CDM Feasibility Study on Eucommia ulmoides Reforestation in Henan Province, People's Republic of China

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Reports of CDM/JI Feasibility Studies

Title of Feasibility Study (FS)CDM Feasibility Study on Eucommia ulmoides Reforestation in Henan Province, People's Republic of China
FYFY 2010
Main Implementing EntityHitachi Zosen Corporation
FS Partner(s)Henan Lingbao Tiandi Technology Corporation, Academy of Forest Inventory & Planning, State Forestry Administration, Henan Province Forestry Department, China Northwest A&F University, Osaka University, Kyushu University, Smart Energy Co., Ltd.
Location of Project ActivityChina (Sanmenxia City, Henan Province)
Category of Project ActivityLULUCF (Reforestation)
Targeted GHGCO2
CDM/JICDM
Duration of Project Activity/ Crediting Period2012-2071 (60years)/ 2012-2031 (20 years)
Summary of FS ReportSummary(PDF 264KB)
Description of Project ActivityForestation project of Eucommia ulmoides in Henan Province, China (hereafter “Project”) aimed to plant trees over three years between 2012 and 2014 in 1,700 hectare in Sanmenxia City of Henan Province, China of land. The Project choose Eucommia ulmoides a major planting species based on economic value of the forest products, suitability for the project site’s climatic conditions and expected carbon sequestration amounts. Hitachi Zosen Corporation and Henan Lingbao Tiandi Technology Corporation are the project participants for the Project.
Methodology to be appliedAR-AMS0001 Simplified baseline and monitoring methodologies for small-scale A/R CDM project activities implemented on grasslands or croplands with limited displacement of pre-project activities (Ver.6.0)
Baseline ScenarioBaseline scenario for the Project would be drawn based on AR-AMS0001 and applied a description of the methodology which is; "the land-use prior to the implementation of the project activity, either grasslands or croplands."
The on-site survey identified the local vegetation of the project site is barren grassland and mostly covered by shrubs and grasses. Partially identify trees, however, the percentage of crown cover is less than 20% and tree height is less than 2m which does not satisfy Chinese government’s forest description. The survey also clarified the site was not forest at the time of 1989. Regional authority tried to plant trees to recover forestation at the Project site to prohibit illegal grazing and illegal fire-wood collection activity. The measure was ineffective due to financial shortage and results in barren land.
The amount of ex ante baseline net GHG removals by sinks is calculated as a sum of carbon pool within project boundary.
Demonstration of AdditionalityProject's additionality will be proven with an application of "Tool for the demonstration and assessment of additionality".

1. Investment barrier:
    Unit area cost of investment for Eucommia ulmoides is far more expensive than common planting species. The logic is also applicable for forest management costs. Eucommia ulmoides planted widely from 1980s to 1990s and result in over-supply in pharmaceutical market. Demand for Eucommia ulmoides tree as pharmaceutical products are limited to the band of age 20 to 25, thus newly planted Eucommia ulmoides will hardly be productive instantly. The proposed project’s sites are locates where agriculture are the major industry and household income levels are relatively low. Overall, the business environmental of the region is not suitable for newly startup plantation activity or acquiring financial institutions to consider loan arrangements.
2. Technology barrier:
    The Project proposed in steep mountainous area and local forest management practices could not overcome this topographical condition. There are little successful planting project in the region until today.
3. Common practice barrier:
    • Historically, the area relied on mining industry and not many companies are engaged with forestry or timber industry. The skilled person for plantation and/or forest management is short and hard to hire skilled people with stable manner.

For the Project, with an absence of credit sales, the IRR is calculated at 5.94% (EAT) and lower than national benchmark. If the project counts credit sales, IRR would be improved. Therefore, it is fair to assume that the turning project into CDM will improve project economy and realize loan arrangement from local financial institutions. The credit revenues are utilized for forest maintenance and project’s continuousness.
Estimation of GHG Emission ReductionsAnnual average: 13,518tCO2/yr; 270,360tCO2/20years
Monitoring PlanLocation of the areas where the project activity has been implemented, size of the areas where the project activity has been implemented for each type of strata, location of the permanent sample plots, diameter of tree at breast height, height of tree, basic wood density and ownership of land are the major monitoring contents for the Project.
Environmental Impact AnalysisThe Project proposed at the site where serious soil erosions are observed. The Project is expected to increase forest density to decelerate erosion and other positive effects as follows;

(1) Cultivation of biodiversity:
    The Project increases the tree density and coverage of forest in the area. The project sites are mostly barren land, however, increase forest density further encourages the wild animals’ habitation whereby exists. Implementation of the project generates job opportunities of local people and improves income level of the community. These households’ economy improvement reduces the chances of illegal firewood collections or logging activity which endanger overall biodiversity of the project area.
(2) Reduce soil erosion:
    Decelerate soil erosion improve the watershed character of the area. The area designated as the watershed protection area of western Henan province. The steep and characteristic requires full awareness on appropriate forest planning and forest management plan. Proposed planting species, Eucommia ulmoides has a character to extend its roots at shallow but wider area compare to other native species. The Project enables to monitor planting activities’ effect to avoid soil erosion applying Universal Soil Loss Equation: USLE, developed by U.S. Dept of Agriculture.
Project FeasibilityThe immediate hurdle for the Project is fund-raising.
Total investment costs of the Project reaches RMB 37.65 million, among which includes RMB 34.96 million of construction costs. The Project planned to loan 50% of project costs from local banks with interest costs RMB 1.64 million and Liquidity of RMB 1.05 million. Henan Lingbao Tiandi Technology Corporation will acquire RMB 20.17 million (53.6% of total project costs) and lend from local banks with RMB 17.48 million (46.4% ditto). In case these projections are not accepted by local banks, the party may consider either subsidies program by the international financial institutions, government’s subsidies programs and/or a loan arrangement under the name of Hitachi Zosen Corporation. Upon clarifying funding issues the Project could easily take off.
"Co-benefits" (i.e. Improvement of Local Environmental Problems)The Project performed research over numerical measurement of soil erosion and quantitative measurement of improvement of biodiversity through project implementation. Since the Project, itself has a multiple positive impacts regardless directly or indirectly to the society, the co-benefit measurement as outline in the "Manual for Quantitative Evaluation of the Co-Benefits Approach to Climate Change Projects".
Contribution to Sustainable Development in Host CountryThe Project will dedicate to the Chinese sustainable development through following functions. First, the native species Eucommia ulmoides could easily adopt local climate and reduce disaster risks by improving water-shed and stabilize agricultural activities. Second, Hitachi Zosen Corporation’s technology is an established technology and improves rural Chinese economy by transferring technology. Lastly, the Project involves Chinese local communities to be eligible for small scale sink CDM project.
  • The Project will invite project sites' responsible person for key role of the project vehicle and seek advice based on operation of the organization and local practices.
  • Periodical training session would be held and conduct training session with regard to forest management and epidemics. The improved forest management skills could be applicable for other small scale commercial plantations operated by farmers and further improve the local economy.
  • The Project will engage with local schools to seek corporation for field survey and enlighten for global warming issues for locals. While the Project open for regional corporate entities to join for philanthropic activities in systematic way.
These activities will not only giving economical improvement but regional sustainable development and awareness improvement for future.