1 October 2007, Rome – Costa Rica’s pilot project to convert polluting wood residues into a profitable “green” energy source, presents new prospects for timber industries in developing
countries, FAO said today.

The project converts large stockpiles of sawdust and other residues from wood industries into wood pellets which can be used as a renewable source of energy, and as a substitute for fossil

“Costa Rica’s pioneer project will help to reduce greenhouse gas emissions and contribute to sustainable development,” says Jan Heino, FAO Assistant Director-General for Forestry, working with
the government of Costa Rica to provide technical assistance.

In many countries, surplus wood residues from sawmills occupy large amounts of space and often pollute local rivers. The decay of these residues leads to emissions of methane, a very potent
greenhouse gas that contributes to climate change. Moreover, the residues can ignite spontaneously and thus present a fire risk for the sawmill owner.

Global trade in carbon credits

The project in Costa Rica is based on the Kyoto Protocol’s so called Clean Development Mechanism (CDM). Public or private entities may fulfill their obligations under the Protocol through
investing in “Clean Development” projects in developing countries. While reducing emissions, CDM projects aim to promote sustainable development in the host country. Emission reductions
achieved through a CDM project can be traded as tons of carbon dioxide equivalent for a value of approximately US$ 10 for one ton.

Under the CDM, the pilot project for the production and use of wood pellets in Costa Rica could have a two fold benefit: on the one hand, through avoiding methane emissions from woodwaste
produced by local sawmills, and on the other, by substituting fossil fuels with wood pellets, a renewable fuel, in local industries.

A medium to large scale sawmill, for example, could generate carbon credits for avoiding methane for a value of more than US$1 million over a crediting period of seven years and other companies
could receive about the same amount for replacing fossil fuels through pellets. The pilot project will assist smaller sawmill operations, which often cannot avoid accumulating stockpiles and
their frequently negative environmental impacts.

To date the CDM has met with strong demand and market approval in both developed and developing countries, according to the United Nations Framework Convention on Climate Change (UNFCCC), with
some 800 projects registered in 48 countries and 1300 others in the pipeline. The CDM as a whole is estimated to generate around two billion tons of carbon credits by the end of 2012, the end
of the first commitment period of the Kyoto Protocol, an amount that corresponds to the annual emissions of Russia.

In order for countries to benefit from CDM projects, they must have first ratified the Kyoto Protocol. They must also establish a so called Designated National Authority, usually a body within
a relevant government ministry that can approve CDM project proposals. Countries must also be able to prove that without the CDM project, there would be more greenhouse gas emissions.

FAO initiated a revision of the existing CDM methodology for small-scale methane avoidance projects, and is awaiting approval by the UNFCCC’s Executive Board. As a result of this revision,
developing countries like Costa Rica would be able to capture greater benefits from the CDM opportunities.