Will Simplified Modalities and Procedures Make More Small-Scale Forestry Projects Viable Under the Clean Development Mechanism?

Simplified modalities and procedures (M&P) are expected to increase the viability of small-scale project activities under the Clean Development Mechanism (CDM). A small-scale afforestation or reforestation (AR) project is defined as a project removing less than 8 kilotons of carbon dioxide equivalent (CO₂e) per year. Depending on the project type and the method for measuring scale, 8 kilotons of CO₂e per year correspond to highly diverse areas, possibly ranging from 200 to 6000 ha. Using a model to calculate the minimum project scale above which the CDM is a positive financial incentive for eligible AR project activities, the paper analyzes whether a reduction of transaction costs under simplified M&P will be a sufficient incentive to motivate small-scale participation in the CDM. Model results show that, even under optimistic assumptions on carbon market conditions and transaction costs, small-scale project activities will not benefit from simplified M&P. Results also show that project activities removing more than 8 kilotons of CO₂e per year and registered as small-scale would be the ones that could benefit the most from simplified M&P. It is concluded that the participation of small-scale project activities to the CDM requires more than simplified M&P, the price of expiring Certified Emission Reductions being one of the most critical parameters.