to further analysis which is a key part of the project plan. The aim of the following is to explain the basis for our preliminary position and the need for further analysis including empirical, source and use, and defining boundaries.

Additionality within the CDM is based on either an approved methodology existing at the time of application or the submission of a new methodology. A specific methodology has been indentified. AR-AM0008 “Afforestation or reforestation on degraded land for sustainable wood production” Version 03 Sector Scope 14 EB 42 www.unfccc.int/cdm

This, in essence, is a specific tool for additionality and canvases the basic areas predominating all such tools within the CDM. The tool is intended to cover a specific project type. The tool is referred to in current REDD methodologies and therefore applies to REDD.

In addition to the use of a specific tool for additionality (essentially this is a methodology for analysis of the project to show additionality), the baseline must be established.

The process for additionality follows a systematic stepwise analysis. The following follows the established process.

  1. Identification of alternatives.
  2. Investment analysis
  3. Barrier analysis
  4. Common practice analysis.

[1] http://www.jopp.or.jp/english/jigyo/biomassmanual/manual4.html