Epsilon Archive for Student Projects

Abstract

The idea for this project was initiated together with one of the leaders in the forest, paper and packaging industry. To get through an A/R CDM process the company is exposed to the risk of failing the process or that the overall costs will exceed the benefits of the project. This would delete the incentives to invest in GHG removals compared to purchasing emission allowances on the carbon market.

The questions that have been raised and needs clarification in the thesis are the following:
• From a company perspective, what are the incentives for implementing Forest Clean Development Mechanism (CDM) projects?
• What is a likely financial outcome of a reforestation CDM project on degraded land in the Guangxi province of the Peoples Republic of China?
• When does an investment like this break even with the cost of buying market based carbon emission allowances?

The objective of this master thesis is to carry out a research about the incentives for forest, paper and packaging companies to invest in reforestation through the clean development mechanism. The study case comprises the UNFCCC afforestation/reforestation methodology and assumes information from previous implemented projects and general data from experts in the forest and carbon industry. Research presented on company incentives is focusing on global forest, paper and packaging companies.

Empirical data was collected using a qualitative research method, involving personal interviews. Secondary data is primarily retrieved from previous registered CDM cases. Particularly one project called Facilitating Reforestation for Guangxi Watershed Management in Pearl River Basin in Guangxi, China. This project was implemented in 2006 and is suitable for comparison due to the geographical proximity of the hypothetical case of this study.

The results show that the probability for these companies to implement forest CDM is low. This is due to the complex process of CDM, the negative approach in the process and the aim of avoiding profitability for investors. The hypothetical investment case is profitable in itself. However the uncertainty surrounding the circumstances are considered too high compared with other carbon management measures.