There are two general categories of land-use activities that can contribute to conservation goals while helping to reduce or stabilize atmospheric greenhouse gas concentrations:

• Carbon sequestration - projects that increase carbon storage in ecosystems, and
• Emissions avoidance - projects that prevent the emissions of carbon through protection of carbon stocks

Many well-designed carbon projects combine both carbon sequestration and emissions avoidance components.

Carbon sequestration is accomplished by increasing the carbon stored (or fixed) by a certain area of forest and is most applicable in areas that have been degraded or will not recover without the management activities implemented through the carbon project. This category includes reforestation and afforestation projects.

Within this category natural forest restoration is probably the most directly relevant to conservation. Depending on the previous treatment of the land and the likelihood of its natural recovery, reforestation projects clearly result in carbon sequestration, and are easily understood. Grassland restoration on degraded agricultural lands with low biomass, and improvements to agricultural practices to increase soil carbon (e.g. no-till agriculture), are other carbon sequestration options. Areas that were converted prior to 1990 are the most compelling project sites, since it is easy to refute any claim that the sites were converted only to make possible carbon credits. Some agriculture-related project types, such as agroforestry, or changing from full sun-grown to shade-grown coffee, also fall within this category.

Since the policy regimes developing support carbon sequestration more than emissions avoidance, successful carbon project proposals should generally include 50% or more of restoration. Areas that are particularly attractive for conservation purposes are those where habitat fragmentation is a problem and funds could be used to restore habitats in order to decrease fragmentation, build corridors, or create buffers around core conservation areas.

Emissions avoidance projects preserve carbon stocks (in soils, vegetation, etc.) in areas that are demonstrably threatened with imminent land conversion or degradation (e.g. clear-cutting, removal of the most economically valuable species, or high-grading). Forest protection projects are usually very attractive for their conservation benefits. Unfortunately their climate benefits are generally less easily understood than reforestation or other restoration approaches, as people don't always see a visible change between before (baseline) and after (with project) implementation of the project.

As noted, forest protection projects are not credited under the Kyoto Protocol but may be included in other climate change policy regimes. With this in mind, where there are clear historical trends of deforestation or degradation, and where imminent threats are obvious, these areas are more attractive sites for emissions avoidance projects. In these projects the highest rates of emissions avoidance are possible in high biomass sites that would have been completely and lastingly converted to low biomass systems without the project.

Forest Management projects may involve both carbon sequestration and emissions avoidance. For example, emissions avoidance would result from reduced-impact logging where timber is still being harvested but the residual impact is reduced through directional felling, well-planned skid trails, etc. Net carbon sequestration results where forests are managed to increase storage rates and volumes through longer rotations, thinning regimes, enrichment planting, or other silvicultural treatments. Management improvements in agriculture, for example reduced-till agriculture, can also serve to sequester carbon.

Advantages

Disadvantages

Environmental: The potential for forest carbon offsets as a mechanism to finance conservation is enormous. This market is projected to be worth billions of US dollars. Environmental co-benefits are conservation of biological diversity, increased forest productivity, reduced erosion, improved soil and hydrological benefits (water quality, regular flows, etc.), and ecotourism potential. These co-benefits are the basis for other conservation finance mechanisms. Carbon offset projects assign economic value to one of the key environmental services provided by standing forests, thereby recognizing the value of natural ecosystems beyond timber. Development: The CDM mandates that projects must contribute to sustainable development. Ideally, carbon offset projects can increase local communities access to forest goods and services, and diversify income. Technology transfer includes developing local institutions and the local knowledge base, training in sustainable forestry, project management, etc. Associated policy work can result in increased land/resource tenure security. Improved forest management can have positive impacts on human health through improved water and air quality and diversified diet, if there is improved access to NTFPs (non-timber forest products). Stable income streams can reduce vulnerability to seasonal shifts in land-based activities for local communities. Investors and buyers: It offers a cost-effective means of reducing GHG emissions. Indications from pilot projects indicate that forest-based carbon offset projects in developing countries offer the cheapest carbon credits. Public relations benefits come from investing in projects that have positive social and economic impacts. Forest carbon offset projects offer a wide range of investment opportunities. Project developers: Can create a long-term stable stream of income.

Environmental: Not all biodiversity conservation projects will work as carbon offset projects. Carbon content is not necessarily correlated with biodiversity value. Monoculture plantation forestry projects will result in reduced biodiversity, and can have other negative environmental impacts such as increased erosion, siltation, and reduced water supplies. Development: Local communities can experience a loss of access to forest resources if projects involve complete protection. Land tenure security for the poor can be adversely affected with increased competition for control over forest land. It can result in reduced food security and have adverse health impacts if a project reduces forest dependent communities' access to forests. Project investments may cluster in a relatively small number of large developing countries that that have the infrastructure and institutions to develop carbon offset projects. Project financing may reduce other aid or foreign direct investment flows. Investors and buyers: Compared to carbon credits derived from the energy and industrial sector, land-use based projects tend to be riskier investments due to concerns of leakage and permanence. Project developers: Transaction costs are high: project preparation and implementation (information gathering, design, monitoring, risk management, etc.). Forest sequestration projects under the CDM are limited to 1% of emissions. Uncertainties still exist for project developers and investors in development of policy regimes such as the Kyoto Protocol. To achieve full carbon benefits requires a minimum project development time of at least 30 years.

The following list of carbon offset project success factors should be considered in tandem with the general project site selection criteria given in Box 2 and the project screening criteria in Table 2 (section 2.1)

• Careful site selection and working with a third-party certifier, especially in the absence of clear rules and guidelines, to ensure that the project will meet the criteria for project acceptance.
• Compatibility with the host-country's conservation and development goals (particularly in the forest sector) is essential to securing host-country approval.
• Project addresses most significant conservation threats.
• Good relations between the local partner and the host government to sustain support of the project during changes in administrations.
• Balancing maximization of carbon benefits with fulfilling the organizations' commitment to biodiversity conservation.
• Equal understanding among all participants of the unique nature of carbon projects and the related policy and market complexities. These are not traditional conservation projects, but climate mitigation projects with considerable conservation benefit.
• Managing participants' expectations.
• Investors who understand and are passionate about the project and can champion it internally.
• Understanding that investors are not donors, but business partners expecting a return on their investment; therefore, such projects must meet a more rigorous standard of performance than traditional conservation projects funded through philanthropy.
• A project capable of generating a reasonably predictable cash flow.
• Working with local communities and including a social development component: this can reduce the risk of project failure and protect against leakage by providing alternative livelihoods. Equitable sharing of benefits among investors, the host country, and local partners.
• Recognizing at the outset that the key to the project's credibility is a defensible baseline of what would occur without the project.
• Sufficient funds and expertise to ensure capacity to address technical challenges throughout the life of a project, particularly during periodic staff changes.
• Develop and keep reliable outside expertise with high credibility.
• Land tenure conditions that are clear in law and enable landowners to derive benefits from carbon project activities.
• A diverse range of expertise necessary to assess, plan and implement a carbon project including forestry, business, and legal knowledge
• A capacity-building process put in place early to enable project partners to assume responsibility for large projects/budgets.
• Protection against unexpected loss of carbon stocks and offsets due to natural disasters, illegal logging or other unanticipated events. Projects can be bundled in a portfolio to spread risk and share cost of insurance. A percentage of verified offsets can be placed in a buffer in case of changes in the baseline or other loss of offsets.
• Significant sources of funding, outside of the sale of carbon offsets are identified. IN many cases only a portion (e.g. 20% to 30% of project costs) can be recovered through the sale of carbon offsets. In most cases other sources of up-front funding will be needed to start projects.