long CERs & temporary CERs

Annex I Parties are allowed 1 percent of base year emissions times 5 from afforestation and reforestation CDM project activities in the first commitment period. This will be around 200 million tonnes of CO₂e.

Temporary CERs and Long CERs are special types of CERs issued for forestry projects. They are two ways of accounting for non-permanence in forestry CDM project activities. Temporary CER or tCER is a CER issued for an afforestation or reforestation project activity under the CDM which expires at the end of the commitment period following the one during which it was issued. Long-term CER or lCER is a CER issued for an afforestation or reforestation project activity which expires at the end of its crediting period. tCERs are issued for the net anthropogenic greenhouse gas removals by sinks achieved by the project activity since the project start date; lCERs are issued for the net anthropogenic greenhouse gas removals by sinks achieved by the project activity during each verification period.

Each national registry has to include a tCER replacement account for each commitment period in order to cancel AAUs, CERs, ERUs, RMUs and/or tCERs for the purposes of replacing tCERs prior to expiry. A tCER that has been transferred to the retirement account or the tCER replacement account of a Party included in Annex I shall be replaced before its expiry date. To this end, for each such tCER, the concerned Party shall transfer one AAU, CER, ERU, RMU or tCER to the tCER replacement account of the current commitment period.

As far as lCERs are concerned, a Party included in Annex I may use lCERs towards meeting its commitment for the commitment period for which they were issued. lCERs may not be carried over to a subsequent commitment period. Each lCER expires at the end of the crediting period or, where a renewable crediting period is chosen, at the end of the last crediting period of the project activity. The expiry date shall be included as an additional element in its serial number. An expired lCER may not be further transferred. Each national registry shall include an lCER replacement account for each commitment period in order to cancel AAUs, CERs, lCERs, ERUs and/or RMUs for the purposes of either replacing lCERs prior to their expiry date; or replacing lCERs where the certification report of the DOE indicates a reversal of net anthropogenic greenhouse gas removals by sinks since the previous certification; or replacing lCERs where the certification report has not been provided. An lCER that has been transferred to the retirement account of a Party included in Annex I shall be replaced before its expiry date. To this end, for each such lCER, the concerned Party shall transfer one AAU, CER, ERU or RMU to the lCER replacement account for the current commitment period.

What this all adds up to is an additional burden on Annex 1 governments who want to encourage their installations to use CERs from forestry to meet their commitments — they have to allocate AAUs, CERs, ERUs, RMUs and tCERs and lCERs to tCER and lCER replacement accounts before tCERs and lCERs expire. For this they will depend heavily on the EB and the secretariat.

In its compilation and accounting database for accounting of assigned amounts, the secretariat of the EB must annually record for each Party included in Annex I the following information for the previous calendar year and to date for the commitment period:

The quantity of tCERs retired, including information on their expiry dates;
The quantity of tCERs cancelled, including information on their expiry dates;
The quantity of tCERs that expired in the retirement account or the tCER replacement account for the previous commitment period, including information on their expiry dates;
The quantity of AAUs, CERs, ERUs, RMUs and tCERs transferred to the tCER
replacement account to replace expiring tCERs, including information on the dates of expiry and cancellation;
The quantity of lCERs retired, including information on their expiry dates;
The quantity of lCERs cancelled, including information on their expiry dates;
The quantity of lCERs that expired in the retirement account for previous commitment periods, including information on their expiry dates;
The quantity of AAUs, CERs, ERUs, RMUs and lCERs transferred to the lCER
replacement account to replace lCERs, including information on the dates of expiry and cancellation.

Forestry projects under CDM are quite restrictive. They must take place on lands which have not been forested for a long time — in the case of reforestation since 1990.

For the next commitment period we are hopeful that forest conservation and avoided deforestation will also be allowed. For semi-arid areas CDM reforestation programmes for reforesting degraded land are very useful and can already be implemented now. Depending on the price per CER the investment costs for planting could be met. After say the first two or three monitoring periods, the CERs from the final two or three monitoring periods for a thirty year project could belong to the project participant. They would have sold half their CERs in advance to finance the project, the benefits from the sale of the last few monitoring periods would go to the families planting and maintaining the trees. In the case of the Bagepalli CDM Reforestation Programme for example, the net anthropogenic Greenhouse Gas removals by sinks are estimated at 6.8 tonnes of CO₂/ha/year. At 6.9 CERs per ha per year and an expected CER price of US$ 20, the revenue flows per ha for the 30 year project period would be US$ 138 per year per hectare. With this sort of income we can afford the following discount rates:

15 year loan with 0% interest (the repayments are 133.5 US$/yr/ha) or
20 year loan with 3% interest; (the repayments are 134.5 US$/yr/ha) or
30 year loan with 5% interest. (the repayments are 130 US$/yr/ha)

Though interest rates on agricultural loans are generally lower than rates for industrial loans in India, we have not yet been able to negotiate a 5% loan. We have been offered 8%. A US$ 2,000 loan over 30 years would cost (US$ 178) per annum, which would add up to a deficit of US$ 1,190. We are therefore looking for innovative funding mechanisms for this project.