More on Risks and Permanence

Management of risks and permanence

1. What is Permanence?
2. Managing Forest to minimise losses
3. Minimising risks to minimise losses
4. FCC Buffer

4.1 Purpose
4.2 Contributing to the buffer
4.3 Losses
4.4 Accounting for reversals
4.5 Replenishing the buffer
4.6. End of a project duration

5. Legal instruments to ensure permanence
6. Future developments

1. What is 'Permanence'?

Permanence describes the issue of ensuring removal of carbon dioxide from the atmosphere is permanent, and not reversed at a future point in time. Forest projects carry a risk of reversibility, and all forests eventually decline if not regenerated. As such safeguards must be in place to minimise that risk as well as to guarantee replacement or compensatory Forest planting should a reversal occur.

Forests sequester carbon from the atmosphere but can also lose carbon either through natural causes (pest and disease attacks, extreme weather events or fire) or through management (felling and not replacing the trees). Project managers need to make every effort to ensure that any claimed carbon store remains in the Forest for the duration of the project and beyond.

The measures set out below ensure that the risk of loss is minimised, and that if there are any unavoidable losses, there is a process for these to be dealt with. Where there is an avoidable loss (e.g., where the management regime set out in the Project Design Document is not followed by the landowner/manager), this can be dealt with by legal and contractual means.

2 Managing Forest to minimise losses

Projects validated/verified to the Forest Carbon Code can manage their Forest in a variety of ways, including periodic harvesting and renewal. The Project Design Document should clearly state the management intentions for the project over the project duration and beyond consistent with the FCC Carbon Calculation Spreadsheet. These management intentions should be realistic for the type of Forest as well as the conditions at the site.

Whatever the management regime, the maximum sequestration that can be claimed is the long-term average carbon stock of the Forest type and management on the site. Harvesting should be carried out in line with plans set out in the Project Design Document; restocking should be carried out in line with any Felling License conditions.

If a landowner/manager wishes to change the management regime of their Forest, then the project developer should notify the FCC Secretariat immediately, and provided the alternative management regime will maintain the carbon stock already sold, documentation should be updated via the Project Progress Report at the next verification.

3. Minimising risks to minimise losses

A risk assessment should be included in the Project Design Document at validation, in order to insure against unforeseen losses of Forest carbon. Any updates to risk should be given in the Project Progress Report at verification. For each project the potential risks should be identified, and strategies developed to mitigate these risks. As a minimum, the following areas should be considered:

• Legal/Social
• Natural Disturbance: Fire
• Natural Disturbance: Wind
• Natural Disturbance: Drought/Flood
• Natural Disturbance: Pest and Disease
• Species suitability in current and future climate

4. FCC Buffer

4.1 Purpose

The FCC buffer safeguards the investment made by carbon buyers and maintains and protects the integrity of verified Forest Carbon Units (FCUs). Thus, FCUs issued for a project are permanent and would never have to be cancelled or ‘paid back’ should that project subsequently fail; we will ensure there are always sufficient units in the pooled buffer to cover any unanticipated losses from individual project failures.

The FCC Buffer is a single account held in the International Carbon Registry (ICR)and managed by The Icelandic Forest Service. It contains the contributions from all verified projects.

For avoidance of doubt the following would not be covered and losses would be borne by the project:

• Pending Issuance Units (PIUs)
• Sequestered carbon which is not yet verified

4.2 Contributing to the buffer

From Version 2.0 of the FCC, projects each contribute 20% of the project’s net carbon sequestration to the buffer.

At validation, 20% of PIUs are transferred into the FCC Buffer account managed by Icelandic Forest Service. This indicates the potential size of the buffer over time. It will not be possible to make claims from the PIUs in the buffer account.

Upon verification of each vintage/ monitoring period, PIUs will be converted to FCUs; 20% of verified FCUs from that vintage will be allocated to the FCC Buffer account managed by Icelandic Forest Service. Verified FCUs in the FCC Buffer can be drawn upon in case of any losses of verified FCUs from a project. Buffer units are not tradable.

4.3 Losses

A ‘losses of carbon is defined as when the Forest loses some of its trees and standing volume, and therefore carbon, due to avoidable or unavoidable circumstances.

Should a loss occur, the project should immediately inform the FCC Secretariat.

The project must submit a Loss Event Report within 6 months of discovery of the loss. The Loss Event Report shall include estimates of carbon losses and an indication of the accuracy of the report. The relevant number of FCC buffer units to cover the loss will be put on hold.

The project will then conduct their next regular verification as per the verification schedule.

4.4 Accounting for reversals

A reversal is defined as when the net greenhouse gas benefit of the project, taking into account the baseline, leakage and project carbon sequestration, is negative in a given monitoring period/vintage. The size of the reversal is the net carbon sequestration at the current verification minus the net carbon sequestration at the previous verification.

Reversal: If at the next regular verification there has been a reversal since the previous verification:

1. If desired, any unsold FCUs in the project-developer’s account which are not part of the amount lost, can be cancelled to cover the reversal.
2. Should this be insufficient to cover the loss then the relevant number of FCC Buffer units already put on hold will be cancelled to cover the remaining proportion of the shortfall. If this number is insufficient additional FCC Buffer units will be cancelled. If too many were put on hold the ‘surplus’ will be released back into the FCC Buffer.
3. The Project Design Document shall be reviewed with a view to taking Corrective Actions to make good the losses in a reasonable timeframe of, perhaps, 10-20 years.

No Reversal/Increase: If at the next regular verification there has been a net increase in carbon sequestration since the previous verification, then there is no reversal and any FCC Buffer units put on hold at the time of the loss event report will be released back to the buffer.

4.5 Replenishing the FCC buffer

An unavoidable reversal relates to a loss due to natural disaster (e.g., severe storms, flooding, drought, fire, pest & disease attacks) or man-made events over which the project has no control (e.g., terrorism, war).

If a reversal has occurred, then:

• If the reversal was avoidable (e.g., poor management or early/over-harvesting of timber) the project shall reimburse the FCC Buffer for all credits cancelled to compensate for the loss before further FCUs are issued to the project
• If the reversal was unavoidable the project is only required to repay the FCC Buffer for carbon units cancelled in excess of the contribution their project had previously made (e.g., if a project had contributed 50 units but 60 were cancelled to cover their loss, the project would only have to repay 10 units). Further FCUs can then be issued

The project would then continue to contribute a proportion of verified carbon units (based on risk assessment) into the FCC buffer at each subsequent verification.

4.6 End of project duration

At the end of a project’s duration, all remaining buffer units which were contributed by that project will be cancelled and there is no further requirement to monitor the project. Since no buffer units will be subtracted from the total at the final monitoring, the project owner will eventually receive the entire carbon capture of the project.

Legal instruments to ensure permanence

The landowners of a Forest Carbon Code project commit to a permanent land use change to forest cover, and to maintain the forest as a forest carbon sink. Any unavoidable losses due to natural disturbances such as fire, pest, disease or wind damage will be eligible to make a claim from the 'buffer' of unclaimed carbon. Avoidable losses (e.g., the landowner choosing to fell and not replace the trees) must be dealt with by legal or contractual means.

Contractual Obligation: Where a contract is in place with a buyer covering the landowner's obligations to provide carbon sequestration through Forests, claims may be made by the buyer in the event of a breach of contract.

In addition to any contractual obligations set up under the Forest Carbon Code, projects are subject to existing legislation that would guard against deforestation or the removal of Forest.

Environmental Impact Assessment Regulations (2021) require an Environmental Impact Assessment for deforestation over 0.5 ha.

The Forestry Act (2019) prevents the felling of trees without the permission of the Icelandic Forest Service through a Felling License.

6. Future developments

We will develop recommendations for standard terms to be included in contracts between landowners, project managers and investors.

We will provide further examples on avoidable and unavoidable reversals and replenishing the FCC Buffer.

Risk assessment for Forest Tree Species

Main tree species in Icelandic Forestry, Potentials and risks