Brazil: PLANTAR Project

Sustainable Fuelwood and Charcoal

Production and Substitution of Coke in
Pig Iron Production

Sao Paulo
November 21, 2002

PROJECT SPONSOR
The Plantar S/A is privately held family company
founded in 1967.
Silviculture: Forest services - plantation &
seedling production
supporting 25,000 ha/yr (>400,000 ha so far)
Charcoal production: Charcoal from sustainable
harvested sources for lump charcoal export market
and for Pig Iron production
Pig iron production: 180,000 t/yr
< 1% of countrys foundry pig iron production, but
represents 4% of the independent producers using

SECTOR BACKGROUND

Without
carbon
finance,
plantation,
charcoal
based pig
iron
production
cannot
survive and
their
market
share will
be taken
over.

Steel producers
(coal based)

Pig iron producers

Foundry pig iron

Pig iron export

25,212,570 t

2,665,000 t

Coal based
industries
18,833,000 t

Charcoal based
Charcoal based
integrated
independent producers
1,617,000 t

Indigenous forest

4,762,570 t

Plantation

EMISSION REDUCTIONS BY COAL

SUBSTITUTION

IMPORTED COKE

from CHINA,
POLAND, JAPAN

Project Objective:
To make sustainable charcoal production a
viable alternative to coke in pig iron production
Project: Four Components
Sustainably managed Eucalyptus plantations (FSC
certified) on land that was pasture in 1989: 23,100
ha (3,300 ha x 7 years); Project lifetime 21 years (3
harvesting cycles of Eucalyptus)
Restoration Forestry: Reforestation of pasture land
with native Cerado forest: 478 ha
Improved Charcoal production: (reducing methane
and local pollution)
Charcoal displacing Coal/Coke in Pig iron production
and produced for lump charcoal market in Europe

Project Financing
Required Investment for Core Proposal
Entire investment (for newly established
plantation): US$38.8 million
PCF contribution at $3.50/tCO2e = $5.3 million
Other carbon finance potential = ~$10-20 million

Financial Structure and IRR

Plantar Equity: $33.9 million injected over seven
years
Debt financing: $4.9 million up front
IRR without Carbon finance, 12.5%; with CF, 20.7%

Project ERs
Category of ERs

ERs (t/CO2) by source over project

life

Substitution of
Coke in Blast
Furnace

7,903,262

Sequestration in
Plantations and
Forest Ecosystem
Rehabilitation

4,545,398

Methane Emissions
Reductions

437,325

Totals

12,885,985

Component 1: Sequestration
ERs

23 100 ha of Eucalyptus Plantations

Based on Advanced Clones

CARBON STORED IN THE PLANTATION

Carbon Accumulation Dynamics in one Hectare of Forest
60.00

Accumulated Carbon (t/ha)

50.00
40.00
30.00
20.00
10.00
0.00
0

10 11 12 13 14 15 16 17 18 19 20 21

Forest Age (years)

C- Stemwood

C-Leaves

C-Rootses

C-total

Biodiversity and Land

Management Certifiable
Benefits

Production and Conservation Landscape

4600ha of set-aside managed for restoration of
Cerado dry forest no carbon credit
478 ha of additional restoration forest for carbon
credit
Biodiversity, soil and water quality baseline
validated with monitoring protocol

Forestry Stewardship Council (FSC)

certification in place for existing plantations
Must be obtained and maintained for future
plantations

Biodiversity Asset Certified and bundled

with Carbon

Component 2:
Carbonization ERs

Reduction of Methane Emissions from Charcoal

Production
0.4 million CERs

Traditional
Brazilian
Brick
Beehive Kiln
used in
about 90%
of Brazilian
charcoal
operations
Efficiency:
about 4m3
wood for

Improved Brazilian Brick Kiln: < 2m3 wood

to 1m3 charcoal
(The baseline for charcoal production)

The Projects Charcoal Production

Flares Methane with automatic spark ignition
device, collects tars/oils in smoke minimizes

Social and Health Benefit

Certified
Charcoal Worker Respiratory Health
Monitoring protocol established and validated

Certification of good labor practices

and no use of child labor
ABRINQ independent certification standard in
place
To be maintained under carbon purchase
contract

Component 3: Industrial
ERs

Substitution of Charcoal in Pig Iron Production

7.9 million CERs

Environmental Standards for

Plant Emissions
Minas Gerais State licence in place
that plant is is operating under loal
environmental requirements
Upgraded charcoal dust filtration
system installed to mitigate health
hazard
ISO 14000 certification process in
train for approval by mid-2003

Component 4: Cerrado Forest

Restore native Cerrado forest to enhance

biodiversity
~ 80,000 CERs

Brazil Plantar Project in Overview

Environmentally
sustainable
industry
Certified
Outcomes:
Biodiversity
restored in native
forests. Worker
heath improves
Use of imported
coal-coke in pig
iron and forest loss

Cost: $38.8
million

Energy: lower cost

sustainable charcoal
replacing imported coal

PCF Project
$5.3mm
from PCF;
~$10-20mm
from other
carbon sales

Outcomes:
small pig iron
sector survives,
rural
employment
increases

Baseline Project
Biodiversity Impact: end of small pig
iron producers, loss of rural
loss, land
degradation employment, out migration

Baseline\MVP Approach for

Plantar
Fuel-Switching Component
Scenario analysis based on historical trends
Investment constraints (most plausible approach
cannot be financed without carbon)
Monitor industry wide production to detect leakage

Charcoal Production Emissions Reductions

Historical and current charcoal-making technology
Control group of 10 peers in pig iron industry;
included in MP for revalidation (>50% rule)

Cerrado Rehabilitation
Scenario analysis based on historical trends:
deforestation
Investment analysis (if needed)

Issues in Validation
Final Validation Opinion issued. Preliminary
only with respect to CoP9 rules on A/R sinks
Key issues were:
1. Eligibility of end-of-life plantation lands for
CERs
2. Leakage of deforesting pig iron industry
to other Brazilian states to avoid charcoal
raw material resource crunch
3. Emissions Coefficients for Pig Iron
Coal/Coke baseline
4. Double-counting of methane emissions
from charcoal kilns

Plantar: Issues in Validation

Eligibility of sequestration reductions from
replanting end-of-life eucalyptus plantations
Issue: DNV claimed that it was conservative and
reasonable to assume that Parties would make
eligible at CoP9 only those ERs from land that was
pasture in Dec 1989
Response: Plantar had to commit to buy all new
land that can be proven to be pasture in December
1989
Response: To avoid leakage, Plantar had to
assume all former end-of-life plantations were
deforested and deduct these losses from
sequestration on new pasture land;
Response: To further avoid leakage, Plantar must
monitor the former land-owners to assure that they

Plantar: Issues in Validation

Coefficients for displacement of coal/coke
emissions by climate-neutral charcoal from
plantations during pig iron production.
Issue: DNV proposed either use of IPCC
default values which were ~20% lower
than claimed or detailed proof of proposed
coefficients
Response: Detailed engineering process
analysis new was commissioned and
agreed with DNV. DNV proposed
submitting the process to IPCC to create
new default value for this process

Plantar: Issues in Validation

Claiming Methane Emissions Reductions from flaring
methane in exhaust gases from charcoal
production after charcoal is produced from new
plantations
Issue: DNV noted that such ERs could not be
claimed after 2008 when new plantations were
converted to charcoal as it would be doublecounting baseline emissions as per agreed carbon
emissions coefficient.
Response: Plantar/PCF agreed. Claims eliminated
for charcoal produced for pig iron production and
claimed only for lump charcoal trade production
Response: Plantar agreed to continue flaring
methane after 2008 in pig iron charcoal kilns

Plantar: Issues in Validation

Leakage of small scale blast furnace operations
from Minas Gerais to Carajas State as
plantation estate declined due to lack of
replanting in Minas Gerais (baseline case).
Issue: DNV claimed that such leakage may
occur despite impending shortage of native
forest in Carajas and lack of investment
capital for new blast furnace construction.
Response: Plantar will maintain detailed
record of pig iron production from plantation
and native charcoal sources in Minas Gerais
and Carajas, with and without benefit of
carbon finance

Emission Reduction Purchase

Agreement
PCF Purchase
- 1.51 million ERs at cost of $5.3
million
- Or $3.50 per tonne CO2e
- PCF purchase planned for 20042008
- Replacement CERs planned for
2008-2012
- PCF purchase enables Sponsor to
secure $4.9 million loan to
enable planting

Brazil Biomass/Pig Iron Project

Cash Flows ($000)

6000
4000

Loan
Disbursement
PCF Payments

2000
0
-2000

Loan
Amortization

-4000
Year

ER payments are used to amortize commercial loan.

PCF Emissions Reduction

Purchase Options

Sequestration ERs
Carbonization ERs

OPTION 1

OPTION 2

2002-2008

2002-2012

1,300,402

1,300,402

213,884

274,389
1,239,897

Industrial ERs
TOTAL ERs

1,514,286
$3.50 per tonne CO2e

1,514,286

OPTION 1: PCF Emissions Reduction

Purchase
800

Carbonization and Industrial CERs

Assuming Set-aside

700
600
500
400
300
200
100
0
Carbonization

Sequestration

Industrial

OPTION 2: PCF Emissions Reduction

Purchase
Carbonization and Industrial CERs
Replace Sequestration RMUs
800
600
400
200
0
Carbonization

Sequestration

Industrial

Emission Reduction Purchase

Agreement
Allocation of Kyoto Protocol Risk
-

Brazil has ratified Protocol

Seller covers eligibility risk of

sequestration reductions with
obligation to substitute with
Carbonization and Industrial ERs

Host Country to issue Letter of

Approval within 180 days of entry into
force

Management of Project Performance Risk

MarketERPA paying on delivery of
early sequestration ERs and
carbonization CERs makes project
feasible (early cash flow).
Environmental-- Sponsor to
maintain quality assurance
program, continue to qualify for
forestry certification, and operate
in conformance with local
environmental regulations and
World Bank safeguard policies
Social--sponsor to maintain

Conditions of Default and

Remedies
Kyoto
Failure to secure and plant land that
was pasture in 1989
Environmental and Social
Failure to:
- maintain FSC certification and
certify new land
- maintain Abrinq certification
- comply with MP, permits,
environmental and social law