FOREST CARBON PROJECT

FEASIBILITY STUDY
QUANG TRI PROVINCE
VIETNAM
October 2009

This study was made possible due to the generous support of IKEA Supply AG.

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Copyright 2011 Rainforest Alliance, Inc., all rights reserved.
Users may reproduce content for noncommercial purposes with a notice that the content is copyright of
the Rainforest Alliance.

No other users are permitted without the express written consent of the Rainforest Alliance.

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 Authors:

Adam Gibbon (RA), Christian Sloth (RA) and Sebastian Schrader (WWF)

The Rainforest Alliance (RA) works to conserve biodiversity and ensure

sustainable livelihoods by transforming land-use practices, business practices
and consumer behavior. Based in New York City, with offices throughout the
United States and worldwide, the Rainforest Alliance works with people whose
livelihoods depend on the land, helping them transform the way they grow
food, harvest wood and host travelers. From large multinational corporations to
small, community-based cooperatives, the
organization involves businesses and consumers Contact for this study:
worldwide in its efforts to bring responsibly Christian Sloth,
produced goods and services to a global [email protected]
marketplace where the demand for sustainability is
growing steadily. Jl. Ciung Wanara No.1x
Lingkungan Kerta Sari,
Kelurahan Panjer,
The Rainforest Alliance sets standards for Denpasar Selatan, 80225
sustainability that conserve wildlife and wildlands Bali
and promote the well-being of workers and their Indonesia
communities. Farms and forestry enterprises that Tel: +62 361 224 356
meet comprehensive criteria receive the Rainforest Fax: +62 361 235 875
Alliance Certified™ seal. The Rainforest Alliance
also works with tourism businesses, to help them succeed while leaving a
small footprint on the environment and providing a boost to local economies.

We would like to acknowledge the following organizations for their contributions to this project:

SNV Netherlands Development Organisation is an international

development organisation of Dutch origin with over 40 years of experience.
SNV currently works in 32 countries in Africa, Asia, Latin America and the
Balkans, with an increasing presence of national advisors in-country.

SNV supports national and local actors within government, civil society and the
private sector to find and implement local solutions to social and economic
development challenges. The organization stimulates and sets the framework
for the poor to strengthen their capacities and escape poverty. SNV does this
by facilitating knowledge development, brokering, networking and advocacy at
national and international level. Partnerships with other development agencies
and the private sector are key to SNV’s approach.

The Worldwide Fund for Nature (WWF) works to stop the degradation of the
planet's natural environment and to build a future in which humans live in
harmony with nature, by:

• conserving the world's biological diversity;

• ensuring that the use of renewable natural resources is sustainable;
and,
• promoting the reduction of pollution and wasteful consumption.

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The Research Centre for Forest Ecology and Environment (RCFEE) is a
specialized independent research organization under Forest Science Institute
of Vietnam (FSIV). It was established in 1990 to address the need of creating
and transforming scientific research into ecologically and economically sound
solutions for sustainable forest management and development.

RCFEE’s mission is to address current issues in the forestry sector, predict

threats in the future and develop solutions for such problems. Through targeted
investment in science and prioritization in research, our aim is to ensure our
scientific work delivers maximum benefit on the most important issues facing
our partners in the forestry sector.

RCFEE’s strategic research and development focus on three major themes: i)

sustainable use of forests and forest land; ii) forest ecology and physiology;
and iii) forest environment modeling, prediction and assessment. These
themes reflect major trends in Vietnam’s forest industry such as high demand
of plantation products, increase of public interest on forest protection and
conservation, and improvement of environmental issues to meet international
standards.

RCFEE brings together more than 30 researchers and a complete set of

facilities. It operates through specialists, and often multi-disciplinary research
groups which have diverse interest, but are united by a common desire to
make an optimal use of the forest resources for economic development while
keeping it sustainable for our next generations.

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 TABLE OF CONTENTS

1. INTRODUCTION 6

1.1 Objectives 6

1.2 The Study Area 7

1.3 Potential Project Members 7

1.4 FSC and Carbon Projects 8

2. CARBON STANDARD RELATED ISSUES 9

2.1 Voluntary Carbon Standard 9

2.2 Climate, Community and Biodiversity Standard 10

3. BASELINE ASSUMPTIONS AND SCENARIOS 11

3.1 The Carbon Model 11

3.2 The Cost Benefit Analysis (CBA) 14

4. RESULTS OF THE MODELING 14

4.1 Carbon Modeling 14

4.2 Cost Benefit Analysis (CBA) 15

5. RISK ASSESSMENT 19

6. ADDITIONALITY 22

6.1 The Project Test 22

7. REGULATORY FEASIBILITY, UNCERTAINTIES AND CONCERNS 24

7.1 Regulatory Feasibility 24

7.2 Uncertainties 24

7.3 Concerns 25

8. CONCLUSIONS 25

REFERENCES 26

APPENDIX 1: LIST OF PEOPLE INVOLVED IN THE STUDY 27

APPENDIX 2: CARBON MODEL 27

APPENDIX 3: COST BENEFIT ANALYSIS 27

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 1. INTRODUCTION
The overall goal of the 2008-2011 IKEA-Rainforest Alliance project Climate Change, Conservation and
Carbon Offsets: A Pilot Project with an Emphasis on Vietnam and Malaysia is to foster learning,
experience and development of credible carbon forestry projects as one of the means to address
climate change in three countries relevant to the business of IKEA in Southeast Asia: Vietnam,
Malaysia and Indonesia. Due to the important role of forests in climate change, as a source of
greenhouse gas emissions and in carbon sequestration, this project seeks to explore and support the
creation of carbon forestry projects, which would be able to meet internationally accepted and credible
standards.

Through this partnership, IKEA and the Rainforest Alliance (RA) will build capacity amongst actors that
have potential to create carbon projects, and thus the activities are largely focused around training.
Tools, methodologies, and standards will be tested and developed by RA and partners to help bring
carbon forestry projects to the market. Capacity building efforts will focus on enabling contributions by
small and medium sized enterprises, but also encourage larger scale managers to take advantage of
forest carbon opportunities. Participants in these capacity building activities should explore
collaborations with businesses and organizations that work with IKEA and also those that are external
to IKEA.

This feasibility study was carried out as part of RA’s efforts to accomplish Objective A of the project,
denominated Reforestation or agroforestry activities with communities and forest rehabilitation activities
with sustainable forestry enterprises in Vietnam facilitated by on-the-ground organizational partners
identified by IKEA and RA.

The intent of activities under this objective is to stimulate a number of Vietnamese companies,
communities, and/or government land management agencies to conduct reforestation, restoration, or
agroforestry practices through tree-planting that could be eligible to earn payments for carbon credits.
Such forest managers may include small forestry enterprises (SFEs), cooperatives, individual land
owners, communities and large plantation companies, amongst other actors. We aim to explore ways to
combine forest certification and carbon project validation and verification, which should add value
through payments for environmental services for carbon and well-managed forest products.

Through consultation with representatives from SNV Netherlands Development Organisation, the
Worldwide Fund for Nature (WWF), the World Bank and national and local government institutions it
was agreed that a feasibility study should be focused on small holder plantation farmers in Quang Tri
Province in Central Vietnam. The feasibility study was carried out in close cooperation with Sebastian
Schrader (WWF), Mr. Le Khac Coi (WWF), Mr. Le Tien Duc (WWF) and Richard McNally (SNV).

The current feasibility study was carried out based on a concept note developed by WWF and SNV
suggesting the project site to be Quang Tri and focusing on small-scale farmers planting acacia for
pulpwood production.

1.1 Objectives
The objectives of the feasibility study were as follows:
1. To evaluate the feasibility of developing a forest carbon project in Quang Tri Province following
an Improved Forest Management (IFM) project type and implemented by private smallholder
farmers growing acacia plantations, which could potentially be certified to Forest Stewardship
Council (FSC) standards. The evaluation will include:
a. Determine the amount of carbon sequestered when rotation lengths for Acacia
plantations are extended and FSC practices are adopted;

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 b. Analyze the potential of carbon credit generation from such a project with respect to the
Voluntary Carbon Standard (VCS) and Climate, Community and Biodiversity (CCB)
Standards; and
c. Conduct a cost/benefit analysis for the plantations earning FSC certification, and for
earning FSC certification plus developing a carbon credit project.
2. To outline possible further steps toward the development of such a forest carbon IFM project in
Vietnam in collaboration with selected non-governmental organizations (NGOs) operating at
local level.

1.2 The Study Area

The study focuses on smallholder farmers in Quang Tri Province.
Located in North Central Vietnam, Quang Tri Province is
surrounded by Quang Binh Province on the north, Thua Thien-Hue
Province on the south, Savannakhet Province of Laos on the west,
and the East Sea on the east (with 75km of ocean border). Except
for the narrow piedmont coastal plains, the terrain is dominated by
hills and the Annamite Mountains. The highlands, characterized by
steep slopes, sharp crests and narrow valleys, are covered mainly
by a dense broadleaf evergreen forest. The province consists of
about 219,000 ha forest area, thereof 84,000 ha of plantations.
About 20,000 ha is managed by Forest Enterprises; another 72,000
ha is managed by peoples’ committees, including 17,000 ha of
smallholder plantations having the Red Book Certificate (a 50 year
land-use license). It is estimated that roughly two third of the
plantation area in Quang Tri is managed by smallholders.

Most of the peaks are 4,000 to 7,000 feet high, but some rise above
8,000 feet. The narrow coastal plains flanking the highlands on the
east are compartmented by rocky headlands and consist of belts of
sand dunes and, in areas where the soil is suitable, rice fields.

From the crests that mark the drainage divide in the highlands,
streams flow either east towards the South China Sea or west into Laos or Cambodia. Those flowing
eastward are swift and follow short courses through deep narrow valleys over rocky bottoms until they
reach the coastal plains, where they slow down and disperse over silty and sandy bottoms. The
westward flowing streams follow longer traces, sometimes through deep canyons, other times through
poorly drained valleys that, like the coastal plains in the east, are subject to seasonal flooding. Its
topography consists of mountains, hills, plains, sand dunes and beaches. The long coast and complex
network of rivers includes the Ben Hai, Cam Lo, Quang Tri, and Thach Han rivers, offering a good
potential for hydroelectricity production and aquaculture. The weather features a wide range of
temperatures and rainfall, with hot and dry south-west winds during the Southwest Monsoon (May
through September) and much cooler wet weather during the rainy season (November to mid-March).
Annual average temperature is 24ºC, but temperatures can drop as low as 7ºC during the rainy season.

1.3 Potential Project Members

The farmers included in this study are primarily found within areas that have been covered by the
German Development Bank KfW project which, since 1995, has aimed to establish plantations in the
province for land use change and poverty reduction. The area in Quang Tri Province under this
program covers approximately 7,500 ha plantations, and approximately 5,000 households have been
given possession of Red Book Certificates (50 year land use licenses) as a result of its implementation.
The area used for the cost benefit analysis conducted as part of this feasibility study covered 8,000 ha
or roughly half of the smallholder forest area with secured land use rights.

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 1.4 FSC and Carbon Projects
During the FSC General Assembly 2008, the FSC community formally recognized that forests can have
an important role to play in addressing climate change and as a result the General Assembly passed
motion 43, which states that that FSC shall explore the role that the Principles & Criteria, governance,
accreditation, policy development and forest certification can play in frameworks to mitigate climate
change by maintaining and/or increasing carbon stocks.

The FSC motion specifically mentions efforts focused on establishing real and verifiable emission
reductions from forest protection and improved forest management projects, and research into how
FSC-certified management practices could maintain and/or increase forest carbon sequestration. FSC
will also explore alignment or partnership with voluntary carbon standards or program design protocols
as well as engaging voluntary and regulatory carbon finance mechanisms to recognize FSC certification
as an effective tool to ensure environmental and social co-benefits. Lastly, and equally of relevance, the
FSC should explore the development of guidelines and cost models to help FSC certificate holders,
including small holders, indigenous peoples, and communities, access revenue sources for maintaining
or enhancing carbon stocks.

The FSC standards have great potential to benefit carbon projects where they are implemented, as
FSC-certified forests are already delivering social and environmental performance at implementation
level that corresponds to some of the requirements of voluntary standards such as the Climate,
Community and Biodiversity Standard (CCBS).

In this feasibility study we took care to examine the connection between FSC certification and voluntary
carbon standard requirements for reforestation projects as well as the socio-economic costs and
benefits of developing carbon projects in Quang Tri Province.

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 2. CARBON STANDARD RELATED ISSUES
Because the study focused on the feasibility of developing a project that could successfully be validated
and verified to the Voluntary Carbon Standard (VCS) and the Climate, Community and Biodiversity
Standard (CCBS), we have reviewed some of the key issues related to both VCS and CCBS validation
and verification that would be relevant for a project to address.

2.1 Voluntary Carbon Standard

2.1.1 Methodology
As of finalization of this study (October, 2009) there is no methodology approved by the VCS
Association for use with the VCS for improved forest management (IFM) by rotation length extension.
However, a number of methodologies are currently under development and one may be developed for
extending rotation lengths, although the existence of such an effort is currently unknown.1 If a
methodology does not emerge before such a project was ready to enter the development phase, a new
methodology would have to be developed and approved by the VCS Association. This could pose a
significant cost for a small project. It is suggested that if WWF and SNV, in collaboration with the
Rainforest Alliance, decide to proceed with the development of a project concept and possibly a project
proposal, that close attention is given to when and if a methodology developed by third parties may
become available for use so that, if at all possible, the project can avoid having to develop their own.
The calculations presented here assume that it is necessary to develop a new methodology for this
project and budget 100,000 USD for this purpose.

2.1.2 Additionality
The concept of additionality means that credit can only be claimed for carbon dioxide sequestration (or
emissions reduction) if the actions taken that led to the sequestration/emissions reduction are beyond
what would have happened had the carbon project not existed. The additionality of the project is of
crucial importance to the eligibility for validation and verification to the VCS. Additionality should be
thoroughly documented in a potential concept/project paper, using the specific tools that have been
developed for carbon projects to demonstrate additionality. This study contains a preliminary evaluation
of additionality using the VCS project test2. Based on this test, we find that the proposed activities are
additional and would be eligible for VCS crediting.

2.1.3 Monitoring
Monitoring with respect to conformance to the VCS standard is an important project activity that should
receive attention from the onset of a potential project development. Monitoring is a way of gathering
data to demonstrate that the project design has been successfully executed. In the case of the VCS,
monitoring demonstrates that a verifiable number of carbon credits have been generated, by measuring
sequestration and emissions reduction.

1
Methodology elements posted for public comment are available on the VCS Web site at http://v-c-
s.org/public_comment.html, so this is a place to watch for potential new methodologies. Approved
methodologies are listed at http://v-c-s.org/methodologies.html.
2
See section 5.8 of the VCS 2007.1 standards for an example of an additionality test: http://www.v-c-
s.org/docs/Voluntary%20Carbon%20Standard%202007_1.pdf

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 2.1.4 Non-Permanence buffer determination
This feasibility study includes a tentative evaluation of risks to permanence of the described project
scenario. This is conducted using the VCS’s risk analysis tool. It is found that the main challenge to the
proposed project is the ability and willingness of farmers to sign up to the project for the period required
under the standard (at least 20 years, but often between 30-60 years), the resulting risk being that the
economic constraints of project participants, who mostly come from poor rural households, could lead
to the participants’ non-ability to remain in the project in times of unforeseen crisis and sudden need for
cash income (when they would need to harvest their plantations prior to the date committed to for the
project). A project would need to consider these issues carefully and subsequently make appropriate
assumptions in the buffer withholding percentages.

2.2 Climate, Community and Biodiversity Standard

The standard of the Climate, Community and Biodiversity Alliance is considered to have two main roles
in the development and execution of carbon projects: i) to provide rules and guidance to encourage
effective and integrated project design, and ii) to be applied throughout a project’s life to evaluate the
social and environmental impacts of a land-based carbon project.

It is important to note that the CCBA does not issue quantified emissions reductions certificates and
therefore encourages the use of a carbon accounting standard (such as that of the Clean Development
Mechanism or the VCS) in combination with the CCB Standard. Therefore, for the purpose of this study
we have considered issues related to carbon sequestration only under the VCS analysis above. With
respect to the CCBS, we focused particularly on the following issues.

2.2.1 With- and without-project scenarios

Comparing the expected “without-project” scenario with the expected “with-project” scenario as
accurately as possible is an important component of the project design document required for
evaluation to the CCBS. This comparison does not only relate to the carbon stock but also to
community and biodiversity values. Completing the with- and without-project scenarios requires
thorough analysis of the current and possible future development of the project areas and surroundings
as well as identification and estimation of the expected impacts of the project on communities involved.

2.2.2 Net positive project impact

For the project to be deemed in conformance with the standard, the net impact of the project (both on-
and offsite) must be positive in each of the three areas (climate, community and biodiversity). The
CCBS refers to identification and conservation of high conservation value forest (HCVF)3, and so
forests of this type must be addressed in the project area. To conform to the CCBS, the project
proponent must use “appropriate methodologies” to estimate any possible changes to community and
biodiversity values and take action to ensure that such values are maintained or enhanced.

2.2.3 Monitoring
Similarly to the VCS, the CCBS requires the establishment and implementation of thorough monitoring
systems. However, the CCBS specifically requires that these systems are designed to allow evaluation
of the impact of the project on both community and biodiversity values.

3
All natural habitats possess some inherent conservation values. These could include the presence of rare or endemic species,
sacred sites, or resources harvested by local residents. High Conservation Value (HCV) areas are defined as natural habitats
where these values are considered to be of outstanding significance or critical importance.

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 2.2.4 Group development and management
As the subject of this study is a community project involving a large number of small-scale rural farmers
it is considered of critical importance to the success of the carbon project – and to the achievement of
net positive climate, community and biodiversity impacts – that project management is carefully
designed. In this case a good management model would likely mean the development of a well defined
group formation and management structure that could work within the existing levels of administration
at village, commune, district and province levels to allow adaptation to the current administrative
structure. Local authorities, such as the Provincial and District branches of the Department of Forestry
(DOF), should also be closely involved with the project management unit.

3. BASELINE ASSUMPTIONS AND SCENARIOS

For the purpose of this feasibility study it was useful to build two new, tailored models to enable an
assessment of the baseline and project scenarios. The first model calculates the average biomass
sequestered on the land for each of the two scenarios by modeling tree growth under the different
management regimes. The second model uses inputs from the first model and cost/revenue
assumptions to calculate the cash flow, net present value and internal rate of return for a number of
scenarios.

These models were simplifications of the system they were trying to emulate. Both use a system
whereby assumptions are transparent and can be easily changed in order to assess the effect on the
result.

3.1 The Carbon Model

The carbon model emulates tree growth and removal at harvest using a number of simplifications and
assumptions. Two scenarios were developed based on consultation with the Quang Tri Department of
Forestry, literature references and previous studies carried out in the area. In order to conduct the
analysis, the baseline and project scenarios were defined using assumptions listed in Table 1. Further
details regarding the model are explained the file Ikea Viet Nam Feasibility Carbon Model V1.xls,
Appendix 2 to this report.

Table 1: Summary of baseline and project scenarios

Criteria Baseline Project Scenario

Species Acacia Hybrid (100%) Acacia Hybrid (80%)
Cassia or other native (20%)

Seedlings Cuttings Improved seedlings

Soil Preparation Plowing, high disturbance Hole planting, low disturbance

Planting Density 1600 trees ha-1 1600 trees ha-1

(80% Acacia, 20% Native Species)
Buffer Zones None Yes, 5% average assumed
Management Weeding Weeding

Thinning None Year 5 (remove 20% volume)

Year 9 (remove 20% volume)
Rotation Length Year 6 (100%) Year 12 for Acacia only
Selective logging of natives*
Growth rates Acacia = 10 m3 ha-1 y-1 Acacia = 15 m3 ha-1 y-1
Native Species = 6 m3 ha-1 y-1

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Harvest Years 6, 12, 18, 24, 30, 36 12, 24, 36
Products Acacia Acacia
95 Pulp 60% pulp
5% Saw Timber 40% saw wood (>18cm dbh): for high quality
furniture, local house building
Native Species
Indoor furniture

Acacia volume at 50 m3 ha-1 (after 6 years) 132 m3 ha-1 (after 12 years)

harvest
After Harvest Burning No Burning
Stems less than 5 cm left on the ground
and burnt

* For the purposes of model simplification and conservativeness in the financial analysis, no harvesting of native species was
considered. A lower growth rate than expected for native species was used to compensate for reduced biomass storage due to
harvesting.

3.1.1 Assumptions and Possibility of Variance:

Species - Acacia Hybrid is one of three species of Acacia currently grown in the province. It is the best
performing of the three and it is expected in both scenarios that farmers would select this species.

Seedlings - In the project scenario it is assumed that to avoid stem rot and reduce the risk of wind
throw, better quality seedlings compared to the baseline would need to be sought (at additional cost).

Soil Preparation - Plowing is common practice in the project area, yet forest technicians do not approve
of its use as it can lead I the long term to soil erosion and reduced soil fertility. This practice is expected
to continue in the absence of the project. To meet FSC standards, hole planting would be used in the
project scenario.

Planting Density - The planting density is a based on data from within the project area. It is assumed
that the same density could be planted in the project scenario (although this will involve a mixture of
Acacia and native species).

Buffer Zones - To meet FSC standards, buffer zones will be required, and this is not a practice that
occurs at present.

Management/Thinning – Current technical knowledge amongst small holders is not high and therefore
little thinning is conducted. It is anticipated that with silviculture training (combined with improved
seedlings), growth rates could be improved, i.e., through such interventions as thinning.

Rotation Length – There is currently urgency amongst small holders to harvest as soon as possible to
generate regular revenues. The plantations that were established under the KfW program during the
late 1990’s and early 2000’s are expected to be harvested as soon as payments from KfW end, which
would lead to a rotation length of 6-7 years. In order to extend rotation lengths, better management
would be required, species of hybrid Acacia would need to be selected that do not suffer from stem rot
after 10 years, and payments would be required to bridge the delayed revenue stream. It is expected
that a 12 year rotation length could be achieved under the project scenario. That said, the forest
department did comment that 10 years may be a more suitable target to avoid the issue of stem rot. If
all other elements are kept the same, reducing the rotation length reduces the carbon credits that would
be available from 88 t CO2 ha-1 to 68 t CO2 ha-1.

Growth Rates – The current growth rate for Acacia Hybrid (10 m3 ha-1 y-1) was based on data gathered
by WWF in their plantation report. The ‘Acacia. Hybrid Data’ and ‘Hybrid Vol by Year’ tabs in the model

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spread sheet, show that an average growth rate of 10 m3 ha-1 y-1 was achieved in the plantations
measured by WWF. It was assumed that under good management, and with good seedlings, this rate
could be increased to 15 m3 ha-1 y-1; the analysis tabs referenced demonstrate that this rate has been
achieved in Quang Tri, albeit on a study farm (labeled ‘Yield Table 1’). This was considered reasonable
by the Department of Forestry. Figure 1 below shows that higher growth rates have been achieved in
Quang Tri with better management. The linear lines presented are a simplification, but help to put the
observed growth rates in perspective.

Products – The assumptions around products have come from the SNV study into Value Chains in
Quang Tri as well as from the Department of Forestry.

Figure 1: Growth rates gathered from data within Quang Tri Province. Yield table = data from forestry
school test plots. All report data collected by WWF.

Table 2: Explanation of data sources for Figure 1.

Data Source
1) Yield Table Data from forestry school test plots.

2) Yield Table Data from forestry school test plots.

3a) Plantation Report Report on Plantation Survey Results (in Vinh Linh and Gio Linh districts,
Quang Tri Province) (1st Draft) (assessed in 2009).
4a) Assessment report Report on Field Survey Result Made By WWF Advisory Team.
(Good Soil)
4b) Assessment report Report on Field Survey Result Made By WWF Advisory Team.
(Average Soil)
4c) Assessment report Report on Field Survey Result Made By WWF Advisory Team.
(Poor soil)

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 3.2 The Cost Benefit Analysis (CBA)
A cost benefit model was developed to model the two scenarios. The assumptions made are all
transparent and can be changed with ease. Full details of these assumptions can be found in the CBA
itself, IKEA Viet Nam Feasibility CBA V1.xls, appendix 3 to this report. The model calculates a cash
flow as well as net present values (NPV) and internal rates of return for the baseline scenario as well as
three project scenarios. The three project scenarios are as follows:
1) The project to lengthen rotation length, introduce buffers and native species is carried out, but
no FSC certification is sought and no carbon project is developed.
2) The project to lengthen rotation length, introduce buffers and native species is carried out, FSC
certification is sought but no carbon project is developed.
3) The project to lengthen rotation length, introduce buffers and native species is carried out, FSC
certification is sought and a carbon project is developed.

Results are presented in terms of NPV which utilizes a discount rate of 9%.

4. RESULTS OF THE MODELING

4.1 Carbon Modeling

Increasing the rotation length, incorporating native species and having a buffer was found to increase
the average amount of biomass on the land from 17.5 tonnes of dry matter per hectare ( d. m. ha-1) to
65.6 t d. m. ha-1 over the length of the project (See Figure 2). This translates to 88 t CO2 ha-1 over the
project life, which would be the amount of credits that could be claimed. If, in the project scenario,
extended rotation lengths of 10 years can be achieved, then the carbon credits that could be claimed
would be reduced to 68 t CO2 ha-1. If growth rates were only increased to an average of 12 m3 ha-1 y-1 in
the project scenario, then the credits would fall to 72 t CO2 ha-1. The results were found to be relatively
insensitive to changes in the area of the buffer zone.

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Figure 2: A comparison of the biomass on the land in the baseline and project scenario.

HWP: harvested wood products; AW: above ground

4.1.1 Discussion of Carbon Modeling Results

If the assumptions of the model are realistic and conservative, the carbon credit values calculated are
most likely to be an underestimate. A more sophisticated model could take into account accumulations
in root carbon (minus decay after death) and harvested wood products, and likely increase the
sequestration potential. Including root carbon may increase carbon sequestration by 10-20%. A simple
model, based on the Climate Action Reserve’s protocol4 and comparing the carbon stored in harvested
wood products in two 6 year rotations to one 12 year rotation shows that an additional 8 t CO2 ha-1 is
sequestered for each 12 year rotation of acacia. Thus, with a project length of 36 years, an additional
24 t CO2 ha-1 could be sequestered through the accounting of carbon stored in wood products. Full
details can be found in appendix 2.

Future carbon modeling would also need to consider thinning harvests and harvest of native species. In
this model, growth rates were set at a level that was intended to account for losses due to thinning and
selective logging of native species. However, this approximation should be improved in future.

4.2 Cost Benefit Analysis (CBA)

The cost benefit analysis here is presented based on a number of estimates and assumptions. In
reality, costs and benefits may differ and unanticipated costs could occur. Whilst the results presented
here can be used as a guide, further, more detailed analysis should be conducted prior to any
investment decision being made.

The results from the costs benefit analysis are broken down into a per hectare value. This means that
the size of the project has an effect on the results. Fixed costs such as project design document
development, which are independent of project size, are cheaper per hectare as the project gets bigger.
The Quang Tri area considered currently has 17,000 ha of acacia grown by smallholders on land with
Red Book Certificates (clear land tenure). For the purpose of the cost benefit analysis it was assumed
that a reasonable project size was 8,000 ha.

4
http://www.climateactionreserve.org/how-it-works/protocols/adopted-protocols/forest/current-forest-project-protocol/

15
 4.2.1 Estimated Project Development Costs
The following table outlines the potential costs associated with the project development costs of the
rotation extension only, carbon and FSC projects. In order to conduct and FSC and/or carbon project it
is necessary to also invest in the extension of rotation length project. These are estimated costs and
reflect an approximate amount for each item, but the true costs incurred by a project may be lower or
higher. These costs are considered to be of particular importance to the possibility of the project
implementation, since they are up-front and relatively large sums.

Table 3: Potential costs associated with project development scenarios.

Extending rotation length only USD

Project Development 30,000
Annual Implementation Costs (over first 6 years) 200,000

Carbon project costs USD

Disbursement Scheme Development & Preparation 30,000
Project Validation 30,000
Project Design Document Development 100,000
Methodology Development 100,000

FSC related costs USD

FSC Certification Audit (every five years) 25,000
FSC Annual Audits 6,000

4.2.2. Real time and NPV costs and additional revenues from projects
Figure 3 shows the real time (undiscounted) project development costs and upfront investments of the
project alongside the price premiums that FSC certification brings and the revenues from carbon
credits.

In the baseline scenario, costs were restricted to site preparation, planting, weeding and harvesting. In
the first five years the total costs (not discounted) were USD 502 per ha. In the extended rotation
scenario, the costs were over double that, at USD 1,082. The additional costs (relative to only
extending the rotation length) related to the carbon and FSC components are relatively small. To obtain
FSC certification would cost only an additional USD 7 per ha in project development costs and USD 39
per ha in upfront investment. To add a project component which realizes carbon credit benefits would
approximately double the upfront investment costs to USD 61 per ha.

In the baseline scenario the total revenues (undiscounted) are USD 9,099 over the 36 year project life.
By comparison, in the extended rotation only scenario the revenues double to USD 18,218. With FSC
certification, the premium received for timber sales is an additional USD 2,453, as shown in Figure 3.
Carbon credit sales total USD 455, based on a conservative carbon price of 5 USD per t CO2e.

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Figure 3: Real time (undiscounted) project development costs, upfront investment costs, and additional
revenues raised by FSC and carbon revenues over the full 36 years of the project. Note that the
revenues from the extended rotation are not shown (only the price premium from FSC).

Figure shows the same project development, upfront investment and revenues as Figure 3, however
applying the discount rate of 9%, to generate the net present value. When the discount rate is
considered the revenues raised by selling FSC-certified products (USD 443) are still significantly more
than the additional costs of earning and maintaining FSC certification (USD 20). The net present value
of carbon sale revenues is still greater than the net present value of the cost of doing the project. The
assumption in the CBA was that the carbon credits earned per hectare (88 voluntary carbon units, or
VCUs) are received spread equally at each of the seven monitoring events, which occur at 5 year
intervals. However, if it were possible to secure upfront payment for carbon credits, then the money (or
some portion of it) may be able to be received much earlier in the project, significantly increasing the
net present value of the payment.

Figure 4: Discounted (rate of 9%) project development costs, upfront investment costs, and additional
revenues accrued from FSC-certified timber and carbon credit revenues over the full 36 years of the
project. Note that the revenues from the extended rotation are not show (only the price premium from
FSC).

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 4.2.3 Cumulative cash flows
Figure shows the cumulative cash flow per ha for the baseline and project scenarios. The baseline
scenario requires less initial investment and the early harvest in year 6 moves the cumulative cash flow
into positive figures from year 6 onwards. The project scenarios however, require more upfront
investment, although the FSC and carbon components require only marginally more. Some money is
earned prior to the year 12 harvest through selling the trees harvested for thinning. However, it is not
until year 12 in the project scenarios that the project has a positive cumulative cash flow. Although not
shown on the graph the final cash flow position for the carbon and FSC component is USD 15,814,
whilst for the project in the absence of carbon or FSC the position is USD 13,297.

Figure 5: Cumulative cash flows per ha for the baseline and potential project scenarios.

4.2.4 Complete baseline and projects net present value

Figure 6 shows the cumulative net present value (NPV) for the baseline and potential project scenarios.
Of most interest are the 36 year values, as at this point the whole project is included. The four project
scenarios are shown to have a significantly greater NPV than the baseline scenario. However, the
effect of adding a carbon component is almost negligible at 71 USD per ha. The net present value of
the additional FSC component is 359 USD per ha.

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Figure 6: Cumulative net present value for the baseline and potential project scenarios shown for years,
6, 12, 24 and 36.

4.2.5. The importance of getting carbon credits early

The assumptions used in the CBA presented above, whereby the flow of carbon credits is steady
through the project, means that the benefit of those received later is minimal due to the high discount
rate. However, it is possible (if a buyer can be found), to sell carbon credits before they are created.
This is achieved by selling the promise of deliverance of credits at a future date at a price set today.
With carbon prices likely to rise, this could be a viable investment for an investor, although they would
likely request a low selling price (such as USD 5 per VCU) due to the risk involved in investing in credits
that have not yet accrued. This risk would need to be managed in the contract and is not discussed in
detail here. However, were this early sale achieved, the addition of the carbon component is made
more attractive. If 50% of the credits were sold in year one, and the remainder spread between the
seven verification events, then the NPV of the carbon component rises from 71 USD per ha to 216 USD
per ha. Were they all received in year one this would rise to USD 358 per ha (equal in NPV to the FSC
component). Selling 88 VCUs from 8,000 ha at USD 5 per ha would generate approximately USD 3.5
million.

5. RISK ASSESSMENT
The following risk assessment has followed the VCS guidelines for risk assessment of IFM projects as
a preliminary assessment of risks found to exist in the study area.
This preliminary risk assessment follows the VCS “Tool for Non-Permanence Risk Analysis and Buffer
Determination 2008”.

Step 1: Risk assessment

• Sub-step 1a: Evaluate the project against the risk factors applicable to all AFOLU project
types.
• Sub-step 1b: Evaluate the project against the risk factors associated with the specific project
type.
• Sub-step 1c: Based on the above assessments, the overall risk classification for the project is
determined.

Sub-step 1a: Determination of the risk factors applicable to all project types

Table 4: Risk factors applicable to all project types

Project risk
Risk of unclear land tenure and potential for disputes

The project aims at only accepting farmers who hold a valid Red Book Certificate (RBC) into the

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project. The RBC grants the holder 50 year rights for forestry use and allows for exchange, transfer,
and lease, giving as inheritance and mortgage of the land. Since this system is well established and
recognized the tenure is considered secure under the RBC. Land managers without the RBC will be
included in the project only under the condition that they obtain RBC.

There is a risk of timber theft within the region and this issue affects the small holders’ decision on
whether or not to harvest. Timber theft was explicitly stated by farmers as a reason to want to
harvest.

In the first 6 months of 2009, 372 instances of theft were recorded with a total volume stolen of 795
m3. In 2008, 382 cases were recorded with a total volume of 750 m3.

Risk rating: medium

Risk of financial failure

The CBA calculations are based on the assumption that the project would be implemented without
external donor funding and thus that the project activities will be profitable enough to pay for
validation and verification costs. As mentioned above, the decisions of farmers about their land
management is, to a very high degree, determined by the financial constraints they face on a daily
basis. The farmers are poor and cash income is very limited. Plantation forestry, even at 6-7 years
rotation, is considered a long term investment. Expanding that rotation length will most likely be
perceived as additional risk to the farmers. Even though the CBA analysis results supports the
adoption of longer rotation lengths and FSC certification, the risk of farmers not wanting to get
involved in such a project due to the extended investment horizon is a real one.

The risk can most likely be mitigated by supporting the process with donor funds and technical
support for training, capacity and awareness building as well as project development. However, it is
perceived that the risk of financial failure to farmers is high.

Seen form the viewpoint of a potential project the current IFM scenario looks sound, and should be a
viable model, if farmers are able and willing to invest.

Risk rating: high

Risk of technical failure

The proposed project builds on simple silvicultural techniques that will be implementable by small
holder farmers and there is no technical risk involved with these.

Risk rating: low

Risk of management failure

The project is proposed to be managed through existing provincial structures of the Department of
Forestry in Dong Ha, Quang Tri with technical support from SNV, WWF and Rainforest Alliance.

Risk rating: medium

Economic risk
Risk of rising land opportunity costs that cause reversal of sequestration and/or protection

Project activities will focus on land areas allocated as forest land and will build on cost-benefit
analyses to ensure that the activities will be viable and attractive to farmers for long term economic
gains. Large parts of the land on which plantations are established are heavily degraded areas that
were exposed to defoliant application during the American/Vietnam war as well as heavy bombing.
The plantations areas have all been established on land formerly occupied by degraded shrub lands.
The plantations that are proposed to be included in the scope of the carbon project were all
established mainly through external donor funding. The fact that the land is marginal and not suitable
for agriculture makes it unlikely that alternative land uses would be able to compete with plantations.

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 Risk rating: low
Regulatory and social risk
Risk of political instability

The political system in Vietnam is considered to be very stable, at least in the short- and medium-
term. The government maintains tight control on policymaking and there is negligible risk of
succession.

Risk rating: low

Risk of social instability

Social instability is considered to be a low risk in Vietnam. However unexpected changes in

economic growth could cause increases in unemployment that could lead to social unrest and
migrations. On the other hand, it is considered that the areas in which the project proposes to work
demonstrate relatively secure household-based farming systems and community social structures.

Risk rating: low

Natural disturbance risk
Risk of devastating fire

During the first half of 2008, 134.8 ha were destroyed by 10 fires in the project area. In 2009, 9 fires
covering 37 ha have been reported to date.

Risk rating: medium

Risk of pest and disease attacks

The only recorded incidence of serious pest outbreak occurred in 2007, when 415.6 ha of acacia
plantations in the project area were affected by wood borer (Phalera sp.).

Risk rating: medium

Risk of extreme weather events (e.g. floods, drought, winds)

In 2006 the area was hit by a serious typhoon which destroyed 445 ha. The timber was harvested
yielding 15,000 m2.

Risk rating: medium

Geological risk (e.g. volcanoes, earthquakes, landslides)

The project location is not prone to geological calamities.

Risk rating: low

Sub-step 1b: Determination of the risk factors associated with the specific project types

The project activities that are proposed can be categorized as extended rotation age (ERA) and
conversion of low-productive forests to high-productive forests (LtHP).

Risk Factors Extend rotation age Conversion of low-productive forests to

(ERA) high-productive forests (LtHP)

Devastating fire potential Low to medium Low to medium

High timber value Very low Low

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 Illegal logging potential Low Medium
Unemployment potential Low Very low

Sub-step 1c: Determination of overall risk classification for project

Overall the risks associated with the proposed project are estimated to be medium. One of the main
concerns related to carbon is that the revenue that could be expected from implementing the carbon
project is relatively low compared to the added value originating from switching from chip wood to saw
log production. Involvement in carbon activities may not be seen as a desirable activity. This risk may
be overcome if external support could be secured to support some of the initial costs of development of
the project design document and project verification and validation.

Based on above risk assessment, the buffer withholding percentage for the project has been set to 15-
20% (though accounting for the buffer was not included in the model).

6. ADDITIONALITY
Additionality of the proposed activities was reviewed to ensure that a possible project would be
additional and thus eligible for selling VCUs.

The additionality of any project that wishes to be evaluated to the VCS must be tested using the Project
Test defined for this purpose by the VCS Association. The Project Test is replicated here and
responses given for the Quang Tri project.

6.1 The Project Test

Project Test Step 1: Identification of Regulatory Surplus

There is currently no regulatory framework that mandates the proposed project activities
to take place.

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Project Test Step 2: Implementation Barriers
The project shall face one (or more) distinct barrier(s) compared with barriers faced by alternative
projects.
a. Investment Barrier – Project faces capital or investment return constraints that can be
overcome by the additional revenues associated with the generation of VCUs.

The proposed project activities (increased rotation length, increased buffer area
maintenance and diversification using long rotation native species for high value timber
production) are all activities that are not within the economic reach of small scale farmers
that are the focus of the proposal. These farmers own and manage marginal land and
are primarily subsistence farmers with very limited cash income available. The average
household income in Quang Tri province for farmers is app. 450 USD per year, assuming
a 5 person household size.

The current practice of plantation management by smallholders is a rotation length of no

more than 6 years. This short cycle management is driven, partly, by the fact that farmers
face high discount rates and are only able and willing to invest for the immediate returns.
Short rotations are preferred because those biomass-oriented systems allow flexible
harvesting whenever money is required for their day to day needs. This socio-economic
environment does not allow farmers to invest in longer rotations, high quality seedlings,
increased buffers or long rotation native timber species, since this would prolong their
investment horizon.

b. Technological Barriers – Project faces technology-related barriers to its implementation.

Farmers do not generally have access to the technology that would allow them to
increase the productivity of their plantations. Their financial situation does not allow them
to invest in high quality seedlings and they are similarly limited in the amount of effort
they can invest in production enhancing silvicultural techniques. Without additional
financing these barriers would not likely be overcome and farmer would maintain
practices as usual.

c. Institutional barriers – Project faces financial, organizational, cultural or social barriers

that the VCU revenue stream can help overcome.

Plantation and farming practices in the region are, as mentioned, based on very short
term objectives and has traditionally been guided by short and immediate need for cash.
Such practices will not likely change unless farmers are provided with additional income
that can assist to meet emergency and short term needs. The project proposal also
contains activities that relates to management of funds by individual farmers.

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 Project Test Step 3: Common Practice
a. Project type shall not be common practice in sector/region, compared with projects that
have received no carbon finance.
b. If it is common practice, the project proponents shall identify barriers faced compared
with existing projects.
c. Demonstration that the project is not common practice is based on guidance in the GHG
Protocol for Project Accounting, Chapter 7.

The proposed project activities to increase the biomass of standing forest by introducing
extended rotation lengths, increased buffer areas and introduction of long rotation native
timber species is not common practice in the region. As mentioned above common
practice consists predominantly of very short rotation single species stands followed by
clear cut and burning at the end of the rotation. There is no evidence that common
practice is changing except for in few areas that have received substantial amounts of
direct payments via donor-funded projects in the past.

7. REGULATORY FEASIBILITY, UNCERTAINTIES AND CONCERNS

7.1 Regulatory Feasibility

There were no regulatory issues identified during the feasibility study that were found to possibly hinder
the implementation of the proposed project.

7.2 Uncertainties
There are a number of uncertainties that should be highlighted in assessing the feasibility of this
project.

Firstly, the prices obtained for wood chips and saw logs (with and without FSC certification) cannot be
accurately estimated. Prices were assumed in the model to stay constant, which is considered
conservative, as demand and prices are likely to increase for certified and non-certified wood. Price
increases would be expected due to inflation, which has been dealt with in the model by assuming a
discount rate, while demand is expected to increase due to the expected development and expansion
of the wood processing industry in Vietnam.

The price of carbon credits in the future is also unknown. The value of 5 USD per ton CO2e was
assumed to remain constant going forward, which again is conservative as prices are likely to rise in the
future with increased demand. The average price paid for improved forest management credits in 2007-
8 was USD 7 per ton CO2e.5

As mentioned above in the risk determination, a major uncertainty is whether or not the local farmers
will perceive the possible project benefits as outweighing the perceived risks associated with extended
rotation lengths. This issue is something that should be included in a project design as a strategy to
ensure adequate stakeholder consultation and awareness-raising to ensure that farmers understand
the risks and opportunities of the project. The uncertainty here is the ability of the project to get enough
farmers to sign up to the project and stay committed. A study team that analyzed the KfW project found
that this is a risk, but also that through proper planning and implementation the project should most
likely be able to overcome these risks. The fact that the KfW project found that signing farmers up to
their project would be a challenge would be expected to be reflected in similar challenges in a possible
carbon project.

5
State of the Voluntary Carbon Market 2009 -
http://64.27.23.230/documents/cms_documents/StateOfTheVoluntaryCarbonMarkets_2009.pdf

24
The model does not account for the fact that some credits would be held in a risk-based buffer account
by the VCS, although contract negotiations with the buyer could help minimize the effect of this may
have on the cash flow. For example, if all credits were sold up front, the delay in receipt of credits due
to the buffer account would not affect the project cash flow directly.

7.3 Concerns
The proposed project scope includes and area of 8,000-12,000 ha. This is a considerable area that will
require relatively large up-front investments, as well as considerable organization and planning.
Collaboration with the Provincial Forestry Department will be essential to the project’s success.

Timing of credit sales and potential buyers are both uncertain. The concept of extending rotation length
to sequester carbon is not as easy for donors to visualize as avoided deforestation or tree planting. As
such, the pro-poor and community elements of this project would need to be emphasized to attract
donor and investor attention.

The importance of secured funding should not be underestimated. The discount rate in the model was
set high, but for the project to be successful its financial structure must not put farmers in a position to
take on debt or have any great incentive to leave the scheme by harvesting early.

In order to ensure eligibility for validation and verification to the VCS the project timeline is set to 30-40
years, meaning that farmers would be required to commit their land to the project for 30-40 years into
the future. As they are mostly relatively poor and have traditionally oriented their livelihoods around
short term decision-making, it is likely to be a serious challenge to convince farmers to sign up their
land for such an extended period of time.

8. CONCLUSIONS
Based on this analysis, it seems that the project (extending rotation length with Forest Stewardship
Council certification and carbon credit generation components) could provide long-term financial
viability for participants and could be developed to meet the requirements of validation and verification
against the VCS and CCB Standard.

As can be seen from figures 5 and 6 the main financial benefit from the project would originate from the
farmers adopting longer rotation ages and thus reaping the benefits of being able to produce higher
value saw logs instead of low value chip wood. The financial benefits of FSC certification and carbon
credit production are small when compared to the extra money made from extending the rotation length
alone. Adding an FSC certification component to the project is more financially attractive than adding a
carbon project unless all carbon credits can be sold at the start of the project, and could help increase
the chance of the project’s success through better management practices as well as increasing the
marketability of the timber. Adding the carbon component to the project will not contribute significantly
to the success of the timber generating aspect of the project, but does bring extra risk. The revenue per
hectare is low for carbon due to the project type, and monitoring costs are likely to be relatively high
because the project has a high number of dispersed land parcels.

The biggest challenge of facilitating the carbon and FSC certification efforts is structuring finance to
cover the high cost of initial investments related to these activities and to cover the delayed receipt of
revenues for farmers. Due to the uncertainties listed above, a carbon project also brings risk, as the
invested funds will only reap benefits if the project is executed as planned.

On balance, given the limited resources available to invest in carbon sequestration projects, this idea is
not considered one that should be pursued. Many of the benefits of the carbon project can be achieved
without the project if donor funding can be found.

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 REFERENCES
Le Truong Giang (2009) Report on Plantation Survey Results (n Vinh Linh and Gio Linh districts, Quang
Tri Province (1st Draft). WWF

Wheatly, C. & Peters, D. (2008) Acacia Value Chain in the North Central Region of Vietnam. Part of a 3
value chain analysis and programme development study. SNV.

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 APPENDIX 1: LIST OF PEOPLE INVOLVED IN THE STUDY

Name Contact Type of Participation

Adam Gibbon Rainforest Alliance Co-Author of report. Developer of the Carbon model.
Christian Sloth Rainforest Alliance Co-Author of report. Standards Reseach.
Sebastian Shcrader (WWF) WWF Developer of the Cost Benefit Analysis Tool. Provision
of background information and field knowledge.
Le Khac Coi (WWF) WWF Participation in field trip.
Dung Tri Ngo (SNV) SNV Participation in field trip.
Richard McNally (SNV) SNV Participation in field trip.
Rob Ukkerman (SNV) SNV Participation in meetings and field trip.
Thuy An (WWF) WWF Participation in field trip.
Vu Tan Phuong RCFEE Participation in meetings.
Hoang Duc Doanh DoF Quang Tri Meeting about the feasibility study and to seek
statistics about the project area.
Doan Viet Cong DoF Quang Tri Meeting about the feasibility study and to seek
statistics about the project area.
Ho Sy Huy DoF Quang Tri Meeting about the feasibility study and to seek
statistics about the project area.

APPENDIX 2: CARBON MODEL

See spreadsheet titled: Ikea Viet Nam Feasibility Carbon Model V1.xls
Please contact [email protected] for a copy.

APPENDIX 3: COST BENEFIT ANALYSIS

See spreadsheet titled: Ikea Viet Nam Feasibility CBA V1.xls

Please contact [email protected] for a copy.

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