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This background paper is part of the supporting material for the report "From Waste to Resource: Shifting Paradigms for Smarter Wastewater Interventions in Latin America and the Caribbean," a product of the "Wastewater: from waste to resource," an initiative of the World Bank Water Global Practice.

Clean Development Mechanism --- Tariffs --- Wastewater Treatment --- Water Economics --- Water Resources --- Water Supply and Sanitation --- Water Treatment and Quality

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Many experts believe that low-cost mitigation opportunities in agriculture are abundant and comparable in scale to those found in the energy sector. They are mostly located in developing countries and have to do with how land is used. By investing in projects under the Clean Development Mechanism (CDM), countries can tap these opportunities to meet their own Kyoto Protocol obligations. The CDM has been successful in financing some types of agricultural projects, including projects that capture methane or use agricultural by-products as an energy source. But agricultural land-use projects are scarce under the CDM. This represents a missed opportunity to promote sustainable rural development since land-use projects that sequester carbon in soils can help reverse declining soil fertility, a root cause of stagnant agricultural productivity. This paper reviews the process leading to current CDM implementation rules and describes how the rules, in combination with challenging features of land-use projects, raise transaction costs and lower demand for land-use credits. Procedures by which developed countries assess their own mitigation performance are discussed as a way of redressing current constraints on CDM investments. Nevertheless, even with improvements to the CDM, an under-investment in agricultural land-use projects is likely, since there are hurdles to capturing associated ancillary benefits privately. Alternative approaches outside the CDM are discussed, including those that build on recent decisions taken by governments in Copenhagen and Cancun.

Agriculture --- Banks & Banking Reform --- Clean Development Mechanism --- Climate Change --- Climate Change Mitigation and Green House Gases --- Energy and Environment --- Environment and Energy Efficiency --- Environmental Economics & Policies --- Land Use --- Mitigation --- Rural Development --- Sequestration --- Soil Carbon

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The Clean Development Mechanism established under the Kyoto Protocol allows industrialized Annex I countries to offset part of their domestic emissions by investing in emissions-reduction projects in developing non-Annex I countries. Computable general equilibrium analysis of the Clean Development Mechanism's impacts so far mimics the Clean Development Mechanism as a sector emissions trading scheme, thereby overstating its potential to save climate change mitigation costs. This study develops a novel approach that represents the Clean Development Mechanism more realistically by compensating Clean Development Mechanism implementing sectors for additional abatement cost and by endogenizing Clean Development Mechanism credits as a function of investment. Compared with previous representations, the proposed approach is more consistent in its incentive structure and investment characteristics at the sector level. An empirical application of the new methodology demonstrates that the economy-wide cost savings from the Clean Development Mechanism tend to be lower than suggested by conventional modeling approaches while Clean Development Mechanism implementing sectors do not lose in output.

Clean Development Mechanism --- Climate Change Economics --- Climate Change Mitigation and Green House Gases --- Computable General Equilibrium Modeling --- Economic Theory & Research --- Energy --- Energy Production and Transportation --- Environment --- Environment and Energy Efficiency --- Macroeconomics and Economic Growth

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Carbon finance recognizes the contribution of projects to mitigating climate change. To be able to access carbon finance, projects can certify their emission reductions under a variety of standards, one of which is the Clean Development Mechanism (CDM) of the United Nations Framework Convention on Climate Change (UNFCCC). Project developers can sell their carbon credits either in the voluntary or the regulated market. Since 2002, projects from diverse sectors have been applying the CDM modalities and procedures to generate Certified Emission Reductions (CERs) that are traded in the carbon market Afforestation/Reforestation (A/R) is one out of the 15 sectors that can generate carbon credits under the CDM. The purpose of this document is to share the experience of the BioCarbon Fund (BioCF) of the World Bank in developing and implementing 21 A/R CDM projects in 16 countries. This experience shows that the benefits associated with A/R CDM projects support the livelihood of rural people and their local environment in a significant manner. However, depending on their capacity, projects may struggle with getting credit certification and the associated benefits. This report presents the opportunities and challenges A/R CDM projects face and presents recommendations to facilitate their design and implementation as well as to scale them up significantly.

Afforestation --- Biodiversity --- Carbon Credits --- Carbon Dioxide --- Carbon Finance --- Carbon Policy and Trading --- Carbon Sequestration --- Clean Development Mechanism --- Climate --- Climate Change --- Climate Change Mitigation and Green House Gases --- Desertification --- Developed Countries --- Economics --- Economies of Scale --- Ecosystems --- Emission Reductions --- Emissions --- Environment --- Environmental Economics & Policies --- Forests --- Fossil Fuels --- Land Tenure --- Rural Development --- Streams --- Transaction Costs --- Wetlands

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June 2000 - Under the Clean Development Mechanism, developing countries will be able to produce certified emissions reductions (CERs, sometimes called offsets) through projects that reduce greenhouse gas emissions below business-as-usual levels. The challenges of setting up offset markets are considerable. Do forestry projects, as a class, have more difficulty than energy projects reducing greenhouse gas emissions in ways that are real, measurable, additional, and consistent with sustainable development? Under the Kyoto Protocol, industrial countries accept caps on their emissions of greenhouse gases. They are permitted to acquire offsetting emissions reductions from developing countries - which do not have emissions limitations - to assist in complying with these caps. Because these emissions reductions are defined against a hypothetical baseline, practical issues arise in ensuring that the reductions are genuine. Forestry-related emissions reduction projects are often thought to present greater difficulties in measurement and implementation than energy-related emissions reduction projects. Chomitz discusses how project characteristics affect the process for determining compliance with each of the criteria for qualifying. Those criteria are: Additionality. Would the emissions reductions not have taken place without the project? Baseline and systems boundaries (leakage). What would business-as-usual emissions have been without the project? And in this comparison, how broad should spatial and temporal system boundaries be? Measurement (or sequestration). How accurately can we measure actual with-project emissions levels? Duration or permanence. Will the project have an enduring mitigating effect? Local impact. Will the project benefit its neighbors? For all the criteria except permanence, it is difficult to find generic distinctions between land use change and forestry and energy projects, since both categories comprise diverse project types. The important distinctions among projects have to do with such things as: The level and distribution of the project's direct financial benefits; How much the project is integrated with the larger system; The project components' internal homogeneity and geographic dispersion; The local replicability of project technologies. Permanence is an issue specific to land use change and forestry projects. Chomitz describes various approaches to ensure permanence or adjust credits for duration: the ton-year approach (focusing on the benefits from deferring climatic damage, and rewarding longer deferral); the combination approach (bundling current land use change and forestry emissions reductions with future reductions in the buyer's allowed amount); a technology-acceleration approach; and an insurance approach. This paper - a product of Infrastructure and Environment, Development Research Group - is part of a larger effort in the group to assess policies for mitigating climate change. The author may be contacted at kchomitz@worldbank.org.

Carbon --- Carbon Emissions --- Carbon Policy and Trading --- Clean Development Mechanism --- Climate Change --- Coal --- Developed Countries --- Economies --- Emissions --- Emissions Abatement --- Emissions Reduction --- Energy --- Energy and Environment --- Energy Production and Transportation --- Environment --- Environment and Energy Efficiency --- Environmental --- Environmental Economics and Policies --- Forestry --- Insurance --- Investment --- Joint Implementation --- Land --- Land Use --- Public Sector Development --- Risk --- Sustainable Development --- Taxes --- Technology