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LINKING SMALL FOREST STAKEHOLDERS WITH GLOBAL ENVIRONMENTAL CONVENTIONS : THE ROLE OF UMBRELLA PROJECTS

By Bruno Locatelli, Jaime Black and Lucio Pedroni

Global environmental conventions may encourage sustainable forest management practices, with positive socioeconomic and environmental impacts, such as biodiversity conservation or climate change mitigation by carbon sequestration. The United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol created two new instruments that may provide incentives to tropical forestry activities. This first one is the Clean Development Mechanism (CDM), which allows forestry projects in developing countries to sell carbon credits to industrialised countries, proportionally to their additional sequestration above a baseline. The second one is related to the Adaptation Funds of the UNFCCC. Although its scope is not yet well defined, some forestry activities such as forest conservation or forest landscape restoration in degraded watersheds may be considered as adaptation measures.

In Bonn (2000) and Marrakech (2001) the Conference of the Parties on the UNFCCC decided to restrict the eligibility of forestry project activities in the CDM to afforestation and reforestation. At the next Conference of Parties in Italy (November 2003), the modalities and rules for this type of project activities will finally be specified. However, an analysis of the draft decisions on modalities and rules and of the future carbon market shows that the complexity of the rules and the transaction costs of generating carbon credits may prevent small projects to benefit from the CDM (Locatelli and Pedroni, 2003). The question of project scale is relevant from a least three points of view: equity, as small community forestry projects and entire small countries may be excluded from the CDM; impacts on local development and environment, including on biodiversity, as large projects are believed to be more prone to negative impacts; and leakage, as large projects may inundate local or regional forest product markets thus lowering prices and discouraging other plantation initiatives.

The umbrella framework
If the international negotiations do not agree on specific rules for small projects, rewarding the environmental service of carbon sequestration by small stakeholders will become possible only through umbrella projects. This type of project framework considers a national or local organisation dealing with the international carbon market and managing at the same time many small plantation projects. The advantages of this institutional setting is not only that small stakeholders can participate to the CDM, but also that other environmental services, such as watershed protection and biodiversity, and forest products may be traded locally and internationally (see Figure 1).

Figure 1. Umbrella project framework

The advantages of umbrella projects are not without prerequisites that must be analysed since the project design phase. Among these are the following:

• The organisation must be able to manage a number of small projects without increasing the transaction costs too much. This requires strong organisation and management, and a good knowledge of the local context.
• A loan or incentive that is sufficiently attractive for the small stakeholders must be dispensed and at the same time must ensure the financial equilibrium of the whole project.
• The organisation must guarantee the long-term commitment of its small stakeholders through contracts. For example, the reimbursement of the loan can be done through a transfer of the right to sell carbon credits to the organisation, or through a project-specific value assigned to the ton of carbon stored in the forest of the project participants benefiting from the loan.
• The organisation requires to have at its disposal a sufficient buffer of areas in its own hands or in those of potential future stakeholders in which new forests can be planted for replacing carbon stocks that might disappear in the future because of fires, pests, harvest or farmers that decided to quit the project. This would ensure a permanent carbon storage. As the non-permanence issue represents a strong disadvantage of using forestry projects instead of energy projects for the mitigation of climate change, umbrella projects may be able to prove that carbon storage in forests can be long-term if not permanent.

Examples from Costa Rica
Some existing organisations may serve as examples for developing such an umbrella framework. In Costa Rica, the National Fund for Forest Financing (FONAFIFO or Fondo Nacional para el Financiamiento Forestal) pays for environmental services provided by a forest owner through a legally established mechanism called PSA (Pago por Servicios Ambientales or Payment for Environmental Services). This instrument considers four environmental services (carbon storage, biodiversity and watershed protection, and scenic beauty) which are paid to three types of activities: forest conservation, forest plantation and agroforestry. At the local level, some organisations (like FUNDECOR) help small stakeholder to access to this instrument and provide technical advice.

The concrete experience of Costa Rica and of other countries may be useful for investigating umbrella project set-ups in particular regarding institutional aspects and internal transaction costs. Another important aspect of a research on umbrella projects would be to investigate farmer's perceptions and decision making about such projects. Finally, the viability of umbrella projects strongly depends on international carbon prices, certification procedures and quality attributes that shall be explicitly or implicitly attached to carbon credits. Exploring these complex interactions between local stakeholder behaviour, attributes of the umbrella organisation and international carbon market requires the development of models and simulation tools that might support the design and management of these projects.

Reference:
Locatelli, B. and Pedroni, L. (2003). Accounting methods for carbon credits: impacts on the minimum size of CDM forestry projects. Working Paper, Global Change Group, CATIE, Turrialba, Costa Rica.

Further information:
Global Change Group, CATIE Costa Rica
Turrialba 7170, Costa Rica,
E-mail: bruno.locatelli@cirad.fr; jblack@catie.ac.cr; lpedroni@catie.ac.cr

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