5.2.4. Potential Magnitude of LULUCF Projects
The form and magnitude of the eventual markets for ERUs under Article 6 (i.e.,
Annex I JI) and CERs under Article 12 (the CDM) are difficult to estimate. Key
policy decisions have not been made by the Parties. This discussion of the potential
for LULUCF activity in the CDM makes no judgment about the policy issue of whether
the CDM includes specific LULUCF activities.
No credible, detailed estimates of the magnitude of the potential for LULUCF
activities in Annex I and in non-Annex I countries are available for the first
commitment period, 2008-2012 (see Chapter 4). To date,
macroeconomic model assessments of supply and demand for emissions reductions
by Annex I countries using the Kyoto Protocol flexible mechanisms (e.g., emissions
trading, JI, or the CDM) have not separated LULUCF activities or projects. These
analyses generally do not reflect policy or technical tests and guidance likely
to be included in the operationalization of Articles 6 and 12. Analyses are
needed of the potential supply, cost, and demand for LULUCF project-based activities,
especially at the national level, under realistic scenarios for operating conditions
under Articles 6 and 12.
The best approximations of Annex I project-level activity would be some small
fraction-as yet unknown-of estimated country-level Article 3.3 and possibly
Article 3.4 activities (depending on additional activities the Parties decide
to include under Article 3.4, if any). Prospective activity levels under these
two articles are reviewed in Chapter 3 and 4
(see also Nabuurs et al., 2000). Project-level activities under Article
6 likely would be a small subset of these activities, which otherwise have been
widely assumed to be reported nationally under the two articles, not as projects.
No estimates of the demand for LULUCF project ERUs under Article 6 have been
widely reviewed and reported for individual countries or for Annex I as a whole.
Global economic general equilibrium models have been used to project GHG target
levels for 2010 for Annex I countries, to estimate the percentage of emissions
reductions and total financial flows that might occur under Annex I JI or the
CDM. Austin and Faeth (2000) summarized the results of four independent modeling
teams. These models have been used to estimate where emissions reductions could
occur at the lowest cost, largely on the basis of fossil fuel CO2 emissions.
Modeling results project that estimated emissions reductions by Annex I countries
in the year 2010 (for that year) would come predominately from domestic reductions
(15-45 percent), Annex I trading (6-10 percent), and "hot air" (8-41 percent).
(Hot air is a term that describes ERUs predicted to be generated by country
emissions during the first commitment period below countries' assigned amounts,
as an artifact of macroeconomic and political changes in economies in transition,
such as the Russian Federation, Ukraine, and Poland.) Some limited set of JI
projects under Article 6 might be developed, although such projects would compete
directly with these emissions reduction alternatives. Reductions in developing
countries were estimated at 33-55 percent (another estimate is 19-57 percent;
Vrolijk, 1999) of the demand for reductions by Annex I countries.
These models are neither designed to assess LULUCF activities, nor JI or the
CDM. Project-oriented mechanisms are not likely to deliver the same stream of
least-cost GHG abatement activities as an efficient emissions trading system,
carbon tax, or other economic instrument (Austin and Faeth, 2000). Projects
under Articles 6 and 12 may require certification and reporting costs, and costs
for projects under Article 12 may also include charges for an adaptation fund
and administration expenses of the CDM, as well as sustainable development considerations.
These constraints may reduce the economic efficiency of JI and the CDM relative
to emissions trading, according to reviews by some economists (e.g., Manne and