The BioCarbon Fund: An Overview

October 7, 2004
Introduction
1. The BioCarbon Fund (Fund) was designed to provide the Banks
Borrowing Member Countries with an opportunity to beneft rom !arbon
fnan!e in the areas o orestry" agri!u#ture and #and management" whi#e
undertaking a!tivities whi!h redu!e rura# poverty and improve the #o!a#
environment. The Fund provides resour!es or pro$e!ts that are !onsistent
with the regu#atory re%uirements o &oint 'mp#ementation (&') and the C#ean
(eve#opment (C(M) defned by )rti!#es * and 1+" respe!tive#y" o the 1,,-
.yoto /roto!o# to the 0nited 1ations Framework Convention on C#imate
Change (01FCCC). The Fund a#so provides resour!es or pro$e!ts that
e2p#ore moda#ities and pro!edures beyond )rti!#e 1+ o the .yoto /roto!o# in
(eve#oping Countries.
+. The Fund has been deve#oped in response to a per!eived gap in the
emerging g#oba# !arbon market in the areas o orestry and sustainab#e
agri!u#ture. 3in!e these are two areas o parti!u#ar importan!e to the rura#
poor in the Banks Borrowing Member Countries" the Fund was proposed as
a means o a!i#itating the e2tension o e2isting !arbon fnan!e opportunities
to the rura# se!tors o the (eve#oping Countries and Countries with
4!onomies in Transition.
5. Bui#ding on the a!tivities and e2perien!e o the 6or#d Banks Carbon
Finan!e Business /rototype Carbon Fund (/CF)" the 1ether#ands C#ean
(eve#opment Me!hanism Fa!i#ity (1C(MF) and the Community
(eve#opment Carbon Fund (C(CF)" the Fund is simi#ar#y stru!tured" but
with a porto#io bui#t around /ro$e!ts designed to a!i#itate the storage o
!arbon in vegetation and soi#s (these are !ommon#y reerred to as 7sinks8 or
9and 0se" 9and:0se Change" and Forestry or 79090CF8 /ro$e!ts) whi#e
he#ping to reverse #and degradation" !onserve biodiversity" and improve the
#ive#ihoods o #o!a# !ommunities.
;. 42perien!e with the /CF" 1C(MF and C(CF has suggested that sinks
may be the on#y signif!ant option or many poor !ountries with on#y sma##
industria# se!tors and energy use" to beneft rom the C(M and &' as defned
under the .yoto /roto!o#. 3inks /ro$e!ts a#so o<er opportunities to the rura#
poor to take up new pra!ti!es" whi!h wi## assist in redu!ing the #ong:term
impa!ts o !#imate !hange.
=ationa#e
1
>. )ppro2imate#y one:third o the in!rease in !on!entration o ?reenhouse
?ases in the atmosphere has resu#ted rom #osses o !arbon asso!iated with
past and !urrent #and use.
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't is thereore important that any e<orts to
mitigate !#imate !hange a#so in!#ude 9090CF a!tivities that wi## he#p !urb
these #osses. These a!tivities !an in!#ude" among others" estab#ishing new
orests" and improving agri!u#tura# pra!ti!es on degraded #ands.
*. 42perien!e with the /CF suggests that in addition to the !#imate
mitigation e<e!ts" 9090CF /ro$e!ts !an provide rura# !ommunities in
(eve#oping Countries with signif!ant e!onomi!" environmenta# and so!ia#
benefts over !urrent pra!ti!es" #eading to improvements in #o!a#
#ive#ihoods. 0nortunate#y" however" the te!hni!a# !omp#e2ities asso!iated
with undertaking these types o /ro$e!ts" whi!h have to do with regu#atory
un!ertainty at the 01FCCC #eve# and methodo#ogi!a# di<i!u#ties" as we## as
the di<i!u#ties o transa!ting in (eve#oping Countries and 4!onomies in
Transition are !reating signif!ant barriers to private se!tor investment"
preventing the Banks Borrowing Member Countries rom taking advantage
o the opportunities whi!h might otherwise be avai#ab#e to them. Be!ause o
its te!hni!a# e2pertise and deve#opment e2perien!e" in!#uding with the /CF"
the Bank is in a uni%ue position to !reate an enab#ing environment or the
benefts o 9090CF a!tivities to @ow to its Borrowing Member Countries"
in!#uding the poorest.
-. The Fund wou#d be designed to augment the upront pro$e!t investment
fnan!ing a!tivities o the ?#oba# 4nvironment Fa!i#ity (?4F) and other
fnan!ing sour!es by providing an additiona# stream o revenues to pro$e!ts
+
generated rom the pur!hase o greenhouse gas emission redu!tions as we##
as support or preparing these !#imate !hange mitigation pro$e!ts. The Fund
wou#d a#so !ata#yAe additiona# private se!tor investment or agri!u#ture and
orestry. 'n the #onger term" this shou#d he#p to in!rease the !arbon
fnan!ing opportunities avai#ab#e" parti!u#ar#y to the rura# !ommunities in
the Banks Borrowing Member Countries.
B. The Fund a#so represents an important opportunity or the Bank to
simu#taneous#y promote the ob$e!tives o the 0nited 1ations Convention on
Bio#ogi!a# (iversity (CB() and the 0nited 1ations Convention to Combat
(esertif!ation (CC()" whi!h were adopted at the same time as the 01FCCC
to improve rura# #ive#ihoods" and to !ontribute to the sustainab#e
deve#opment ob$e!tives o Cost Countries" in!#uding their a!tivities
regarding adaptation to the impa!ts o !#imate !hange. The CC(" in
parti!u#ar" !riti!a##y #a!ks fnan!ia# resour!es to attain its ob$e!tives. Carbon
fnan!e represents a new fnan!ing sour!e or revegetating dry#ands"
providing a#ternative sour!es o energy and making drought:prone areas
more resi#ient to !#imate !hange. 'n the area o biodiversity prote!tion" too"
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'/CC 3pe!ia# =eport on 9and 0se" 9and:0se Change and Forestry" +DDD.
2
)s opposed to the one:o<" time #imited grants o the ?4F.
+
!arbon fnan!e !an p#ay an innovative ro#e by !reating" at the individua# or
!ommunity #eve#" market:based me!hanisms supp#ying the fnan!ing
in!entive to reverse natura# habitat #oss.
Fund Structure and Operations
,. The Fund is estab#ished as a trust und by the Bank pursuant to a
=eso#ution adopted by the 42e!utive (ire!tors on 3eptember 11" +DD5.
1D.The Fund is set up with two 6indows and potentia##y three Tran!hes"
ea!h with di<erent pro$e!t porto#ios. The distin!tion between the First
6indow and the 3e!ond 6indow has to do with the e#igibi#ity !riteria o
sinks pro$e!ts under the .yoto /roto!o#s C#ean (eve#opment Me!hanism.
The pro$e!t porto#io or the First 6indow (e2pe!ted to be the #arger one)" is
!omprised o /ro$e!ts whi!h are within the most !onservative
interpretations o the .yoto /roto!o#. 'n !omparison" the 3e!ond 6indow
o!uses on pur!hasing 4mission =edu!tions !reated other than through
a!tivities e#igib#e to !reate Certifed 4mission =edu!tions (C4=s) under the
.yoto /roto!o#" i.e. beyond a<orestation and reorestation.
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4mission
redu!tions rom the 3e!ond 6indow wi## be monitored and verifed using the
same pro!edura# re%uirements !urrent#y e2isting in both the .yoto /roto!o#
and the Marrakesh )!!ords" as we## as the regu#atory re%uirements o the
42e!utive Board o the C#ean (eve#opment Me!hanism.
;
11.Tran!hes di<erent rom ea!h other with respe!t to the type o e!osystem
supported by ea!h one. The First Tran!he (the on#y one to be operationa# so
ar) is dedi!ated to a## types o e!osystem" whi#e the envisages (ry#and
Tran!he and Marine and Coasta# 4!osystem Tran!hes" as their names
suggest" wou#d be devoted to pro$e!ts in arid and semi:arid regions and
marine and !oasta# areas" respe!tive#y.
1+.3hou#d a## three Tran!hes be !reated" there !ou#d be a ma2imum o si2
6indows in the BioCarbon Fund (two 6indows per Tran!he).
15./arti!ipants (both /ub#i! and /rivate 3e!tor) are re%uired to !ommit a
minimum o 03E+.> mi##ion into the Fund" !hoosing to !ommit any
operationa# 6indow" or to sp#it their !ontribution a!ross two or more
6indows (with the re%uired minimum !ontribution to any 6indow o 03E1
mi##ion).
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The 3e!ond 6indow is e2pe!ted to generate interest among potentia# /arti!ipants who are
not sub$e!t to ob#igations under the .yoto /roto!o# and thereore without a mandatory
!omp#ian!e target" and /arti!ipants who wish to e2p#ore and demonstrate that a!tivities other
than a<orestation and reorestation !an a#so provide atmospheri!" so!ia# and #o!a#
environmenta# benefts.
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)## /ro$e!ts in the 3e!ond 6indow !omp#y with 6or#d Bank ?roup 3aeguard /o#i!ies and
good pra!ti!e guide#ines" as we## as with po#i!ies and good pra!ti!es estab#ished by other
internationa# organiAations (or e2amp#e" the 4!osystem )pproa!h as endorsed by the CB(
(e!ision FG* and the 1ationa# )!tion /rograms or the CC().
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1;.The a!tive #ie o the Fund is 1>:1B years" depending on the #eve# o
!apita#. )t the end o that period" arrangements wi## be made or the pro
rata distribution o the Funds remaining assets.
1>.The Fund supports pro$e!ts designed to redu!e greenhouse gas
!on!entrations" whi!h are additiona# to what wou#d have happened in the
absen!e o su!h pro$e!ts. The additiona#ity e#ement is !riti!a# to the
deve#opment o internationa##y a!!epted emission redu!tions" and is
va#idated by an independent third parties a!!redited as 7Hperationa#
4ntities8 by the 42e!utive Board o the .yoto /roto!o#s C#ean (eve#opment
Me!hanism.
1*.Finan!ia# support !overs pro$e!t preparation and the pur!hase o
greenhouse gas emission redu!tions. First" the Fund wou#d fnan!e the !osts
o preparing 9090CF /ro$e!ts" in!#uding base#ine study" monitoring p#an"
va#idation" et!. Then" as the pro$e!t a!tivities !reate emission redu!tions"
these are pur!hased by the Fund and transerred to the /arti!ipants in the
Fund in a!!ordan!e with their pro rata interests. The Fund pays on de#ivery
o the verifed emission redu!tions" not in advan!e.
1-.Fund pro$e!ts !omp#y with the Banks Hperationa# /o#i!ies and
/ro!edures" in!#uding the Banks Forest /o#i!y" and po#i!y on dis!#osure o
inormation" the re%uirements or !onsu#tation pro!edures and parti!ipation
o a<e!ted !ommunities in pro$e!t deve#opment as we## as other
environmenta# and so!ia# saeguard re%uirements.
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1B.The Funds organiAationa# stru!ture !onsists o our prin!ipa# bodies. The
Fund Management 0nit is the same as the one managing the /CF" 1C(MF
and C(CF" and is !harged with the overa## administration and operation o
the Fund. ) Meeting o a## o the /arti!ipants is !onvened annua##y. )t su!h
Meetings" the /arti!ipants approve the annua# budget o the Fund and
provide the Trustee with genera# po#i!y and strategi! guidan!e. 4#e!ted
/arti!ipants Committees or ea!h 6indow advise on issues regarding the
operation o their 6indow o the Fund" and review and advise the
/arti!ipants on the 6indows budget and fnan!ia# perorman!e in advan!e
o the /arti!ipants )nnua# Meetings. The /arti!ipants Committees a#so
review and advise on potentia# pro$e!ts" with !#earan!e on a no:ob$e!tion
basis. ) Fund Management Committee reviews the a!tivities and pro$e!ts o
the Fund and advises on their !omp#ian!e both with Bank Hperationa#
/o#i!ies and /ro!edures" and the Funds /ro$e!t /orto#io and 3e#e!tion
Criteria.
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The main Hperationa# /ro!edures re#evant to Fund /ro$e!ts in!#ude the o##owing
Hperationa# /o#i!iesI 4nvironmenta# )ssessment (H/ ;.D1)" 1atura# Cabitats (H/ ;.D;)" /est
Management (H/ ;.D,)" Cu#tura# /roperty (H/ ;.11)" 'nvo#untary =esett#ement (H/ ;.1+)"
'ndigenous /eop#es (H/ ;.+D)" Forests (H/ ;.5*)J as we## as the /o#i!y on (is!#osure o
'normation.
;
1,.To !over deve#opment !osts and e2penses" the Fund reimburses the Bank
or a## the !osts and e2penses in!urred in the deve#opment and marketing o
the Fund. /ro$e!t:re#ated !osts are pre:fnan!ed by the Fund" but !harged
ba!k to the pro$e!ts and withho#d orm the frst !arbon payments.
+D.The BioCarbon Fund started operations on May 1-" +DD;. The frst
meeting o the /arti!ipants" !a##ed the HrganiAationa# Meeting" took p#a!e on
&une 1D:11" +DD;. The ne2t meeting o the /arti!ipants" !a##ed a 3pe!ia#
Meeting" wi## be he#d on 1ovember 1*" +DD; and dedi!ated to pro$e!t
se#e!tion. 1++ pro$e!t proposa#s have been re!eived" out o whi!h about 1>
have been identifed as the #eading !andidates or the First Tran!he.
+1.)s o H!tober -" +DD; the Fund has a !apita# o 03E1> mi##ion
!ontributed by the ?overnments o Canada and 'ta#y" )gen!e FranKaise de
(Lve#oppement" Hkinawa 4#e!tri! /ower Company and Tokyo 4#e!tri! /ower
Company o &apan" and 4!o:Carbone o Fran!e. More /arti!ipants are
e2pe!ted rom Canada" 4urope and &apan.
++. More inormation on the BioCarbon Fund !an be ound at
www.bio!arbonund.org whi#e an overview o the 6or#d Banks Carbon
Finan!e Business is at www.!arbonfnan!e.org.
Benoit Bos%uet
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