Introduction
The BioCarbon Fund provides carbon finance for projects that sequester or conserve greenhouse gases in forests, agro- and other ecosystems. Through its focus on bio-carbon, or 'sinks', it delivers carbon finance to many developing countries that otherwise have few opportunities to participate in the Clean Development Mechanism (CDM), or to countries with economies in transition through joint implementation (JI). The BioCarbon Fund tests and demonstrates how land use, land-use change and forestry (LULUCF) activities can generate high-quality ERs with environmental and livelihood benefits that can be measured, monitored and certified, and stand the test of time.

The BioCarbon Fund is a public/private initiative established as a trust fund administered by the World Bank. The World Bank, as Trustee, oversees the BioCarbon Fund's management and appoints a Fund Manager and a Fund Management Unit. This unit is part of the World Bank's Carbon Finance Unit and draws on the World Bank's experience with carbon finance.

Rationale
Growing awareness of the risk of climate change has propelled national and local governments, companies and non-governmental organizations (NGOs) to show leadership and take action to manage greenhouse gas emissions. The Kyoto Protocol was finalized by many national governments as the basis for action in December 1997 and further guidance was provided in subsequent meetings in Bonn and Marrakech. Meanwhile, other approaches such as voluntary agreements, regional agreements, state regulations and corporate emissions trading markets are also observed.

Avenues to meet commitments cost-effectively and credibly are being sought by those participating in these systems. Conservation and sequestration of carbon can offer one such avenue to help mitigate climate change.

Land use, land-use change and forestry (LULUCF) activities are of critical importance to many economies in transition, and developing countries and their agricultural and forestry sectors can benefit from carbon finance flows. Many developing and primarily agrarian countries have small energy and industrial sectors, hence opportunities for emission reductions are few. Even in countries where other opportunities exist, LULUCF activities can foster sustainable rural development and directly affect the lives of the poorest people.

After several years of discussions, the Parties to the United Nations Framework Convention on Climate Change (“UNFCCC”) and its Kyoto Protocol have agreed on the list of LULUCF activities that are eligible in the first commitment period of the Kyoto Protocol project mechanisms — Joint Implementation (“JI”) for economies in transition and the Clean Development Mechanism (“CDM”) for developing countries. Specifically, all LULUCF activities are eligible under JI, while only afforestation and reforestation are included in the CDM. Many definitions and modalities specific to carbon conservation and sequestration, such as the risk of non-permanence or the possibility of leakage, were addressed in subsequent UNFCCC consultative processes.

Government negotiators as well as market players have a need for “learning-by-doing” through actual carbon purchase transactions across diverse LULUCF activities. Experience gained from these activities helps inform the Parties’ decisions as they discuss the eligibility rules for afforestation and reforestation under CDM for the first commitment period, and provides them with insights on activities that they may wish to consider for subsequent commitment periods. The experience also provides market players with a wider range of potential tools to credibly manage their carbon risk.