BioCarbon Fund: Frequently Asked Questions

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What is the principle purpose of the BioCarbon Fund?

The BioCarbon Fund seeks to deliver carbon finance to many developing countries that otherwise have few opportunities to benefit from the Kyoto mechanisms.

The BioCarbon Fund will provide carbon finance for projects that sequester or conserve greenhouse gases in forests, agro- and other ecosystems. It is designed to ensure that developing countries, including some of the poorest countries, have an opportunity to benefit from carbon finance in forestry, agriculture and land management. The Fund will help reduce poverty while reducing greenhouse gases in the atmosphere. The goals of the BioCarbon Fund are to deliver:

cost effective emission reductions (ERs);
local environmental and biodiversity benefits; and
improved livelihoods for local people.

Through its focus on bio-carbon, or 'sinks', it will deliver 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 will test and demonstrate 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 will show how LULUCF can help mitigate climate change while other technological options are being developed.

Who will participate in the BioCarbon Fund?

The BioCarbon Fund brings together governments, the private sector and project sponsors of many different types.

The major players are:

Private companies, NGOs and governments who contribute the capital for the BioCarbon Fund in exchange for credits for emission reductions and strategy and knowledge vis-à-vis the carbon market (here called the "Contributors"). As of May 17, 2004, the governments of Canada and Italy, Okinawa Electric and Tokyo Electric and Eco-Carbone have pledged $12.5 million to the Fund;
Bilateral Aid Agencies and Foundations that contribute grant resources to the parallel technical assistance facility to help with project preparation for complex projects and local capacity building for project implementation and CDM administration;
Project proponents who may be community groups, private companies, public agencies or NGOs who carry out the project and receive funds from the BioCarbon Fund in exchange for emission reductions;
Host countries who must approve each project within their boundaries;
The BioCarbon Fund Management Unit (FMU) who manage the activity of the Fund; and
Various technical panels and advisory boards representing contributors, host countries and experts who advise the Carbon Finance Business of the World Bank.

What is the BioCarbon Fund's timing?

The BioCarbon Fund started operations in the second quarter of 2004.

The BioCarbon Fund concept revealed at the Katoomba Group meeting in London on March 15, 2002. The Fund was approved by the Board of Executive Directors of the World Bank on September 11, 2003. The Fund was formally opened for contributions on November 26, 2003. The BioCarbon Fund was declared operational on May 17, 2004. The first meeting of the Contributors took place on June 10-11, 2004. Official project selection started at that time. The Carbon Finance Business of the World Bank has already received more than 100 project proposals, provided preliminary and informal feedback to project proponents.

What are the main types of projects that will be considered by the BioCarbon Fund?

The BioCarbon Fund will consider projects under the CDM and through JI in countries with economies in transition.

The BioCarbon Fund will have two windows: the larger one will provide emission reductions potentially eligible for credit under the Kyoto Protocol. In the CDM these are limited to afforestation and reforestation activities in the first commitment period. In JI they cover the whole range of land use, land-use change and forestry activities. The types of projects may include:

Small reforestation projects to restore landscape stability by reducing erosion and providing windbreaks;
Reforestation which serves to conserve and protect unique and endangered forest ecosystems by connecting forest fragments with corridors to create viable long term habitats;
Agroforestry projects such as shade coffee, intercropping of trees with other crops and the establishment of trees to help restore degraded grazing lands;
Small, community promoted plantations for timber, biofuel and other forest products that fit within a broader landscape design; and
Improved forest management to enhance carbon storage in countries with economies in transition.

A smaller second window will explore options for carbon credits that, while meeting the triple goals of the BioCarbon Fund, achieve them by activities other than afforestation and reforestation and therefore will not be eligible for Kyoto credits in the first commitment period. These projects produce emission reductions that may be creditable under emerging carbon management programs. The types of projects may include:

Restoration of degraded forests in developing countries by improved forest management and replanting;
Rehabilitation of dryland grazing lands by establishing shrubs and improving soil carbon;
Protection of forest fragments within a wider landscape management plan; and
Retention of carbon in natural vegetation by reducing the frequency of wild fires.

In addition to the windows, the BioCarbon Fund will also consist of tranches. The first tranche will be opened to support a wide variety of LULUCF projects in either window. Depending on the interests of Contributors, additional tranches may be opened, each one with a specific focus, which could be sectoral or geographic, e.g. arid or semi-arid land management, or marine, coastal and aquatic ecosystem management. Each tranche will be divided into two windows, following the criteria laid out above.

How will the BioCarbon Fund deal with permanence?

The BioCarbon Fund will comply with mechanisms, for temporary and long-term crediting as agreed at CoP9. Until 2021, it will work with project participants to ensure that credited carbon will remain sequestered and put in place mechanisms that will extend verification processes if necessary several decades beyond this date.

A major concern about using sinks in complying with Kyoto targets is whether it can be guaranteed that sequestered carbon will remain sequestered indefinitely (or for at least as long as to be equivalent to reducing atmospheric GHG by emission reductions). The BioCarbon Fund will use a combination of careful project selection, regular monitoring and re-verification to achieve permanence requirements.

More details on Permanence

How will the BioCarbon Fund demonstrate continuing sequestration (permanence) after the termination of operations?

The BioCarbon Fund will use a multi-pronged approach, including the use of ERs not subject to permanence risk (such as displacement of fossil fuels by biofuels), risk management actions such as options and insurance, and the careful selection of projects to ensure that the permanence requirements of the Kyoto Protocol are met.

The approaches used will include careful project selection so that up to 50% of the ERs will be derived from JI projects backed by governments or from displacement of fossil fuels by biofuels; i.e. they are mitigation equivalent. For projects with a risk of non-permanence (e.g. agroforestry or forestry projects) the FMU will ensure that the project sponsor maintains an adequate reserve of carbon assets to cover any losses over the life of the project. At the termination of the Fund, the FMU will use its 15+ years of experience with each of the projects to select "well-performing assets" to cover ongoing permanence requirements and set up a management and insurance structure appropriate to the rules at that time.

More details on Termination of the Fund

How will the BioCarbon Fund determine additionality?

All BioCarbon Fund projects will meet the strictest definition of additionality.

Additionality is an important, and often confusing, concept in the Kyoto Protocol made more confusing by the term being used in different ways within the Protocol. For projects carried out in countries that do not have targets under the Kyoto Protocol (i.e. CDM projects) it must be demonstrated that the carbon sequestration or emission reductions would not have occurred if it were not for the incentives provided by the existence of the Kyoto Protocol. Without this there would be no benefit to the atmosphere. The Kyoto Protocol also requires that JI projects are additional; i.e. the project and the subsequent ERs would not have occurred without the JI transaction.

More details on Additionality

How will the BioCarbon Fund establish baselines?

Baselines will be determined according to the rules agreed in the Marrakesh Accords and subsequent decisions and guided by decisions of the Executive Board.

The Marrakesh Accords and subsequent decisions on the CDM state that a LULUCF project is additional if the actual net greenhouse gas removals by sinks are increased above the removals that would have occurred in the absence of the proposed project activity, that is, in the baseline scenario.

More details on Baselines

How will the BioCarbon Fund deal with leakage?

The BioCarbon Fund will assess the potential for leakage in each project and adjust baselines and discounts of credits appropriately. Most independent observers have agreed that small scale, community based projects, as will dominate the BioCarbon Fund, do not pose any particular problems in assessing leakage.

There is concern that it may be particularly difficult to estimate leakage from sinks projects. Many of these concerns apply to large scale avoided deforestation projects, which are now excluded from the CDM. Another area of concern is large scale plantation developments that might impact local and regional land-uses and global wood product prices. Such large scale plantations will not be included in the BioCarbon Fund.

In community-based projects, as will dominate the BioCarbon Fund, the project boundaries can be established with good authority and leakage outside those boundaries will usually be small and can be conservatively compensated for via a discount. Also, the landscape management approach used in the BioCarbon Fund, seeks to identify pressures that lead to land-use change (e.g. deforestation actions) and where possible to remove or reduce these pressures. Thus, leakage is not expected to be a major factor in BioCarbon Fund projects.

What is the purpose of the second window?

Most BioCarbon Fund projects will manage an entire landscape and include several different activities. Some of these activities will store carbon, but are not afforestation or reforestation (A&R;) as required to be eligible for Kyoto credit. The Second Window is designed to test whether these activities can be subject to the same scrutiny as A& R activities and verified to deliver carbon sequestration.

The Marrakesh Accords limited the use of sinks in the CDM to afforestation and reforestation (A&R;) activities. This means that many activities that lead to better land management and carbon sequestration are ineligible for credit within developing countries while being eligible in developed countries and in countries with economies in transition. These ineligible activities include better agricultural practices such as reduced tillage, forest rehabilitation projects, revegetation in arid lands and the protection and rehabilitation of remnant forest fragments.

Most projects in the BioCarbon Fund will be based on the management of the whole landscape. A project may include patches of A&R; activities, such as replanting trees and agroforestry, alongside patches of other, ineligible activities. Management of the entire landscape is essential good practice to achieve environmental and livelihood goals.

Measuring and verification regimes can readily be extended to encompass these additional activities and a stream of certified (but not Kyoto eligible) carbon sequestration or emission reduction credits can be prepared. This stream of credits will be kept entirely separate from the Kyoto eligible credits and subject to all the same tests of eligible credits, i.e. additionality, baselines, measurement and verification, and permanence.

The purpose of the Second Window is to provide a structure opportunity to learn whether a wider range of sink activities are feasible within the CDM. Many contributors, project proponents and host countries are interested in having this opportunity.

Can ERs from the second window be used in alternative (non-Kyoto) trading schemes?

The BioCarbon Fund places no restrictions on the use of ERs from either window.

Each Contributor to the BioCarbon Fund will receive a portion of the ERs generated by the projects associated with the window(s) to which they are contributing and in proportion to their relative contribution to that window. Contributors are free to choose what they do with the ERs. It is possible that second window credits may be acceptable in emerging trading regimes. However, the second window credits will be subject to the same strict standards of additionality, permanence, monitoring and verification as those from the first window.

The total amount of second window credits is expected to be much less than 1 Mt CO2e over the first commitment period. This will not have a significant impact on quantities or prices of credits in alternative trading systems. The main purpose of the second window is to provide contributors, project proponents and host countries with a wider opportunity for learning-by-doing.

Will the second window undermine the goals of the Kyoto Protocol?

The amount of ERs achieved through the second window will be too small to have any significant effect on prices or volumes of credits in alternative trading schemes. The main purpose of the second window in an opportunity for wider learning-by-doing.

The amount of ERs achieved through the second window of the BioCarbon Fund will be small, amounting to no more than 1 Mt CO2e during the first commitment period and possibly only a few hundred thousand tonnes. They are most likely to be bought by companies and NGOs who seek to achieve carbon neutral, or green product outcomes.

Non-Kyoto trading mechanisms already exist and the rules governing the quality of emission reductions have not been subject to the same intensive selection and scrutiny as those derived from the Kyoto Protocol and Marrakesh Accords. The second window will provide a structured test of a wider range of sink activities in developing countries. It will also provide host countries with an opportunity to explore and demonstrate that a range of sink activities equivalent to those available to developed countries can be used effectively.

What are the characteristics of a typical BioCarbon Fund project?

Please view Submitting a Project webpage