SWOT Analysis of Forest Carbon Sink Projects in Yunnan Province and Recommendations for Enhancing Competitiveness

Xiaolin FANG, Lan GAO, Jing ZHAO

1. College of Economics and Management, Zhaoqing University, Zhaoqing 526061, China; 2. College of Economics and Management, South China Agricultural University, Guangzhou 510642, China; 3. College of Economics and Management, Southwest Forestry University, Kunming 650224, China

Abstract Using the SWOT analysis method, this paper analyzed the internal strengths, weaknesses, external opportunities and threats of forest carbon sink projects in Yunnan Province. It found that Yunnan Province has strengths in economic environment and practical experience, weaknesses in social participation, project scale and carbon sink talents, opportunities in international climate environment, domestic policies, etc., and threats in project crediting period and forest resource protection, etc. In view of these, Yunnan Province can change the participation mode of forest carbon sink projects, adopt appropriate trading methods, get familiar with the relevant rules of forest carbon sink projects, strengthen the publicity and research of forest carbon sink theory, strengthen the management of carbon sink forests and expand forest carbon sink projects to enhance the market competitiveness of the Yunnan forest carbon sink projects.

Key words Forest carbon sink projects, SWOT analysis, Yunnan Province

1 Introduction

In order to mitigate the effects of global climate change and protect the living environment of mankind, the third conference of the parties to theUnitedNationsFrameworkConventiononClimateChangepassed theKyotoProtocolin 1997, which set for the first time legally binding greenhouse gas emission reduction limits for 41 industrialized countries, requiring the above-mentioned industrialized countries to reduce their greenhouse gas emissions by an average of at least 5% from the 1990 level during the period of 2008-2012. TheMarrakeshAgreementreached by the seventh conference of the parties in 2001 stipulated that in the first commitment period, the clean development mechanism (CDM) project of land use change and forestry was limited to afforestation and reforestation project activities, and this conference also approved the definition of afforestation and reforestation. At the ninth conference of the parties in 2003, the international community has reached a consensus on including forestry activities such as afforestation and reforestation into carbon sink projects, and formulated new operating rules, which created favorable conditions for the official launch of afforestation and reforestation carbon sink projects. In February 2005, theKyotoProtocolaimed at reducing global greenhouse gas emissions finally came into effect, which marked the entry of mankind’s efforts to solve climate problems into the post-Kyoto era. On December 3, 2007, the Bali Road Map formulated by the United Nations Climate Change Conference required developed countries to reduce greenhouse gas emissions by 25% to 40% by 2020. Confronted with the present climate situation, the Chinese government announced for the first time at the Copenhagen Climate Change Conference in December 2009 a clear and quantitative goal for independent emission reduction of greenhouse gases, and would reduce the CO2emissions per unit of GDP by 40% to 45% by 2020 compared with 2005.

In order to cope with climate change, Yunnan Province started to carry out forest carbon sink pilot projects in 2005, and implemented CDM small-scale afforestation and reforestation project-Tengchong County Landscape Restoration Project,JatrophacurcasL. Carbon Sink Project and China Green Carbon Fund-PetroChina Yunnan Energy Forest Carbon Sink Measurement and Monitoring Project.

2 SWOT analysis of forest carbon sink projects in Yunnan Province

The SWOT analysis method is a method of comprehensive consideration of various factors of the research object’s internal conditions and external environment, and systematic evaluation to select the optimal business strategy method. S (strength) refers to the company’s internal advantages, W (weakness) refers to the company’s internal weaknesses, O (opportunities) refers to the opportunities in the company’s external environment, and T (threats) refers to the external environment threats to the company. The guiding idea of SWOT analysis is to formulate a strategy that is in line with the future development of the company based on a comprehensive grasp of the internal strengths and weaknesses of the company and the opportunities and threats of the external environment, give full play to strengths, overcome weaknesses, take advantage of opportunities, and resolve threats.

2.1 Analysis on strengths of forest carbon sink projects in Yunnan Province

2.1.1Favorable economic environment. As an underdeveloped province in the west, Yunnan is in a period of rapid, sustained and stable economic development. During 2003 and 2011, the GDP growth rate of Yunnan Province in 2009 reached 12.1%; in 2010, GDP increased by 12.3% over the same period of the previous year; in the first half of 2011, the GDP was 360.313 billion yuan, a year-on-year increase of 13.1%, 3.5 percentage points higher than the national average. In order to encourage foreign investors to invest in Yunnan, the Yunnan government implemented preferential foreign investment policies, for example, reducing or exempting the corporate income tax of foreign-funded enterprises, exempting urban construction tax and education surcharge, and land use fees, land transfer fees, rent and other paid use fees can be paid in installments.

2.1.2Certain practical experience in forest carbon sink projects. As one of the six provinces (autonomous regions) of forest carbon sinks, Yunnan has cooperated with Conservation International (CI) and The Nature Conservancy (TNC) as early as 2005 to jointly implement the "Forest Multi-benefit Project", namely forest, climate, community, and biodiversity project, explore effective ways and methods to restore forest vegetation aiming at the degraded land and fragmented habitats in the southwest mountainous region[1]. On January 30, 2007, Yunnan CDM small-scale afforestation and reforestation project-Tengchong County Landscape Restoration Project became the world’s first verified small-scale afforestation/reforestation project under the clean development mechanism[2]. In the crediting period, it was expected to absorb nearly 170 000 t of CO2, sell these CO2, deduct transaction costs,etc., and the initial profit reached 1.04 million yuan[3]. Around 2007, Shuangjiang Autonomous County, Linxiang District, and Gengma Autonomous County of Lincang City, Yunnan Province, implemented theJatrophacurcasL. Carbon Sink Project, and Canada Sino-Forest Corporation made full investment in the reforestation[4]. China Green Carbon Fund-PetroChina Yunnan Energy Forest Carbon Sink Measurement and Monitoring Project undertaken by Kunming Survey & Design Institute of State Forestry Administration completed the field survey of the carbon sink measurement stage and the preparation of the measurement report in May 2009[5]. Through the implementation of this series of forest carbon sink projects, Yunnan Province has gradually become familiar with the rules of CDM forestry carbon sink projects, and gradually improved the operating techniques in this field, laying a good foundation for such work in the future.

2.2 Analysis on weaknesses of forest carbon sink projects in Yunnan Province

2.2.1Weak social participation awareness. The development of forest carbon sink projects requires the participation of the public and enterprises, so as to form an effective demand for carbon sinks and promote the development of forest carbon sink projects. In the forest carbon sink project in Yunnan Province, due to insufficient publicity and weak public awareness of carbon sinks, no company in the society is willing to invest in forest carbon sink projects, and no public is willing to buy forest carbon sinks. And the society lacks an initiative to carry out forest carbon sink projects.

2.2.2The forest carbon sink project is small in scale. The Tengchong Project in Yunnan Province was expected to absorb nearly 170 000 t of CO2during the 30-year crediting period, annually 5 666.67 t. According to the CO2removal standards for small-scale afforestation/reforestation projects under the clean development mechanism, it was estimated that the annual net greenhouse gas removals by sinks is less than 8 000 t of CO2. At this standard, the Yunnan Tengchong project is a small forest carbon sink project.

2.2.3There is a large gap between the supply and demand of carbon sink talents. Carbon sink talents refer to talents who are engaged in the implementation of forest carbon sink projects. On the one hand, the implementation of forest carbon sink projects in Yunnan Province has a large demand for carbon sink talents. According to the operation flow chart of the CDM, from the registration of the project to the issuance of the certified emission reduction (CER) certificate, there are several steps, and the completion of each step requires many skilled personnel. On the other hand, it is difficult to supply carbon sink talents. The cultivation of talents requires a relatively long process. In the short term, it is difficult to train technical personnel who have certain basic forestry expertise and understand the implementation and operation of forest carbon sink projects in terms of baseline, leakage, measurement, detection and additionality. Therefore, the supply of carbon sink talents will not be effectively solved in the short term.

2.3 Analysis on opportunities of forest carbon sink projects in Yunnan Province

2.3.1External opportunities. With the gradual warming of the global climate and increase of its adverse effects on mankind, people’s awareness of climate change is increasing. The carbon sink for forest management activities that can be used by Annex I Parties in theKyotoProtocolshall not exceed 4.5 million t of carbon[6]; A/R projects (afforestation/reforestation projects) use too little emission reduction credits; the volume of carbon trading is increasing year by year, the carbon market is gradually expanding, and various new trading systems have emerged. As it meets the requirements of fast forest growth, high potential value of biodiversity protection, low afforestation cost, and low per capita annual income, Yunnan Province is listed as a priority development area in theNationalOverallPlanforForestCarbonSink. Although China does not undertake the obligation to reduce emissions during the first commitment period, there is pressure to reduce emissions in terms of CO2emissions, energy consumption structure, and energy consumption methods. These aspects constitute external opportunities for the development of the forest carbon sink projects in Yunnan Province.

2.3.2Internal opportunities. Forestry departments at all levels, from the central to the local level, have always attached importance to the development of forest carbon sink projects. Therefore, in recent years, the number of forest carbon sink projects has gradually increased. In addition, the A/R CDM demonstration project establishes a technology and information foundation for the future, promotes the concept of payment for ecosystem services (PES), and combines vigorously developed biomass energy with A/R CDM projects. These constitute internal opportunities for the development of the forest carbon sink projects in Yunnan Province.

2.3 Analysis on threats of forest carbon sink projects in Yunnan Province

2.4.1The project crediting period is long. Due to the growth patterns of trees and the long duration of CO2absorption by forests, forest carbon sink projects have a relatively long crediting period. For example, the Tengchong project in Yunnan Province has a crediting period of 30 years. During such a long term, the market price of carbon sink credits is at risk of rising and falling. At the same time, investors in the forest carbon sink project are also at risk of withdrawing funds.

2.4.2There are certain hidden dangers in the protection of forest resources. The economy of the project area is relatively backward, and timber is mainly used as an energy source for cooking and heating. Local farmers often steal firewood in non-felling project areas, which will damage forest resources to a certain extent, cause the loss of forest carbon sinks, and threaten the development of forest carbon sink projects in Yunnan Province.

3 Recommendations for undertaking the forest carbon sink projects in Yunnan Province

3.1 Changing the participation model of forest carbon sink projectsIt is recommended to implement a forest carbon sink project model involving enterprise investment, farmers’ participation, and government support. In this model, enterprises are mainly responsible for providing afforestation funds, local farmers provide labor and land, and the government provides trading platforms to support them. In the process of project implementation, enterprises can not only obtain economic benefits, but also strengthen their social influence and popularity. By providing labor and land, local farmers can not only obtain labor income during the implementation of the project, but also obtain carbon sink benefits and forest economic benefits, and even become shareholders through investment and receive share dividends. Local government departments provide favorable conditions for the development of forest carbon sink projects and provide simple procedures for the declaration of forest carbon sink projects. Through the development of forest carbon sink projects, the government departments can improve their political performance and benefit local people.

3.2 Adopting proper trading methodsIn the forest carbon sink project, according to the investment sequence of the carbon sink credit demand side, forest carbon sinks can take three methods: pre-trading, ton-year trading and post-transaction[7]. In the pre-trading method, the carbon sink credit buyer bears the main risk; in the post-trading method, the risk is borne by the carbon sink credit supplier; in the ton-year trading method, both parties bear the risk jointly. The ton-year trading method is relatively easy for both parties to accept and thus will become an important transaction method. For example, the World Bank Bio-Carbon Fund basically uses this method to reduce investment risks. Therefore, when implementing forest carbon sink projects in Yunnan Province, the it is recommended to take the ton-year trading method as much as possible, but not use the pre-trading method, so as to reduce the risks during the trading.

3.3 Getting familiar with the relevant rules of the forest carbon sink projectsWhen undertaking forest carbon sink projects, Yunnan Province should increase its understanding of forestry carbon sink knowledge, vigorously popularize carbon sink knowledge, get familiar with the relevant rules of forest carbon sink projects, and get familiar with the relevant climate change conventions, theKyotoProtocol, and carbon sink afforestation regulations, evade risks and lay a good foundation for the development of carbon sink projects. Only in this way can Yunnan Province avoid blindness in market competition and produce carbon credits that meet the requirements of forest carbon sink projects to meet the requirements of investors.

3.4 Strengthening the promotion and research of forest carbon sink theoryForest carbon sink is a new thing, and many theories, methods and policies are still under exploration and research. In order to carry out this work well and make full use of forest carbon sink projects to develop the economy, Yunnan Province should take the following measures. First, strengthening research on forest carbon sink theories, strengthening scientific research on the relationship between climate change and forests, and cultivating a group of forest carbon sink experts, encouraging these experts to carry out actual forest carbon sink work, so that they can improve their theoretical knowledge and implementation capabilities in actual work. Second, it is recommended to raise the public’s awareness of forest carbon sinks. Through strengthening the publicity of climate change and forest carbon sink issues, it is recommended to raise public awareness of climate change, so that they will generate effective demand for carbon sinks and consciously participate in forest carbon sink projects.

3.5 Strengthening the management of carbon sink forestsIt is recommended to conduct afforestation and reforestation through carbon sink projects. The forest formed in this way should be managed well to reduce the occurrence of pests, diseases, and rodents and prevent forest fires. After the saplings are planted, it is necessary to pay attention to regular watering and fertilization to ensure the survival rate of the saplings. Besides, it is necessary to formulate measures to prevent the occurrence of malicious felling. For illegal felling by nearby farmers, it is recommended to determine areas for planting some firewood forests, and formulate strict standards to punish illegal felling outside the planned area.

3.6 Expanding the scale of forest carbon sink projectsThe Tengchong project in Yunnan Province is a small-scale forest carbon sink project. In view of such situation, Yunnan Province make full use of its own sufficient forest-free land resources to give full play to its own advantages and use internal and external opportunities to expand the scale of forest carbon sink projects, and implement large-scale operations to reduce transaction costs and improve the competitiveness.

4 Conclusions

Although China currently has no emission reduction tasks to fulfill the agreement, China has become the second largest greenhouse gas emitter after the United States. Moreover, in recent years, greenhouse gas emissions have increased at a rapid rate, so China is under increasing pressure to reduce emissions. In this situation, Yunnan Province should understand the current situation, give full play to its own strengths, overcome the weaknesses, seize opportunities, remove threats, and actively undertake forest carbon sink projects to contribute to Yunnan’s forestry and promote the social and economic development of Yunnan Province.