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ARE CARBON CREDITS THE NEXT

INVESTMENT OPPORTUNITY?By Donal Yeang

Deforestation and forest degradation

account for up to 20% of the total annual an-

thropogenic greenhouse gas emissions (GHG)

(Van der werf et al, 2009). As a result, current

approaches to address climate change include

strategies to reduce deforestation and forest

degradation in developing countries (REDD).

REDD initiative is an effort to create a nan-

cial value for the carbon stored in forests, of-

fering incentives for developing countries

to reduce emissions from forested lands and

invest in low-carbon paths to sustainable de-

velopment. In addition, reducing emission de-

forestation and forest degradation is relatively

cheap and cost effective for climate change

mitigation (Stern, 2006). Even though REDD

is still under discussion within the United

Nations Framework Convention on Climate

Change (UNFCCC), many REDD pilot proj-

ects are being implemented across the tropics.

In Cambodia, the Community Forestry Carbon

Offset Project in Oddar Meanchey province is

being implemented to generate carbon cred-

its for selling in the voluntary carbon market.

It is estimated that the project may generate

approximately US$31 million of net carbon

revenues over 30 years (FA et al, 2009). The

primary goal of this project is to successfully

enhance storage and sequestration of carbon

in the natural forests of northwest Cambodia

under emerging REDD initiative and to assess

a climate-related payment mechanism for for-

est conservation. The secondary goals include

supporting the implementation of the national

community forestry program, securing long-

term tenure rights for forest-dependent com-

munities, responding to rural livelihood needs,

conserving biodiversity, and supporting hy-

drological regimes (Poffenberger et al, 2009).

In addition, the project has been submitted to

the Voluntary Carbon Standard (VCS) and the

Climate Community Biodiversity Alliance

(CCBA) for validation. The carbon credits are

expected to be sold at the end of this year.

In this REDD pilot project, more than

50% of net incomes from the project will ac-

crue to the local communities. In addition,

the Cambodia government has institutional-

ized bene t sharing distribution through the

Government Decision No.699 to ensure the

maximum bene ts will ow to the communi-

ties who are participating in the project. This

meant that the carbon based revenues from the

REDD project are depended on the stakehold-

ers involvement in reducing deforestation or

in another word performance based payments.

Even though the performance base payment

scheme is the core concept of REDD payment,

Wertz-Kanounnikoff and Kongphan-apirak

(2009) emphasized that governance improve-

ment and broader policy reform need to be ad-

dressed. Poor forest governance is not a new

issue for Cambodia since the forestry reform

has been taking place for years. It is a long

term process that the government needs to take

a leading role.

Due to the state ownership on the

lands in the projects, carbon rights have been

nationalized in this REDD project. In this re-

spect, Angelsen (2008) warned that the nation-

alization carbon rights may result in inequitable

sharing of bene ts, state capture and corrup-

tion which prevent bene ts to reach the local

communities. However, sometime the ques-

tion of who own forest carbon credits become

less important than how the local communities

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are compensated for sequestering carbon. Ac-

cording to Transparency International (2009),

Cambodia was ranked 158 out of 180 and it

showed that the corruption level in the country

is still high. Therefore, an ongoing effort have

been made to ght corruption in Cambodia,

for instance the national assembly has recently

enact the Anti-Corruption Law. The new Law

may give legal support to prevent corruption

in bene t sharing scheme of the project but the

enforcement of this law remains to be seen.

Furthermore, the revenues from the REDD

project will be channeled through the Techni-

cal Working Group on Forestry and Environ-

ment (TWG F&E). The TWG F&E is a mecha-

nism for government-donor coordination that

is nancially audited by external agencies. As

a result, the transparency of bene t sharing is

likely to be ensured in the project but it may be

too early to make this claim since the projects

are still in the early stage and the ow of the

revenues is not started yet.

Butler (2006) estimates the potential

earnings from REDD for Cambodia at between

US$ 85 US$875 million per year, depend-

ing on the extent of forest protected for REDD

and market price of carbon credits, and that

REDD can increase the countrys GDP by be-

tween 1.7% - 18.5%. The large tracks of for-

ests in Cambodia make it a suitable country

for REDD as well as opportunity for carbon

credit investment. The Royal Government of

Cambodia (RGC) strongly supports the REDD

mechanism and believes not only that REDD

will help to reduce GHG emissions, but also

contribute to alleviating poverty, improving

forest governance, and enhancing sustainable

forest management in the nation (FA, 2008).

Indeed, the country is already participating in

both the Forest Carbon Partnership Facility

(FCPF) of the World Bank and the UN-REDD

programme.

The FCPF came into action in 2008

and it aims to build the capacity of developing

countries in tropical and subtropical regions to

reduce emissions from deforestation and forest

degradation (or REDD). The UN-REDD pro-

gramme is a collaborative partnership between

the United Nations Environment Program

(UNEP), the United Nations Development

Program (UNDP) and the Food and Agri-

culture Organization of the United Nations

(FAO). It is a multi-donor trust fund which

was established in July 2008 for donors to pool

resources and provides funding for the REDD

program. It aims to assist developing countries

to get ready to participate in the REDD mecha-

nism through supporting capacity building of

national government and promoting stakehold-

ers involvement. Furthermore, the UN-REDD

Programme works in close coordination with

the FCPF at both the international level and

national level to support processes for REDD

readiness and contributes to the development

of national REDD strategies.

References

Angelsen, A. (ed.). (2008). Moving Ahead

with REDD: Issues, Options and Implications.

Center for International Forestry Research (CI-

FOR). Bogor, Indonesia.

Butler, R. (2006). Calculating the value of

avoided deforestation. Retrieved from: http://

news.mongabay.com/2006/1031-deforesta-

tion.html

FA (Forestry Administration) et al. (2009).

Project Design Document: Reduced Emis-

sions from Deforestation and Forest Degrada-

tion in Oddar Meanchey Province, Cambodia:

A Community Forestry Initiative for Carbon

and Biodiversity Conservation and Poverty

Reduction. (Submitted to the Climate, Com-

munity & Biodiversity Standard)

Poffenberger, M., De Gryze, S., and Dursch-

inger, L. (2009). Designing Collaborative

REDD projects: A case study from Oddar

Meanchey Province, Cambodia. Community

Forestry International and Terra Global Capi-

tal. Retrieved from: http://www.terraglobal-

capital.com/press/ReddProjects.pdf

Stern, N. (2006). Stern Review: The econom-

ics of climate change. Cambridge University

Press, Cambridge, UK.

Van der werf et al, (2009). CO2 emissions from

forest loss. Nature Geoscience 2, 737 - 738

Wertz-Kanounnikoff, S. and Kongphan-apirak,

M. (2009). Emerging REDD+: a preliminary

survey of demonstration and readiness activi-

ties. Center for International Forestry Research

(CIFOR), Bogor, Indonesia.