Are Forestry CDM Projects Cost Effective?

Abstract

Financial efficacy of a CDM forestry project for realization of carbon benefits on account of carbon sequestration service provided by the afforestation or reforestation interventions under CDM has been studied for four different sized projects. All the costs associated with the preparation of these projects such as costs on project development, validation, registration, monitoring, verification & certification, issuance of CERs, adaptation levy and the Tax implications have been taken into account and benefits were estimated assuming a carbon sequestration rate of 2tC/ha/year under two price scenarios. The results have shown that all the project sizes are financially viable with higher values of B/C ratios, in the range of 3.94 to 14.28 and the IRRs, in the range of 55% to 110%. The results also confirmed that with in a given category of the project size, the returns increase with the size of the project. The authors are of the opinion that investment in forestry A&R projects development and registration under CDM is not only a financially viable option but also the regular returns on account of CER revenue could help in sustenance for the CDM project interventions.