**3.1. Afforestation/reforestation clean development mechanism (A/R CDM) scheme**

emissions from deforestation and forest degradation, the role of nature conservation, enhancement of forest carbon stocks, and sustainable forest management known as REDD+. The aim is to enable stakeholders to contribute to climate change mitigation. Countries in Africa, Latin America, and the Asia-Pacific region are working on their REDD+ strategy and

From Forest Biomass to Carbon Trading http://dx.doi.org/10.5772/intechopen.80395 11

REDD+ in international climate change policies is often championed as an important mechanism in response to the accepted fact that deforestation and forest degradation account for about 20% of global greenhouse emissions. Deforestation and forest degradation are the main causes of climate change. In this regard, REDD+ is understood as a multifaceted response mechanism, with targets including the protection and conservation of forest areas, reforestation, forest restoration, and sustainable forest management. Ultimately, REDD+ seeks to increase or conserve carbon stocks contained in forests, but the associated benefits of better forest conditions also provide lower ecosystem services. In addition, it also seeks to improve soil stability, provide livelihoods, maintain biodiversity, supply raw materials, and reduce

Through this REDD+ program, carbon trading is possible in many countries. In the development of REDD+, implementation is still facing many obstacles, especially in developing countries such as in some countries of Asia and Africa. One of the obstacles to REDD+ implementation is the adoption of Forest Reference Emissions Level (FREL) used as a benchmark/ country/territory reference to measure GHG emission reduction performance. This FREL needs to be prepared by meeting the requirements of the COP, in accordance with the technical assessment guidance, the application of the principles of transparency, accuracy, completeness, and consistency of data, as well as practicality and cost-effectiveness of its measurable, reportable, and variable (MRV) aspects. Through this national FREL, it is expected that the status and level of future GHG emission reduction will be measurable and monitored, and can be reported periodically. In the implementation of MRV aspects on REDD+, it is necessary to carefully measure forest biomass among others by the use of local allometric equations. Therefore, for a country with high biodiversity, it will certainly require many local allometric equations, and developing countries will have their own constraints in implementing it. Implementation of REDD+ requires long-term financial certainty and this will be realized if

The definition of a joint implementation of Article 6 of the Kyoto Protocol provides the possibility for a country to reduce GHG emissions or a limiting commitment under the Kyoto Protocol (Annex B Party) to obtain emission reduction units (ERUs) from emission reductions or other Annex B party emission removal projects, with each unit equivalent to one ton of CO<sup>2</sup>

which can be calculated to meet its Kyoto targets. JI provides the parties with a flexible and cost-effective way of fulfilling some of their Kyoto commitments, while the host party benefits from foreign investment and technology transfer. This project should provide for emission reductions by sources, or increased absorption by sinks, which is additional to what should have happened. The project shall have the consent of the host party and the participant shall

be authorized to participate by the party involved in the project [24].

,

developing an architecture to monitor, report, and verify emissions reductions [22].

flood risk [23].

there is certainty in the carbon market.

**3.3. Joint implementation**

The forestry CDM is a partnership between the developed and developing countries to reduce greenhouse gas (GHG) emission through the forestry activity: afforestation and reforestation. Principally, carbon trading will assist in reconstruction of forest ecology and forest protection in Indonesia. The actor of the forestry CDM is called the developer of the afforestation and reforestation project under the CDM. This developer is a union of two institutions between investor from developed country (Annex I of the United Nations Framework Convention on Climate Change/UNFCCC) and business sector by state or private company, cooperation, or personnel from the developing country. The Kyoto Protocol is a 1997 international treaty that came into force in 2005; it binds most developed nations to a cap-and-trade system for the six major green house gases. Emission quotas were agreed by each participating country, with the intention of reducing their overall emissions by 5.2% of their 1990 levels by the end of 2012. Under the treaty, for the five-year compliance period from 2008 until 2012, nations that emit less than their quota will be able to sell emissions credits to nations that exceed their quota. It is also possible for developed countries within the trading scheme to sponsor carbon projects that provide a reduction in green house gas emissions in other countries, as a way of generating trade-able carbon credits. The protocol allows this through CDM, in order to provide flexible mechanisms to aid regulated entities in meeting their compliance with their caps. The UNFCCC validates all CDM projects to ensure they create genuine additional savings and that there is no carbon leakage. The developer of the afforestation and reforestation project under the CDM can obtain Certificate of Emission Reductions (CERs) if they make: (1) project proposal of the afforestation and reforestation project under the CDM and (2) project design document for project activities under the CDM.

CDM projects labeled by the Gold Standard (GS CDM Project) must be verified by an independent auditor authorized by the United Nations and must meet more stringent requirements than regular CDM projects. This unique quality standard is chosen to demonstrate a broader CSR commitment and it is likely that the credits from the Gold Standard project will remain eligible in the future compliance regime. These high-quality carbon credits are often used by international banks, insurance companies, public authorities, or individuals [21].

In our opinion, the afforestation and reforestation project under the CDM is very flexible because it can be done at forest area, forest community area, state forest area, and private land. Land use change that can be done in the afforestation and reforestation project under the CDM is conversion from agriculture, wetland, settlement area, ranch area, or prairie to forest. The types of forestry activity for implementation of the afforestation and reforestation project under the CDM include agroforestry, silvofishery, rubber estate, monoculture and mixed species plantation, multipurpose species plantation, etc.

#### **3.2. Reducing emission from deforestation and degradation (REDD+)**

The Parties to the United Nations Framework Convention on Climate Change created an ambitious plan—the Paris Agreement—for global action on climate change mitigation and adaptation at the 21 Conference of the Parties in Paris in 2015. As part of the plan, the Paris Agreement promotes the adoption of policy approaches and positive incentives to reduce emissions from deforestation and forest degradation, the role of nature conservation, enhancement of forest carbon stocks, and sustainable forest management known as REDD+. The aim is to enable stakeholders to contribute to climate change mitigation. Countries in Africa, Latin America, and the Asia-Pacific region are working on their REDD+ strategy and developing an architecture to monitor, report, and verify emissions reductions [22].

REDD+ in international climate change policies is often championed as an important mechanism in response to the accepted fact that deforestation and forest degradation account for about 20% of global greenhouse emissions. Deforestation and forest degradation are the main causes of climate change. In this regard, REDD+ is understood as a multifaceted response mechanism, with targets including the protection and conservation of forest areas, reforestation, forest restoration, and sustainable forest management. Ultimately, REDD+ seeks to increase or conserve carbon stocks contained in forests, but the associated benefits of better forest conditions also provide lower ecosystem services. In addition, it also seeks to improve soil stability, provide livelihoods, maintain biodiversity, supply raw materials, and reduce flood risk [23].

Through this REDD+ program, carbon trading is possible in many countries. In the development of REDD+, implementation is still facing many obstacles, especially in developing countries such as in some countries of Asia and Africa. One of the obstacles to REDD+ implementation is the adoption of Forest Reference Emissions Level (FREL) used as a benchmark/ country/territory reference to measure GHG emission reduction performance. This FREL needs to be prepared by meeting the requirements of the COP, in accordance with the technical assessment guidance, the application of the principles of transparency, accuracy, completeness, and consistency of data, as well as practicality and cost-effectiveness of its measurable, reportable, and variable (MRV) aspects. Through this national FREL, it is expected that the status and level of future GHG emission reduction will be measurable and monitored, and can be reported periodically. In the implementation of MRV aspects on REDD+, it is necessary to carefully measure forest biomass among others by the use of local allometric equations. Therefore, for a country with high biodiversity, it will certainly require many local allometric equations, and developing countries will have their own constraints in implementing it. Implementation of REDD+ requires long-term financial certainty and this will be realized if there is certainty in the carbon market.

### **3.3. Joint implementation**

**3.1. Afforestation/reforestation clean development mechanism (A/R CDM) scheme**

design document for project activities under the CDM.

10 Renewable Resources and Biorefineries

mixed species plantation, multipurpose species plantation, etc.

**3.2. Reducing emission from deforestation and degradation (REDD+)**

The forestry CDM is a partnership between the developed and developing countries to reduce greenhouse gas (GHG) emission through the forestry activity: afforestation and reforestation. Principally, carbon trading will assist in reconstruction of forest ecology and forest protection in Indonesia. The actor of the forestry CDM is called the developer of the afforestation and reforestation project under the CDM. This developer is a union of two institutions between investor from developed country (Annex I of the United Nations Framework Convention on Climate Change/UNFCCC) and business sector by state or private company, cooperation, or personnel from the developing country. The Kyoto Protocol is a 1997 international treaty that came into force in 2005; it binds most developed nations to a cap-and-trade system for the six major green house gases. Emission quotas were agreed by each participating country, with the intention of reducing their overall emissions by 5.2% of their 1990 levels by the end of 2012. Under the treaty, for the five-year compliance period from 2008 until 2012, nations that emit less than their quota will be able to sell emissions credits to nations that exceed their quota. It is also possible for developed countries within the trading scheme to sponsor carbon projects that provide a reduction in green house gas emissions in other countries, as a way of generating trade-able carbon credits. The protocol allows this through CDM, in order to provide flexible mechanisms to aid regulated entities in meeting their compliance with their caps. The UNFCCC validates all CDM projects to ensure they create genuine additional savings and that there is no carbon leakage. The developer of the afforestation and reforestation project under the CDM can obtain Certificate of Emission Reductions (CERs) if they make: (1) project proposal of the afforestation and reforestation project under the CDM and (2) project

CDM projects labeled by the Gold Standard (GS CDM Project) must be verified by an independent auditor authorized by the United Nations and must meet more stringent requirements than regular CDM projects. This unique quality standard is chosen to demonstrate a broader CSR commitment and it is likely that the credits from the Gold Standard project will remain eligible in the future compliance regime. These high-quality carbon credits are often used by international banks, insurance companies, public authorities, or individuals [21].

In our opinion, the afforestation and reforestation project under the CDM is very flexible because it can be done at forest area, forest community area, state forest area, and private land. Land use change that can be done in the afforestation and reforestation project under the CDM is conversion from agriculture, wetland, settlement area, ranch area, or prairie to forest. The types of forestry activity for implementation of the afforestation and reforestation project under the CDM include agroforestry, silvofishery, rubber estate, monoculture and

The Parties to the United Nations Framework Convention on Climate Change created an ambitious plan—the Paris Agreement—for global action on climate change mitigation and adaptation at the 21 Conference of the Parties in Paris in 2015. As part of the plan, the Paris Agreement promotes the adoption of policy approaches and positive incentives to reduce The definition of a joint implementation of Article 6 of the Kyoto Protocol provides the possibility for a country to reduce GHG emissions or a limiting commitment under the Kyoto Protocol (Annex B Party) to obtain emission reduction units (ERUs) from emission reductions or other Annex B party emission removal projects, with each unit equivalent to one ton of CO<sup>2</sup> , which can be calculated to meet its Kyoto targets. JI provides the parties with a flexible and cost-effective way of fulfilling some of their Kyoto commitments, while the host party benefits from foreign investment and technology transfer. This project should provide for emission reductions by sources, or increased absorption by sinks, which is additional to what should have happened. The project shall have the consent of the host party and the participant shall be authorized to participate by the party involved in the project [24].

### **3.4. Voluntary carbon market (VCM) scheme**

The voluntary carbon market (VCM) scheme is slightly different from CDM, REDD+, and JI. As part of the global carbon market, the voluntary CO<sup>2</sup> market differs from the compliance schemes under the Kyoto Protocol and the EU-ETS.Rather than undergoing the national approval of project participants and the registration and verification process of the United Nations Framework Convention on Climate Change (UNFCCC), the calculation and certification of emissions reductions are carried out in accordance with a number of industry-made standards. The advantage of lower development or transaction costs makes the voluntary market particularly attractive to small and sustainable projects where the UN certification process is too expensive.

of economic solutions to this problem. Two major market-based options exist, and politicians around the world have largely settled on carbon trading over their rivals, the carbon tax, as the method chosen to regulate GHG emissions. In carbon trading is not separated by the carbon tax. The alternative to markets for carbon prices is to impose a carbon tax. It has never been a popular choice with voters and is government-dependent to act reasonably both in how they impose the tax and what they do with revenues. Therefore, for taxes to have a mitigating effect on global warming, governments need to spend on revenues for schemes that reduce emissions or buy carbon credits so that net emissions are reduced. Carbon trading takes pressure from governments to source and fund emissions reductions because price pressures make activity change. Emitter must buy permission or credit in the market to balance (offset) the equivalent carbon dioxide that they directly or indirectly release into the

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Once a carbon market is formed, buyers and sellers can bargain prices and volumes. In fact, carbon trading becomes complicated because buyers, who recall being forced to buy credits to offset the reported emissions, look for the best prices. Soon, all sorts of financial mechanisms emerge to protect themselves from risks, minimize costs, and make deals. Secondary markets in on-selling, bundling, and derivative credits will emerge that outstrip the volume and market value for primary credits. Sellers are those who have generated carbon credits from emission reduction projects, reductions or sequestration that generate carbon offsets, or have

In the free market, supply and demand will determine the price. However, the carbon market is not a free market because the reason for carbon trading is to reduce GHG emissions. One of the problems in carbon trading is the declining carbon price. To ensure the increase in the carbon price, the number of permits and credits allowed in the limited system is the cap. Supply cannot meet demand and the price goes up. This is what is known as the cap-andtrade system. Initially, demand will continue to increase along with rising emissions. This emission will occur only as a result of economic growth which is the foundation of the capitalist economic system and a necessity when the human population grows at 8,000 per hour. Limits on credit supply can be achieved by limiting the issuance of faux credits (emissions allowances or permits) and real credits resulting from mitigation, reduction, and reimbursement projects. Thus, there will be a balance. In this case, there should be enough credit to meet the demand because the issuer is forced to pay. In addition, carbon markets should also create

Sometimes, carbon trading is called emissions trading, as it is a market-based tool for limiting GHG. The carbon market trades emissions under a cap-and-trade scheme or with credits that pay or offset the reduction of GHG [26]. The cap-and-trade scheme is the most popular way

setting a cap on allowable emissions. It then distributes or auctions off emissions allowances that total the cap. Member companies or firms that do not have enough allowances to cover their emissions must either deduct or purchase another company's reserve credit. Members with extra allowances may sell it or give it to the bank for future use. In practice, the cap-and-

) and other emissions. The scheme's governing body begins by

opportunities for cost savings, but the price per credit also needs to rise [25].

atmosphere.

allocated credit.

to regulate carbon dioxide (CO<sup>2</sup>

trade scheme can be either mandatory or voluntary.

Compared with compliance markets such as EU-ETS, the total size of the voluntary CO<sup>2</sup> market is much smaller. The credits coming from the voluntary CO<sup>2</sup> market are called voluntary emission reductions (VERs). Currently, VER is mostly used by companies that want to voluntarily offset the emissions generated during their business activities to demonstrate social responsibility and build a healthy and green corporate image. More companies are investing in VER projects to reduce their carbon footprint and to achieve "zero emission" status.
