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A Study on A/R CDM Application of Deforested Land in North Korea June 7, 2007 Young-Chool OH Dong-Kun Lee Jae-Uk Kim Seoul National University, Korea.

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Presentation on theme: "A Study on A/R CDM Application of Deforested Land in North Korea June 7, 2007 Young-Chool OH Dong-Kun Lee Jae-Uk Kim Seoul National University, Korea."— Presentation transcript:

1 A Study on A/R CDM Application of Deforested Land in North Korea June 7, 2007 Young-Chool OH Dong-Kun Lee Jae-Uk Kim Seoul National University, Korea

2 2/36 Contents Ⅰ. Introduction Ⅱ. Literature Review Ⅲ. Result & Discussion Ⅳ. Conclusion  A/R CDM Criteria  Forest Area in North Korea  Analysis of Forest Changes in North Korea  Selection of A/R CDM Sites  Project Simulation  Economic Analysis  Background  Method of Study

3 3/36 Background Ⅰ. Introduction Kyoto Protocol came into force (Feb ) - North Korea : joined on April 27, South Korea : Annex Ⅰ country in the 2nd Commitment Period (2013 ∼ 2017) Deforested land is increasing after mid 1970 ’ s in North Korea Alternative approach to restoration of deforested land in North Korea

4 4/36 Method of Study Ⅰ. Introduction Kyoto Mechanism A/R CDM Criteria Data on NK Forest Changes Earlier Studies A/R CDM & Restoration Review Mid 1970 ’ s Landsat Image Good Forest Period /76/77/79 CDM Base year /88/89 Recent Forest /01/02 GIS/RS Late 1980 ’ s Landsat Image Recent 2000 ’ s Landsat Image Eligible Species for A/R CDMEligible Sites for A/R CDM Site Survey Suitable Site & Species Experts Interview Yes No Project Simulation Economic Analysis

5 5/36 Kyoto Mechanism Emission Trading (ET) Allow the developed countries to transfer emissions credits to each other (Unit : AAU, RMU, ERU, CER) Joint Implementation (JI) To be implemented between two or more Annex Ⅰ countries Clean Development Mechanism (CDM) To promote sustainable development by encouraging invest by governments and private firms in projects in developing countries Ⅱ. Literature Review

6 6/36 Credit Limit on Forest Activities Division Afforestation /Reforestation Forest Management Credit Units DomesticNo Limit 3% of the base year emissions (Domestic + JI) RMU (Removal Unit) Oversea s JINo Limit ERU (Emission Reduction Unit) CDM 1% of the base year emissions Not Eligible CER (Certified Emission Reduction) Ⅱ. Literature Review

7 7/36 CDM Project Criteria “Non Permanence” of carbon stored in A/R CDM projects ⇒ Temporary credits Ⅱ. Literature Review ℓCER (long-term CER) - Be used in the commitment period issued - Expire at the end of the crediting period tCER (temporary CER) - Be issued periodically - Expire at the end of the commitment period subsequent to the period issued E-D A B-A C-B D-C A C D E B

8 8/36 Definitions of LULUCF activities Afforestation Land that has not been forested for at least 50 years Ⅱ. Literature Review Reforestation Land that was non-forest on 31st Dec. 1989) TTime Forest cover Non-forest forest ’ 90 TTime Forest cover Non-forest forest T-50

9 9/36 CDM Project Criteria Net Human-Induced CO 2 Absorption by Sinks tCO 2 TimeT Net Human-Induced Absorption (C-B-A) = Credit Baseline Net Absorption (A) Net Absorption (C) Leakage (B) Ⅱ. Literature Review

10 10/36 Forest Changes in North Korea YearForest Area (ha) Sources 19709,773North Korea 19809,449the National Statistical Office (SK) 19869,007 Korean Federation of Science and Technology Societies (SK) 19878,965FAO 19878,870East Germany 19916,298China 19968,446Korea Forest Research Institute 19987,533FAO/UNDP ※ Deforested forest area is increasing after 1970 in North Korea : 2.2 million ha Ⅱ. Literature Review

11 11/36 Forest Changes in North Korea TotalForest Deforested AreaOthers Sub TotalcultivatedNon-stockedOpen Cropland/Residence 12,299 (100%) 7,534 (59.6%) 1,632 (13.3%) 972 (7.9%) 534 (4.3%) 126 (1.1%) 3,133 (27.1%) (Unit : 1,000 ㏊ ) (Lee, 2004) Deforested Area (1998) ▲ Deforested mountain Naseunsi ▲ Diverted for cultivation in Hwaeryung Ⅱ. Literature Review

12 12/36 Forest Species (KFRI,2004) RegionsMain Species High mountain Abies nephrolepis, Abies holophylla, Larix kaempferi, Pinus densiflora, Larix kaempfrri, Picea jezoensis, Picea koraiensis, Juglans mandshurica etc. Middle mountain Castanea crenata, Acer palmatum, Betula platyphylla, Dendropanax morbifera, Picea jezoensis, Pinus koraiensis etc. Low mountain Zizyphus jujuba, Acer palmatum, Ulmus davidiana, Quercus mongolica, Populus euramericana, Fraxinus rhynchophylla etc. Plain Vitis coignetiae, Prunus tomentosa etc. Natural Forest Artificial Forest - Fuel Wood & Fruit Bearing Tree - Main Species : Japanese larch, Korean pine, Robinia pseudoacacia, Chestnut tree, Mongolian oak Ⅱ. Literature Review

13 13/36 Forest Changes ▲ 9,393,227 ㏊ in mid 1970’s Ⅲ. Result & Discussion ▲ 8,648,314 ㏊ in late 1980’s (744,913 ㏊ ↓)

14 14/36 Forest Changes ▲ 7,426,921 ㏊ in recent 2000’s ▲ 1,966,306 ㏊ ↓ since mid 1970’s Ⅲ. Result & Discussion

15 15/36 Forest Changes (Unit : ㏊ ) Districts NK Area Mid ’70’s Forest (A) Late ’80’s Forest (B) 2000’s Forest (C) Decreased Area (A-C) Ratio (A-C)/A Pyungyang-si % Pyungan-namdo1, % Pyungan-bukdo1, % Jagang-do1,6711,5631,4981, % Yanggang-do1,3801,1281, % Hwanghae-namdo % Hwanghae-bukdo % Kangwon-do1,1171, % Hamkyung-namdo1,8551,6181,4791, % Hamkyung-bukdo1,6851,3141,2911, % Total12,2719,3938,6487,4271, % Forest Ratio76.6%70.5%60.5%16.0% Ⅲ. Result & Discussion

16 16/36 Forest Changes Verification of land cover classification results SubjectsComparison TargetsAccuracy Land cover classification Of mid 1970’s Topographical map of % Late 1980’s Land cover classification of 1980’s ma de by the Ministry of Environment in % Recent 2000’sGoogle Earth & Site inspection- Ⅲ. Result & Discussion

17 17/36 Forest Changes (Deforested mountain along Pyungyang-Hwaecheon Expressway, ) (Diverted for cultivation near the Cheongcheon River, ) Ⅲ. Result & Discussion

18 18/36 Forest Changes (Deforested land in Nampo, ) (Deforested mountain around Pyungyang-Hwaecheon Expressway, ) Ⅲ. Result & Discussion

19 19/36 Selection Criteria for A/R CDM Suitable Site Criteria : Overseas Forestation Data → Valuation -. Minimum size of unit site : 200 ㏊ ↑ -. Slope : 20° ↓ -. Altitude : 600m ↓ Suitable Species : Indigenous Species → Valuation -. Japanese larch -. Korean pine -. Mongolian oak Ⅲ. Result & Discussion

20 20/36 Eligible Site for A/R CDM ▲ Decreased Area 744,913 ㏊ of late 1980’s since mid 1970’s ▲ Eligible A/R CDM Site : 605,156 ㏊ (Non-forest land in recent 2000’s) Ⅲ. Result & Discussion

21 21/36 Suitable Site for A/R CDM ▲ Unit Site Size : 200㏊↑ ▲ Slope : 20° ↓ ▲ Altitude : 600m ↓ Suitable Sites satisfied with Site Selection Criteria among Eligible A/R CDM Sites Ⅲ. Result & Discussion

22 22/36 Suitable Site for A/R CDM ▲ Suitable A/R CDM Site : 174,542 ha Ⅲ. Result & Discussion

23 23/36 A/R CDM Site in North Korea (Unit : ㏊ ) Districts Decreased between mid ’70’s and late ’80’s Eligible A/R CDMSuitable A/R CDM AreaRatioAreaRatio Pyungyang-si18,27414, %5073.6% Pyungan-namdo104,12183, %17, % Pyungan-bukdo40,87034, %9362.7% Jagang-do65,09152, %3,6156.9% Yanggang-do45,06931, %-- Hwanghae-namdo42,73334, %3,0008.7% Hwanghae-bukdo107,03890, %27, % Kangwon-do160,500143, %90, % Hamkyung-namdo138,929106, %29, % Hamkyung-bukdo22,28814, %5003.6% Total744,913605, %174, % Ⅲ. Result & Discussion

24 24/36 Project Simulation Ⅲ. 연구결과 Project Area : 174,542 ㏊ Project Period : 30 years (Monitoring cycle : 5 year) Planting Species : Japanese larch, Korean pine, Mongolian oak Carbon Pool : Above-ground biomass, Below-ground biomass (Not considered Litter, Dead wood, Soil organic carbon) Biomass & CO 2 Calculation Index SpeciesGrowing IndexBasic Wood Density Biomass Expansion Factor Japanese larch Korean pine Mongolian oak Baseline : present land use will continue by the end of the project, Additionality and No Leakage in North Korea (Han, 2005).

25 25/36 Biomass & CO 2 per ㏊ Biomass : MAI 4.42 ㎥ / ㏊ CO 2 : 7.21 tCO 2 / ㏊ /year Planted 3 species at the same rate Ⅲ. Result & Discussion

26 26/36 Total Biomass & CO 2 Biomass : 23,158,814 ㎥ (771,960 ㎥ ) CO 2 : 37,728,272 tCO 2 (1,257,609 tCO 2 /year) Ⅲ. Result & Discussion

27 27/36 Economic Analysis Preconditions Project Size : 174,542 ㏊ Period : 30 years Species : Japanese Larch, Korean pine, Mongolian oak Land Cost : free (North Korea’s expenses) Labor Cost : 2.4 U$/day (real wages in Kaesong Industrial District) Carbon credit : ℓCER CER price : 15U$/tCO 2 Exchange Rate : 930 \/U$, 1.3 U$/Euro Discount rate : 4% Ⅲ. Result & Discussion

28 28/36 Economic Analysis ItemTotal5yr10yr15yr20yr25yr30yr Timber (1,000 ㎥ ) 23,1591,3854,69810,33115,08119,33923,159 CO 2 (1,000tCO 2 )37,7282,3247,94617,12424,82131,65137,728 ℓCER (1,000tCO 2 )31,6512,3245,6239,1777,6976,830 ERU or RMU (1,000tCO 2 )47,9592,3245,6239,1777,6976,8306,078 Products of A/R CDM Project 2,324 5,623 6,830 9,177 7,697 ℓCER classified by period ※ ERU : JI Project, RMU : Domestic Afforestation/Reforestation Ⅲ. Result & Discussion

29 29/36 Economic Analysis Forestation Cost : 4,939 U$/ ㏊ Item U$/ ㏊ Remarks Planting 1,022.2Japanese Larch, Korean pine, Mongolian oak Forest management294.6Weeding, Tending, Thinning, Pruning Facilities153.7Office, Warehouse, Supplies, etc. CDM fee3.5Negotiation, Meth. Development, Approval, etc. Harvesting3,239.4Logging, Transportation, etc. General management225.65% Total4,939 Timber Revenue : 9,185 U$/ ㏊ 구 분구 분 Amount ( ㎥ ) Price (U$/ ㎥ ) Income (U$) U$/ ㏊ Japanese Larch8,778, ,749,6234,777 Korean pine7,539, ,820,9322,090 Mongolian oak6,840, ,568,3372,318 Total23,158,8141,603,138,8929,185 Ⅲ. Result & Discussion

30 30/36 Economic Analysis ℓCER Income : 1,067 U$/ ㏊ ItemTotal5y10y15y20y25y ℓCER (1,000tCO 2 ) 31,6512,3245,6239,1777,6976,830 Price (U$/tCO 2 ) Income (1,000U$)186,20321,84746,12261,77437,92318,537 ※ ℓCER Value (Discount rate : 4%) Expired Period25y20y15y10y5y Relative Value against CER64%56%46%34%18% Price against CER 15 U$ (U$) ERU or RMU Income : 3,177 U$/ ㏊ ItemTotal5y10y15y20y25y30y Credits (1,000tCO2)37,7282,3245,6239,1777,6976,8306,078 Price (1,000U$/tCO2)15 Income (1,000U$)554,60634,15882,655134,904113,146100,40289,341 Ⅲ. Result & Discussion

31 31/36 Cash Flow Analysis A/R CDM Project ※ IRR : 6.70% (unit : 1,000U$) Item Total 1~5y6~10y11~15y16~20y21~25y26~30y NPV Planting 178, , , Forest management 51,428 37,056 17,18719,82412,7201,696-- Facilities 26,825 16,366 6,4254,080 CDM fee Harvesting 565, , ,412 General management 41,135 19,992 10,1271, ,475 Total Cost 863, , ,67425,12417,6656,0894,308597,967 Timber 1,603, , ,603,139 ℓCER 186, ,677 21,84746,12161,77437,92318,537- Total Income 1,789, ,955 21,84746,12161,77437,92318,5371,603,139 Net Income 925, , ,82720,99844,11031,83414,2291,005,172 Ⅲ. Result & Discussion

32 32/36 Cash Flow Analysis A/R CDM Project (Without Timber Sales) (unit : 1,000U$) Item Total 1~5y6~10y11~15y16~20y21~25y26~30y NPV Planting178,420171, , Forest management51,42837,056 17,18719,82412,7201,696-- Facilities26,82516,366 6,4254,080 CDM fee General management12,86411,276 10,1271, Total Cost270,144236, ,67425,12417,6656,0894,3084,284 ℓCER Income186,203107,677 21,84746,12161,77437,92318,537- Net Income- 83, , ,82720,99844,11031,83414,229-4,284 ※ 45% of Total Cost can be covered by ℓCER Income. Ⅲ. Result & Discussion

33 33/36 Cash Flow Analysis JI Project or Domestic Afforestation/Reforestation ※ IRR : 5.16% (unit : 1,000U$) Item Total 1-5y6-10y11-15y16-20y21-25y26-30y NPV Planting 178, , , Forest management 51,428 37,056 17,18719,82412,7201,696-- Facilities 26,825 16,366 6,4254,080 CDM fee General management 12,865 11,276 10,1271, Total Cost 270, , ,67425,12417,6656,0894,308 ERU / RMU Income 554, ,668 34,15882,655134,904113,146100,40289,340 Net Income 284,438 38, ,51757,532117,239107,05896,09485,032 Ⅲ. Result & Discussion

34 34/36 Sensitivity Analysis IRR changes of A/R CDM and JI/Dom. project according to carbon credit prices ※ Linear Regression Analysis : goodness of fit 99% A/R CDM project y = x R 2 = JI or Dom. A/R project y = x R 2 = Ⅲ. Result & Discussion

35 35/36 Conclusion of study Confirm the eligible A/R CDM sites in North Korea - Eligible sites for A/R CDM : 605,156 ㏊ → Suitable sites : 174,542 ㏊ - Better accessibility for forestation than other countries Confirm the feasibility of A/R CDM Project for restoration of deforested land in North Korea - A/R CDM project : IRR 6.70% - A/R CDM (without timber) : 45% of total cost is covered by ℓCER Income - JI or Domestic A/R : IRR 5.16% (without timber) JI : When both South and North Korea are Annex Ⅰ country Domestic A/R : If we are unified in the future A/R CDM Project is Alternative approach to South and North Economic Cooperation Ⅲ. Conclusion

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