Validation Assessment Report for: Producción, Industrialización, Comercialización y Asesoría de Hule Natural, Sociedad Anónima (PICA) in Guatemala

Validated by: 65 Millet St. Suite 201 Richmond, VT 05477 USA Tel: 802-434-5491 Fax: 802-434-3116 www.rainforest-alliance.org Validation Assessment Report for: Producción, Industrialización, Comercialización y Asesoría de Hule Natural, Sociedad Anónima (PICA) in Guatemala Carbon Forestry Validation Audit Managed by: Mesoamerica Regional Office Rainforest Alliance/ SmartWood Program 8a Avenida 15-62, Zone 10 Guatemala, Guatemala Tel: (502) 2383 - 5757 Fax: (502) 2383 - 5788 Contact person: Adolfo Lemus Email: alemus@ra.org Date Final Report Issued: Date Draft Final Report Issued: Date Draft Report Issued: Audit Dates: Lead Auditor: Second Audit Team Member: Senior Internal Reviewer: Audit Standard: Validation Code(s): Validation Statement Issued: 26 October 2010 22 September 2010 30 June 2010 20 to 22 April, 2010 William Arreaga Jared Nunery Adam Gibbon VCS, 2007.1, Nov 2008 Voluntary Carbon Standard Program Update 21 January 2010 VCS, Tool for AFOLY Methodological Issues, Nov 2008 VCS, Guidance for AFOLU Projects, Nov 2008 VCS, Program Guidelines, Nov 2008 VCS, Tool for AFOLU Non-Permanence Risk Analysis and Buffer Determination, Nov 2008 VCS Program updates. RA-VAL-VCS-013806 26 October 2010 Project Latitude/Longitude: Project Proponent Contact: Project Proponent Address: Lat: 14.62366 Long: -90.51681 Ing. Glenda Lee, Coordinadora de Econegocios 7a. Avenida 7-33 Zona 9 Guatemala City, Guatemala Doc. No. C-56 May2010 Page 1 Voluntary Carbon Standard 2007 Validation Report: Name of Verification company: Date of the issue: Rainforest Alliance 26 October 2010 Report Title: Approved by: PICA_VCS valid 10 Adam Gibbon Client: Project Title: Producción, Industrialización, Comercialización y Promoting Sustainable Development through Asesoría de Hule Natural, Sociedad Anónima (PICA) Natural Rubber Tree Plantations in Guatemala Summary: This project is designed to promote sustainable development through the establishment of natural rubber tree plantations in two distinct regions of Guatemala. The proposed project activities involve certifying the proposed project areas under the Forest Stewardship Council (FSC) forest management certification, in addition to the validation of the project as an Afforestation, Reforestation, and Revegetation (ARR) project with the VCS. The project involves the reforestation of 2,366.16 hectares of degraded pastureland, with a variety of clones of Hevea brasiliensis. The Project Design Document (PDD) and supporting documents were designed to conform to the VCS 2007.1 standard, specifically as an ARR project under the AFOLU project types. The project employed an approved CDM Afforestation and Reforestation methodology, AR-ACM0001 v.3. This project aims to be the first FSC certified rubber tree plantation in Guatemala. The project intends to diversify investment opportunities for businesses in Guatemala interested in investing in sustainable rubber production. The project area includes 7 different farms, divided geographically in both the north (3 farms) and the south (4 farms) of Guatemala. Traditional rubber production currently exists in the south of Guatemala; however, this practice is less common in the north, where soils are less productive, and a longer rainy season presents additional challenges with increased impacts of a fungus that affects rubber plantations. The project intends to sequester a total of 1,739,855 t CO2e over the course of the 42 year crediting period. The project includes a financial analysis that demonstrates the impact of the sale of carbon credits associated with project activities, resulting in an increased rate of return for investors above a minimum investment threshold that decreases the financial risk of the project making investments in project activities possible. The project asserts that without the sale of carbon credits, it would not be able to meet the minimum investment return threshold. Although rubber production is common in the south with traditional rubber production, this project intends to increase the sustainability of rubber production through certification of FSC, which is not common throughout the entirety of Guatemala. The rubber plantations involved in project activities will be managed for rubber production for a minimum of 36 years (note the planted areas will be staggered, hence the 42 year crediting period), according to interviews with Project Proponents, plantation managers, and management plans. Following this rotation period, the rubber trees will be harvested, and the plantations will be re-planted as rubber tree plantations. The validation of project activities was requested of Rainforest Alliance by PICA. The audit of the PDD, supporting documentation, field visit, and interviews has provided Rainforest Alliance with the evidence to determine successful fulfillment to the VCS 2007.1 standard with reasonable assurance. Doc. No. C-56 May2010 Page 2 Work carried out by: Rainforest Alliance Doc. No. C-56 May2010 Number of pages: 56 Page 3 Table of Contents 1 Introduction........................................................................................................................................................6 1.1 Objective .....................................................................................................................................................6 1.2 Scope and Criteria.......................................................................................................................................6 1.3 VCS project Description ..............................................................................................................................6 1.4 Level of assurance......................................................................................................................................7 2 Methodology......................................................................................................................................................8 2.1 Description of the Audit Process .................................................................................................................8 2.2 Audit team...................................................................................................................................................9 2.3 Stakeholder Consultation Process ..............................................................................................................9 2.4 Review of Documents..................................................................................................................................9 2.5 Follow-up Interviews..................................................................................................................................13 2.6 Resolution of any material discrepancy.....................................................................................................13 3 Validation Overview.........................................................................................................................................14 3.1 Validation summary...................................................................................................................................14 3.2 Correct Action Requests............................................................................................................................15 3.3 Observations.............................................................................................................................................24 3.4 Actions taken by the Project Proponent Prior to Report Finalisation.........................................................25 4 Validation Findings..........................................................................................................................................27 4.1 Project Design...........................................................................................................................................27 4.1.1 Project title, Purposes and Objectives ................................................................................................27 4.1.2 Type of GHG project...........................................................................................................................27 4.1.3 Project Location..................................................................................................................................27 4.1.4 Technology used.................................................................................................................................28 4.1.5 Project duration, crediting time and project start date.........................................................................28 4.1.6 Ownership/Proof of Title/Right of Use.................................................................................................29 4.1.7 Double counting and whether the project participated in another emission trading programme.........30 4.1.8 Project applicability to the VCS for projects rejected under other GHG programme (if applicable).....30 4.1.9 Whether the project is eligible under the VCS ....................................................................................30 4.1.10 Chronological plan for project initiation and monitoring.......................................................................31 4.1.11 Roles and responsibilities...................................................................................................................31 4.1.12 Observation of local laws and regulations...........................................................................................32 4.2 Baseline.....................................................................................................................................................32 4.2.1 Conditions prior to project initiation.....................................................................................................32 4.2.2 Approval of the baseline methodology................................................................................................33 4.2.3 Application of methodology deviations or revisions (if applicable)......................................................33 4.2.4 Conformance with methodology applicability conditions.....................................................................34 4.2.5 Correct application and justification of selected baseline methodology ..............................................35 4.2.6 Appropriate setting of baseline scenario.............................................................................................36 4.2.7 Assessment and demonstration of additionality should be summarised in this section. .....................37 4.3 Monitoring Plan .........................................................................................................................................38 4.3.1 Approval of the monitoring methodology.............................................................................................38 4.3.2 Correct application and justification of selected monitoring methodology...........................................38 4.3.3 Conformance with VCS specific criterion relating to monitoring (VCS 2007.1 section 5.11 and Tool for AFOLU Methodological Issues Step 6) ...........................................................................................................39 4.3.4 Whether the monitoring plan provides detailed information related to the collection and archiving of all relevant data....................................................................................................................................................40 4.4 Calculation of GHG Emissions..................................................................................................................40 4.4.1 The appropriateness of the source, sink and reservoir (pools)...........................................................40 Doc. No. C-56 May2010 Page 4 4.4.2 The correctness and transparency of formulas and factors used .......................................................41 4.4.3 Calculation of emissions in the baseline scenario (ex-ante estimate).................................................44 4.4.4 Calculation of emissions from project activities (ex-ante estimate).....................................................45 4.4.5 Calculation of emissions reductions or avoided emissions due to the project (ex-ante estimate).......45 4.4.6 Calculation of emissions from leakage (ex-ante estimate)..................................................................46 4.4.7 Calculation of net VCUs to be issued (ex-ante estimate)....................................................................47 4.4.8 The assumptions made for estimating GHG emission reductions ......................................................47 4.4.9 Uncertainties.......................................................................................................................................48 4.5 Environmental Impact................................................................................................................................48 4.5.1 Requirements for and approval of an Environmental Impact Assessment (if applicable)....................48 4.5.2 Comments by stakeholders ................................................................................................................48 4.5.3 Negative environmental and socio-economic impacts of the project...................................................49 5 VCS Risk Assessment.....................................................................................................................................51 5.1 Risk factors applicable to all project types.................................................................................................51 5.2 Risk factors applicable to ARR projects.....................................................................................................52 5.2.1 Default buffer withholding percentages for ARR projects....................................................................55 6 Validation Conclusion......................................................................................................................................57 Appendix A: Company Details...............................................................................................................................58 6.1 Contacts....................................................................................................................................................58 6.2 On-line Certification Contact......................................................................................................................58 Doc. 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