TREES are one of the most efficient systems of carbon capture and storage on the planet. They breathe in carbon dioxide and breathe out oxygen, locking the carbon into their roots, trunk, branches, twigs and leaves and the soil. They are so good at this that about 20% of the greenhouse gases entering the atmosphere can be attributed to deforestation. In the run-up to the climate talks in Copenhagen in December, bright minds around the world are negotiating a formal scheme for reducing the loss of trees as a way of lowering the world’s carbon emissions.
Avoiding deforestation means that many landowners must forgo the right to cut down their trees, so that the world at large can benefit. As such, carbon emissions from deforestation are a classic example of “environmental externality”. So long as this remains the case, forests will continue to be cut down. To resolve the problem, it has been suggested that the people who forgo their rights are compensated. There is already a market for what are called “voluntary” credits in avoided deforestation.
Companies and people can decide to offset their carbon-emitting activities by buying credits in avoided deforestation projects. The voluntary market was worth $705m in 2008, according to Ecosystem Marketplace, a consultancy, more than twice their value of $335m in 2007. Growth is expected to continue.
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State and Trends of the Carbon Market 2009 May, 27th 2009
Despite the turmoil in the financial world, 2008 saw a doubling of the global carbon market, to an estimated value of more than US$ 126 billion, according to the latest State and Trends of the Carbon Market Report 2009, released today by the World Bank at Carbon Expo in Barcelona.
The report is based on data from the trading of European Union Allowances (EUAs) under the European Union Emissions Trading Scheme (EU ETS) and from transactions completed under the Kyoto Protocol’s flexible mechanisms—the Clean Development Mechanism (CDM) and Joint Implementation (JI)—that allow industrialized countries to purchase greenhouse gas emission reductions in developing countries and in countries with economies in transition, as well as data from voluntary markets. It finds that the value of transactions from CDM projects in developing countries declined by 12% to an estimated US$ 6.5 billion in 2008, with an average price of US$ 16.8.
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At present, avoided deforestation projects and the credits they create are of variable quality. Some companies stay clear of the market by generating their own offsets. Marriott, a hotel group, has a project in the Juma rainforest reserve in Brazil. Anyone who visits its hotels for ten days is offered the opportunity to offset the carbon emissions associated with their stay for $10. Although Marriott customers can be sure they are getting more than hot air for their money, the same is not true everywhere. Money is being spent on credits of dubious ecological value.
As the world moves towards negotiating a deal to reduce carbon emissions that may involve extensive cuts, there are calls to formalise the process of creating avoided deforestation credits. It is important work. The climate bill going through the American Congress envisions that large numbers of offsets would come from international forestry schemes. The new mandatory trading market would be far larger than the tiny voluntary market.
The process for setting up a formal trading scheme goes by the acronym REDD, which stands for reducing deforestation and degradation. Landowners who forgo their rights would be able to sell REDD credits that had been verified by trusted third parties in accordance with recognised international standards. Nonetheless there are huge issues to overcome, not least in verifying that deforestation has been avoided. Michelle Chan of Friends of the Earth, a pressure group, says that over the past few years many countries have been funded to become “REDD ready”. When the mandatory market emerges, then, there will be schemes that can supply them. She says that many poor countries with forests are eyeing the scheme hopefully but there are problems with land tenure and the rights of indigenous people.
Governments should be banned from selling carbon rights over the heads of indigenous peoples in the proposed formal trading scheme. Negotiators will need to be careful to create property rights that are enforceable. They also need to be cautious about the growing practice among traders of developing derivative products based on promises to deliver carbon credits for a specified price. This is already happening for some REDD projects. In 2008, REDD projects made up 14% of the forest carbon credits traded on voluntary markets, according to a report issued on May 27th by Ecosystem Marketplace. So even though REDD credits do not formally exist, a way is being found to trade them. REDD “credits” trade at a lower price than other kinds of forest carbon credits, a signal that the market recognises their risk.
A survey of buyers of forest carbon credits by a company called EcoSecurities has found that 44% of customers would be willing to buy options to purchase credits, prepay for credits or buy ownership in a share of the project. Where REDD is concerned this may be risky, because it remains to be seen which projects will qualify. Investors could end up with worthless credits, which could harm the credibility of a scheme that has not even really been born.
The world desperately needs a way of incorporating the cost of carbon into the economic system. The cost, however, is to place global ecological security in the somewhat shaky hands of the global financial marketplace.
Origin of text
The University of Queensland has found paying to preserve carbon stored in forests could protect endangered wildlife such as Indonesia's orangutans. UQ PhD student Oscar Venter is the lead author of the study “Carbon Payments as a Safeguard for Threatened Tropical Mammals,” published in the current edition of the journal Conservation Letters.
The study concentrated on 3.3 million hectares of tropical forest in Kalimantan (Indonesian Borneo), which is home to orangutans, elephants and other endangered species. Based on prices now being paid for carbon dioxide (CO2), the study compared the revenue that could be derived from protecting the forest and avoiding carbon emissions to the revenue that would be derived if the forest was converted to oil palm plantations.
Mr Venter said the study found that carbon payments, in the form of payments for Reduced Emissions from Deforestation and forest Degradation (REDD) could compete with oil palm at carbon prices of $10 to $33 per tonne of CO2. He said if REDD was only used to protect the most carbon rich areas, which would still be a great win for forest conservation, the price of CO2 would drop dramatically, down to as low as $2 per tonne.
“What excites me most about our results is that those areas that are particularly good for carbon and therefore most likely to receive REDD protection, also house very high levels of threatened mammals, almost twice the average number,” he said. “Countries with tropical forests, such as Indonesia, are pushing hard to develop. Part of this development involves clearing forests to make room for agriculture. “To them this makes sense, standing forests have had no value in the past, you can't sell orangutans and elephants on conservation markets, they don't exist. But carbon markets do exist and they traded US $126 billion in 2008.
“If REDD is successful at harvesting some of these funds to protect tropical forests by giving them value, this could fundamentally change conservation in these countries, and provide benefits for mammals at a scale that we've never before seen.”
Furthermore, the study discovered forest conservation in Kalimantan would prevent 2.1 billion tonnes of carbon emissions.
The collaborative study includes researchers from the Center for International Forestry Research (CIFOR), one of 15 centres supported by the Consultative Group on International Agricultural Research (CGIAR), as well as scientists from UQ, The Nature Conservancy and the Great Ape Trust of Iowa.
The proposals to use carbon payments to conserve forests is expected to be highlighted at The United Nations Climate Change Conference scheduled for December in Copenhagen. Mr Venter said he was working with The Nature Conservancy in Indonesia to help plan for and implement REDD in areas that are slated for oil palm, as well as logging concessions and forest-protected areas.
“By showing how much value could come from carbon payments, it becomes easier to demonstrate the benefits of shifting oil palm expansion to areas that have no forests or only have degraded forests, which contain less carbon and are less biologically diverse,” he said. CIFOR Director General Frances Seymour said REDD offered important win-win opportunities for climate and biodiversity protection.
“Ultimately, our goal is to help fashion an agreement in Copenhagen that will allow tropical forests to become a part of a more comprehensive climate agreement – one that will reduce emissions as well as produce co-benefits,” Mr Seymour said. “There is already a good case to be made for ending the exclusion of existing forests in the next climate pact. This new evidence shows just one of the many benefits that a REDD accord could have.”
Carbon payments as a safeguard for threatened tropical mammals (p 123-129)
Oscar Venter, Erik Meijaard, Hugh Possingham, Rona Dennis, Douglas Sheil, Serge Wich, Lex Hovani, Kerrie Wilson, Published Online: May 1 2009 1:11AM, DOI: 10.1111/j.1755-263X.2009.00059.x
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Progress on tropical forest scheme
A proposal that will ultimately include the world’s tropical forests in a climate protection carbon trading scheme, is well received at UN-led negotiations in Bonn.
Morten Andersen, en.cop15.dk
A carbon trading scheme aiming to protect the climate by halting tropical deforestation is likely to be agreed at the UN conference on climate change in Copenhagen this December.
“We are seeing a lot of areas of agreement that include both developed and developing countries… there is a much stronger consensus in the room on this that there are on some of the other issues,” Federica Bietta, Deputy Director of the Coalition for Rainforest Nations (CfRN) tells BusinessGreen during this week's UN-led negotiations in Bonn.
The proposal aims to introduce REDD (Reducing Emissions from Deforestation and Forest Degradation) in three phases. Firstly forestry management in rainforest countries should be scaled up. Secondly forestry protection demonstration projects should be deployed. And thirdly the REDD projects should get access to carbon markets to help finance projects.
Brazil remains sceptical about carbon credits as an appropriate tool in rainforest conservation, but according to Federica Bietta the credits have general support in Bonn:
“We know that if we are to have access to carbon market projects, we will have to adhere to higher standards of auditing and management. But we believe access to the market is the best way to get the financing at the required scale (…) Some countries such as Papua New Guinea and Indonesia have already been working on REDD for a few years and could introduce projects quite quickly, while some other countries could take five years to get their first project up and running.”
NOT READY for REDD?
Practicalities of trading carbon and protecting forests make meeting high expectations for REDD hard, say Esteve Corbera and Manuel Estrada.
It is clear that any effective international 'deal' on climate change must decrease emissions from deforestation and land-use change that represent about a fifth of all emissions. An international mechanism to fund such reductions, reducing emissions from deforestation and forest degradation (REDD), is emerging as a global blueprint to achieve this, and expectations are high.
Many developing countries are keen to participate because entering the regulated carbon market, which represented US$126 billion in 2008, raises hopes of long-term income.
Developed countries are similarly enthusiastic. REDD offers them a relatively cheap way to meet their commitments under the Kyoto Protocol (or any new climate change treaty) and could also encourage developing countries to sign up to voluntary emission reduction commitments at a sectoral level in the next round of climate negotiations.
But designing a framework that will live up to everyone's expectations will be hard, given the divergent political, institutional, technical and governance capacities within the developing world.
Permanent commitment
One immediate problem is that current proposals are for payment after emissions have been reduced. So countries would have to design and implement carbon reduction policies with their own resources — an unlikely course for those already facing significant budgetary constraints and other more pressing issues, such as poverty, health and education.
Even if the carbon market could deliver up-front funding through innovative financial mechanisms, whether it can ensure deforestation is kept low in the long-term is debatable.
Put simply, the carbon stored in forests can only be counted as emitted to the atmosphere once — so avoiding these emissions can only be sold and used against emissions reduction targets once. Developing countries are essentially being asked to accept a one-off payment for the carbon in their forests, in exchange for permanently committing to avoiding land-use change.
Indeed, if a 'seller's liability' approach is used to define the rules for REDD, this commitment could even become a financial obligation for developing countries — that is, they would have to pay up for any carbon loss for which credits have already been issued and sold.
Checks and balances
An even bigger problem for developing countries is certification. To enter the carbon market, REDD initiatives must generate real, measurable, long-term and additional emissions reductions that are certifiable by a third party. But few developing countries have the resources or expertise to collect enough data on land-use change or carbon storage to fulfill such criteria.
Sure, some individual projects have been successful — emissions reductions from the Noel Kempff Mercado National Park in Bolivia, for example, have been certified by the verification company SGS. But national emissions inventories in most developing countries do not meet the Kyoto Protocol's clean development mechanism (CDM) standards. For example, Mexico's reported emissions for the land-use sector over the period 1993-2002 had different degrees of uncertainty depending on the data collection methods and the reporting source, with uncertainty ranging between 4 and 34 per cent.
Equally problematic is ensuring that individual REDD credits in the carbon market are properly equivalent to each other (i.e. are fully fungible). Regulations to ensure this, set by buyer countries, could limit demand for credits and so reduce funding for REDD activities.
The European Emissions Trading Scheme's exclusion of credits from afforestation and reforestation CDM projects is a good example of how a potentially large mitigation option can be effectively nullified by regulation in buyer countries (see Climate deals should reward wider forest management and Africa needs agroforestry to cut forest emissions). If REDD is to be successful, national regulations in buyer countries will have to meet rules agreed under the UNFCCC.
Essential groundwork
So it seems unlikely that large numbers of tradable REDD credits will be generated in the short term. Pilot activities, but also massive capacity building, will be needed within the next few years if countries are to pave the way for significant emissions reductions. For example, specific and detailed assessments of what drives deforestation at national and regional levels will be required to show where REDD is most needed, how deforestation and degradation should be tackled and who should be involved in conservation efforts.
Meanwhile, governments and research organisations should be building scientific and technical expertise so that REDD's future architecture does not rely on developed countries' consultants and private organisations, as has often been the case for CDM projects.
Even assuming that the funding issues and technical problems are solved, there are still significant management and governance hurdles to overcome. For example, forest management programmes often fail due to limited staff, equipment and training, corruption among government officers, and misunderstandings about existing property and benefit-sharing arrangements with rural communities.
Informal and customary tenure makes it difficult to set formal contracts with rural stakeholders, and particularly with the most disenfranchised. This means that as well as building scientific and technological capacity to measure, report and verify emission reduction projects, REDD must help improve governance and fairly reward indigenous peoples and communities.
Identifying all the stakeholders, raising awareness about REDD and consulting on how the scheme can or should work are crucial to a successful mechanism for reducing forest emissions. All of these require time and must not be rushed, simply to match the starting date of a post-2012 climate policy regime, or the agenda of supporting organisations.
Esteve Corbera is a researcher at the School of International Development, University of East Anglia, and the Tyndall Centre for Climate Change Research in the United Kingdom.
Manuel Estrada is an independent senior consultant on climate change, Mexico.
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Issue date: October 21, 2009
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On the road to REDD
An emissions trading scheme gives forests a market value on the basis of how much carbon they sequester. It could help to control global warming — if developing nations meet their responsibilities.
Environmentalists have spent decades working to protect tropical forests, both to promote biodiversity and to conserve nature's bounty. All too often those efforts have fallen short in the face of economic forces that put a higher price on timber and cleared land than on the forests themselves. But that may soon change if international climate negotiators can include forest carbon in a treaty to control global warming. The path forward will not be easy, as the News Feature on Madagascar's forests on page 26 points out, but it is surely a worthy experiment.
Forest carbon represents a new way of thinking about conservation, one that measures forests in terms of the carbon they sequester in their biomass and soil. The numbers are substantial: deforestation is currently responsible for up to 20% of global carbon emissions, which means that protecting forests could noticeably slow global warming. Doing so will be difficult, though, given the social issues at play and the weak governance in many tropical nations. But it should be relatively cheap compared with other methods of reducing carbon emissions. And with carbon footing the bill, tropical forests might finally get the kind of attention — and resources — they deserve.
Governments must find ways to address the social and economic problems that push people to cut down their forests.
As the world prepares for the United Nations climate summit in Copenhagen this December, negotiations over how a new climate treaty would incorporate a market for forest conservation credits — a trading system known as 'reducing emissions from deforestation and forest degradation' (REDD) — have been among the most fruitful to date. REDD negotiators might well be closer to a deal than any of their treaty counterparts working on emissions targets, financing and the like. Developed countries see REDD as a potentially cheap and beneficial way to reduce emissions, and developing countries see it as a cash infusion that could be used to promote a new model of sustainable development.
At present, REDD pilot projects are sprouting up in communities around the tropics, often using government funds or in some cases carbon credits that have been issued on voluntary carbon markets. As helpful as these individual projects might be for improving people's livelihoods and preserving local biodiversity, however, it's not clear that they measurably reduce global-warming emissions. To realize the full promise of REDD — and to tap into the much larger flows of private money expected in future carbon markets — nations must ultimately manage their forests on a national scale. This means that they will need to beef up their science and regulatory infrastructure in order to inventory all their forest carbon, show that they can control land use at the local level and prove that their emissions are declining. Exactly how they achieve this will probably vary by country, and that is fine. As long as forests are left standing and emissions are going down, nations should have some flexibility to set up systems that most benefit their own people.
Many pitfalls lie ahead. As the situation in Madagascar shows, political instability can derail environmental reforms; continuing poverty and bad policy, as well as droughts and fires, could do the same. But governments, climate negotiators and environmentalists are working on solutions to these challenges, and there is no evidence yet that they cannot be overcome.
One thing is clear: it is at the local level that forest protection will either succeed or fail. Governments must find ways to address the social and economic problems that push people to cut down their forests, as well as instituting laws against doing so. And although it would be foolhardy to think of REDD as a panacea, the idea certainly dovetails nicely with development goals. Indeed, those nations that are able to spread the wealth in such a way that local communities see benefits are the most likely to succeed.
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Issue date: November 9, 2009
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