5.3.4.2. How Should Projects with Shorter Time Frames Be Treated?
Once the minimum project duration has been defined, it is also important to
decide how to treat projects that have a shorter duration than the minimum required
time frame. The options can be divided into two main approaches:
- Full liability: In the event of reversal of GHG benefits, projects
should return an amount of credits equal to the total amount of GHGs released.
This approach is consistent with the stock change method, which consists of
giving credits to projects as carbon is fixed and removing credits if stocks
of carbon diminish. In essence, this approach does not recognize the temporal
value of carbon storage. This is the only method possible if it is decided
that projects have to be run in perpetuity.
- Proportional liability: Projects should be debited an amount of
credits proportional to the difference between the minimum required time frame
and the actual project duration (the "period of noncompliance'). This method
is applicable only if a finite minimum project duration is adopted. If a minimum
time frame of 100 years is adopted, for instance, a plantation project that
is harvested at 60 years (assuming that all carbon is released to the atmosphere)
would be liable for not maintaining carbon stocks for the last 40 years of
the required time frame. Different methods have been proposed for calculating
this proportional liability:
- Linearly-Dividing the period of noncompliance by the required
time frame. In the foregoing example, the project would have to return
40 percent of the credits it earned/claimed.
- Ton-year based-Calculating the liability based on the ton-year
approach (Fearnside et al., 2000; Moura-Costa and Wilson, 2000).
- Adjusted for time preference-Using any of the methods described
above but applying discount rates to reflect time preference (see Chapter
2).
The choice of method for dealing with liability is linked with methods chosen
for accounting for GHG benefits and when credits are given to projects (see
Section 5.4).
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