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UNLOCKING GLOBAL EMISSION REDUCTION CREDIT


Guidance for Countries in Assessing ERC Projects


1. Introduction to Emission Reduction Credits

 The World Bank's Emission Reduction Program

 Emission Reduction Credits

Classification of Emissions Reduction Credit

 Policy Context of Emissions Reduction Credit

2. Objective of the Guidance for Countries in Assessing ERC Projects

 Objective of Project Preparation Guidelines

 Introduction to the Project Assessment Framework

 Process to Conducting Assessments

3. Determining Country Inputs

 S1: Green Economy Priorities

 S3: Article 6 Readiness and Eligibility

4. Conducting the Initial Profiling and Making a Preliminary Decision

 F1: Project ERC Value

 F2: Additional Value Enabled by Project

 C1, C2, and C3: Carbon Integrity and Environmental and Social Risk Management

 S2: Socioeconomic Value

5. Conducting the Project Assessment and Making the Final Decision

 F1: Project ERC value and F2: Additional Value Enabled by Project

 Q1: MRV Infrastructure

 Q2: Marketing, Sales, and Pricing

 Q3: Project Governance and Structure

 C1: Carbon Integrity

 C2: Environmental Risk Management

 C3: Social Risk Management and Benefits

 S2: Socioeconomic Value

6. Further Guidance for Application

 Market-Driven Factors

 Country Context-driven Factors

 Considerations for Future Scope

Abbreviations: Guidance for Countries in Assessing ERC Projects

Appendices: 

• A: Project Profile Template 

• B: Project Assessment Template 

• C: PPP Models for ERP

  - Model 1: MRT Energy Efficiencies Model for ERP

  - Model 2: Rural Electrification Model for ERP

  - Model 3: LED Streetlight Deployment Model for ERP - for Efficient Outdoor and Street Lighting Technologies

  - Model 4: Rooftop Solar Installation Model for ERP

  - Model 5: LED Streetlight Deployment Model for ERP - for Specific Technologies

  - Model 6: E-bus Deployment Model for ERP

  - Model 7: EV Charging Systems Installation Model for ERP

  - Model 8: Biodigesters Deployment Model for ERP

  - Model 9: Waste-to-Power Model for ERP

  - Model 10: Waste Treatment Facility Model for ERP

  - Model 11: Climate Smart Farming Deployment Model for ERP

  -  Model 12: Reforestation Program Model for ERP

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Climate Smart Farming Deployment Model for ERP

Photo Credit: Image by Freepik

On this page: Climate-Smart Farming Deployment leveraging a Existing-Bulk-Tariffs model - Model 11 in the ERP Project Guidelines.  Read more below, or visit Strategic Guidance for Country System AssessmentsGuidance for Countries in Assessing ERC Projects, or Mobilizing ERC Finance


Project Type: Agricultural Land Management

Sector: Agriculture

Applicable Project Methodology: VM0017 Adoption of Sustainable Agricultural Land Management

The aim of this project type is to introduce sustainable land management practice activities that enhance aboveground, below-ground, and soil-based carbon stocks of agricultural areas. This helps to reduce greenhouse gas (GHG) emission reductions from agricultural practices as well as increase carbon sequestration of these areas.

Proposed Structure of this Public Private Partnership (PPP) Model

The project will be leveraging a Existing-Bulk-Tariffs model. An experienced farm operator is provided the concession to convert and transform the agricultural area by the government or state-owned entity grantor, which in turn will provide the financing to the project company for implementing climate-smart farming in said area. The grantor will be aggregating the land area for this undertaking, including the stakeholder management and permitting to ensure that the project company is able to complete its undertaking. The private sector entity will be generating revenues from the sale of emission reduction credits (ERCs), part of which may go to the government or state-owned entity for its own targets.

Table 1: Model Attributes

Dimension
Attribute
Description

Business

New

This model assumes that the government or state-owned entity grantor will be granting a concession to an experienced farm operator to support the transformation of the agreed agricultural area to climate-smart farming practices.

Existing

Construction

Build

The project involves only technical and operational support

Refurbish

Private Funding

Finance

The government or state-owned entity grantor will be providing financing to the project company to undertake the activities of the firm

Service

Bulk

Services will be provided to the government or state-owned entity grantor, in exchange for the funding provided

User

Service

Fees

Revenues in this model for the project company will be driven by the ERCs generated and sold in the voluntary carbon markets.

Tariffs

Proposed risk allocation of the Public Private Partnership Model

Key features of PPP structure

  • Private sector entity to design, finance, operate and maintain agriculture in collaboration with local farmers and association (where applicable) area through a special purpose vehicle (SPV) or project company via a long-term concession agreement with the government or state-owned entity
  • The private sector entity acts as the implementation partner, and is responsible for all activities related to the implementation, management, monitoring and reporting of the project over the project crediting period 
  • Potential to include financiers in this PPP structure in exchange for a portion of the ERC revenues earned in this project

Key considerations/risks for proposed project

  • Extensive stakeholder engagement required to ensure buy-in from local/indigenous communities to implement sustainable agricultural practices
  • Need to ensure adequate technical local expertise in day-to-day execution and monitoring to prevent carbon leakage
  • Co-benefits are accounted for to ensure that local/indigenous communities’ economic and social wellbeing are taken for and to avoid disruptive lifestyle changes
  • Partnering with a service provider for the project’s marketing, sales and pricing is needed to identify potential offset buyers, negotiate contracts, and secure good target price per tonne to enable the financial viability of ERC generation
  • Contracting a monitoring, verification and reporting (MRV) service provider with experience in conducting MRV and preparing the necessary documents for generating ERCs in a voluntary carbon market standard will reduce risk of registration and issuance delays or bottlenecks, and strengthen credibility of project’s carbon integrity quality 

Expected ERC end use

  • End use can belong to project developer as part of revenue stream as well as government or state-owned entity for providing financial support

Figure 1: Financing and Activity Flows for the Model

Case study: Charting A New Course – Carbon Insetting Program, USA

Project description

Bayer, National Corn Growers Association, and partners are developing a comprehensive intervention for corporate carbon emissions reduction with funding from the United States Department of Agriculture (USDA). The project focuses on promoting climate smart agricultural practices in key areas and verifies their impact, with a focus on creating management practice systems that reduce corporate emissions as well as improve economic outcomes for farmers. In this project, participating companies partnered with farmers in their supply chain who took steps to reduce their GHG emissions on their farms. Bayer has already extended this program to 16 states in the US.

Targeted results

No estimated annual emissions reduction available but expected socioeconomic benefits such as improved economic outcomes for farmers.

Figure 2: Structure of Case Study PPP

There are multiple project partners involved in this project each with a distinct role. USDA provided financing support through its Natural Resources Conservation Service’s (NRCS’s) Conservation Innovation Grants (CIG) Program. Soil Health Partnership (SHP) coordinated and reported finances for the project and used grower-cooperator sites to evaluate climate smart agriculture practices. Bayer co-funded the project and was involved in all aspects related to its GHG insetting program and reported on verified environmental benefits.

Viresco Solutions provided project management, technical support, and created the carbon accounting and insetting framework, while Crop Growers LLC used Satellogic constellation data to test and develop a low-cost verification system.

Dagan tested and developed another low-cost verification process using AG's Operational Tillage Information System and the DeNitrification-DeComposition (DNDC) model. EFC Systems provided precision business planning services, environmental analysis, and evaluated economic and environmental performance using precision agriculture data sources.

Summary of the model financials

Assuming similar case context and practices as described 'Assessing agroforestry practices and soil and water conservation for climate change adaptation in Kenya' (2020)’, The project’s Net Present Value (NPV) without ERC in- and outflows – only considering non-ERC inflows through other revenue streams or cost savings enabled by the project – is negative at $0.5 million (M)12. With ERC cashflows, the project will improve to have a positive NPV of $2.4M, demonstrating the effectiveness of ERCs to enable these types of projects. Besides that, the high upfront investments costs also necessitate finding additional revenue streams in order to justify the execution of such projects. Moreover, NPV of project may improve beyond project period as income from agricultural products recurs.

Table 2: Summary of sources of inflows and outflows and key assumptions

Value component
Assumptions
Sources

ERC revenues or inflows

  • Four issuances across the project’s 20-year crediting period, at year 5, 10, 15 and 20
  • $4.10 per tonne today for 495,022 estimated tonnes of ERCs likely generated in the first issuance
  • 10% price increase to $4.6 per tonne, $7.30 per tonne and $11.80 per tonne for each subsequent issuance of 495,022 estimated tonnes of ERCs

Average price of Agriculture project in Asia, Verified Carbon Standard (VCS) and Gold Standard (GS)

Non-ERC revenues or inflows

  • Estimated incremental income: $104.40 per hectare (ha)
  • Land area covered: 45,000 ha
  • Non-ERC revenue calculated beyond ERC project period to year 30

'Assessing agroforestry practices and soil and water conservation for climate change adaptation in Kenya' (2020)

Investment cost

  • Costs associated with adoption of terraces: $310 per ha

'Assessing agroforestry practices and soil and water conservation for climate change adaptation in Kenya' (2020)

Project implementation

  • Annual maintenance cost: $26 per ha

'Assessing agroforestry practices and soil and water conservation for climate change adaptation in Kenya' (2020)

ERC generation

  • $10,000 for the project’s registration and first issuance
  • $15,000 for each verification process across four issuance cycles
  • $0.105 per tonne for subsequent three issuances

VCS Program Fees

Table 3: Net cashflows summary (in USD)

Components
Sum of initial outlays
Sum of in- or outflows from crediting period
Total cashflow

ERC Component

Revenues/Inflows

0

33,288,634

33,288,634

Costs/Outflows

-10,000

-267,909

-277,909

Net value

-10,000

33,020,725

33,010,725

Primary/Non-ERC Component

Revenues/Inflows

0

79,866,000

79,866,000

Costs/Outflows

-13,950,000

19,890,000

5,940,000

Net value

-13,950,000

99,756,000

85,806,000

Net Present Values

NPV

$1,769,641

NPV (ERC Component)

$2,452,178

NPV (Non-ERC Component)

-$527,428

Note(s):

This section is intended to be a living document and will be reviewed at regular intervals. The Guidelines have not been prepared with any specific transaction in mind and are meant to serve only as general guidance. It is therefore critical that the Guidelines be reviewed and adapted for specific transactions. Unless expressly stated otherwise, the findings, interpretations, and conclusions expressed in the Materials in this Site are those of the various authors of the Materials and are not necessarily those of The World Bank Group, its member institutions, or their respective Boards of Executive Directors or member countries. For feedback on the content of this section of the website or suggestions for links or materials that could be included, please contact the Public-Private Partnership Resource Center at ppp@worldbank.org.

 

 

UNLOCKING GLOBAL EMISSION REDUCTION CREDIT


Guidance for Countries in Assessing ERC Projects


1. Introduction to Emission Reduction Credits

 The World Bank's Emission Reduction Program

 Emission Reduction Credits

Classification of Emissions Reduction Credit

 Policy Context of Emissions Reduction Credit

2. Objective of the Guidance for Countries in Assessing ERC Projects

 Objective of Project Preparation Guidelines

 Introduction to the Project Assessment Framework

 Process to Conducting Assessments

3. Determining Country Inputs

 S1: Green Economy Priorities

 S3: Article 6 Readiness and Eligibility

4. Conducting the Initial Profiling and Making a Preliminary Decision

 F1: Project ERC Value

 F2: Additional Value Enabled by Project

 C1, C2, and C3: Carbon Integrity and Environmental and Social Risk Management

 S2: Socioeconomic Value

5. Conducting the Project Assessment and Making the Final Decision

 F1: Project ERC value and F2: Additional Value Enabled by Project

 Q1: MRV Infrastructure

 Q2: Marketing, Sales, and Pricing

 Q3: Project Governance and Structure

 C1: Carbon Integrity

 C2: Environmental Risk Management

 C3: Social Risk Management and Benefits

 S2: Socioeconomic Value

6. Further Guidance for Application

 Market-Driven Factors

 Country Context-driven Factors

 Considerations for Future Scope

Abbreviations: Guidance for Countries in Assessing ERC Projects

Appendices: 

• A: Project Profile Template 

• B: Project Assessment Template 

• C: PPP Models for ERP

  - Model 1: MRT Energy Efficiencies Model for ERP

  - Model 2: Rural Electrification Model for ERP

  - Model 3: LED Streetlight Deployment Model for ERP - for Efficient Outdoor and Street Lighting Technologies

  - Model 4: Rooftop Solar Installation Model for ERP

  - Model 5: LED Streetlight Deployment Model for ERP - for Specific Technologies

  - Model 6: E-bus Deployment Model for ERP

  - Model 7: EV Charging Systems Installation Model for ERP

  - Model 8: Biodigesters Deployment Model for ERP

  - Model 9: Waste-to-Power Model for ERP

  - Model 10: Waste Treatment Facility Model for ERP

  - Model 11: Climate Smart Farming Deployment Model for ERP

  -  Model 12: Reforestation Program Model for ERP

Find Full Outline

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Updated: August 7, 2024