So what - is carbon trading working or not?

The carbon market can be used to avoid a stand-off between the major emitters at Copenhagen and forge a consensus among nations. Graciela Chichilnisky sets out her proposal.

As nations get ready for the climate-change showdown at Copenhagen in December, the pieces are falling into place for a major confrontation between the two largest emitters: China and the United States. The United States does not want to limit its emissions unless China does. Yet China is protected by the United Nations Framework Convention on Climate Change (UNFCCC), Article 4, under which developing nations are not required to limit emissions without compensation.

The stand-off between them is reminiscent of the cold war between the Soviet Union and the US in the middle of last century. Both powers refused to limit their nuclear arsenal unless the other did first. The times are different, the weapons are different, but the situation is the same. And the emissions of the two countries alone could cause catastrophe for the world.

Many think that China is no longer a developing nation and must be treated differently, because of its enormous economic strides since 1997, when the Kyoto Protocol was adopted. Yet China is still a poor nation – it ranks below more than 100 other nations in GDP per capita. Moreover, if every person in the world emitted as much as the average Chinese, global warming as we know it would not exist. According to the Climate Analysis Indicators Tool, emissions per capita in the United States are 7.1 times more than that of China from 1990 to 2005. If the entire world emitted as much as the average Chinese citizen, the world would emit 12 gigatonnes of carbon dioxide per year, rather than the 30 gigatonnes we do today.

The UNFCCC became international law in 1992 (the United States itself ratified it that year), so breaking the convention rules is breaking the law. Breaching Article 4 of the convention could isolate China from the rest of the developing nations, at a time when it faces challenges at home and from the industrialised nations.

I propose a solution that overcomes this stand-off and does not require that China breaks ranks with the developing world.

The Kyoto Protocol was the first international environmental agreement based on a global market solution – one that changed the value of the global commons. The carbon market saved the Kyoto Protocol, when the agreement was perilously close to failure in December 1997. I suggest modest changes in Kyoto’s carbon market that could shift the playing field on which the Copenhagen agreement will be negotiated – making it much more likely to have a successful outcome that is advantageous to the United States, European Union and Japan, and is acceptable to China, India, Brazil, Mexico and all the developing nations. It also fits the needs of the small island nations, whose survival is at stake.

The formula I propose uses the Kyoto Protocol’s own structure and updates it to overcome the impasse and forge a consensus between rich and poor nations. It has two aspects: financial and technical assistance.

The financial part is an extension of the carbon market – engineered so that both sides get what they want – and the technological aspect makes sure that the carbon reductions are feasible and developing nations receive funding for clean development. The former extends the carbon market and the latter the Clean Development Mechanism (CDM).

The UNFCCC does not say that China and the developing nations should never have limits: it says they should have no limits unless they are compensated. This is quite different. What we need is a form of “compensation” that fits the bill, and eliminates the opposition from both sides. Here I suggest trade – a term the United States is more comfortable with – rather than unilateral compensation. Nobody needs to be the first mover: a simultaneous financial solution makes this possible.

The United States can buy rights to reduce Chinese emissions in the future, thus obtaining what it wants, while providing “compensation” to China as is required by the UNFCCC. At the same time, China can secure a minimum price for the credits, ensuring that they would not be selling economic growth for a pittance.

This “one-two punch” reduces the overall monetary exchange while giving each party what they want; it can be a modest extension of the carbon market and sold in secondary markets to provide liquidity and stability for the carbon market.

The new financial mechanism allows the United States and China to save face by each saying at home, truthfully, that they are sticking to their original position – while at the same time both countries may also say, truthfully, that they got what they want from the other. Two simultaneous transactions based on the carbon market would do the trick. The entire transaction could involve little in terms of monetary exchange, but it would set emissions limits on both nations at the same time. Secondary markets can trade the corresponding options, thus providing liquidity and stability to the carbon market and its Clean Development Mechanism.

At the G8 meeting in July 2009 developing nations were loath to accept any obligation without specific commitments of financial and technical assistance – and failed to agree on a formula. The formula proposed here provides financial and technical assistance that should work for both sides.

Compensation can also take the form of export credits for negative carbon air capture technologies, which make it possible to reduce carbon from the atmosphere. This is the technological part of the proposal. The extension of the Clean Development Mechanism that we propose here could certify these new technologies When used in Africa, these carbon negative technologies can help the region reduce more carbon than it emits, meaning the continent can attract significant CDM funding that was not possible until now. The same works for island nations. For rich nations, this would involve US$200 billion per year in technology exports – the right size to stimulate today’s world economy – creating technology jobs and stimulating trade, all funded by the Kyoto Protocol.

Oil nations could benefit from the technological innovation proposed here: Saudi Arabia is on the record espousing a commitment to become a leader in solar power in this century. Significantly, a representative of the China delegation at a recent United Nations Conference on Trade and Development (UNCTAD) meeting of experts agreed to this proposal in principle.

Copenhagen is the “do or die” mission for the climate negotiations. The price of failure could be catastrophic but there is a solution available. Now it’s up to the international community to step up to the plate and save Kyoto.

Professor Graciela Chichilnisky played a central role in designing and negotiating the carbon market of the Kyoto Protocol. She is the director of the Columbia Consortium for Risk Management and professor of economics and statistics at Columbia University, New York. Chilchilnisky acted as lead author on the Intergovernmental Panel for Climate Change from 1996 to 1999. From 1996 to 2008, she was UNESCO professor of mathematics and economics at Columbia University.

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Issued by:  Chinadialogue

Author: Graciela Chichilnisky

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Issue date: November 5, 2009

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Last week, Graciela Chichilnisky wrote that carbon trading can save a climate-change agreement. Here, Kevin Smith responds that such markets haven’t worked – and won’t in future.

Carbon trading isn’t working, and doesn’t show any signs of improving either. The biggest experiment in carbon trading so far, the European Union Emissions Trading Scheme, has been a spectacular failure, which has not made significant emissions reductions, has absorbed enormous amounts of political will and attention and has acted as a huge subsidy for some of the biggest polluters in Europe, with a handful of energy companies making billions of Euros in profit without having to reduce their emissions.

Free-market ideologues still trumpet the virtues of carbon trading, but a host of NGOs, businesspeople and even government bodies now admit that we got it badly wrong. In the United Kingdom, the Committee on Climate Change – an independent advisory body to government – said they could not “be confident that the EU ETS will deliver the required low-carbon investments for decarbonisation of the traded sector” and recommended the use of more traditional regulatory intervention.

Outside of Europe, carbon trading has not brought “clean development” to developing countries: it has provided large profits to industrial elites, who have tended to plough those profits into expanding polluting industries. Many communities in countries where offset projects under the Clean Development Mechanism (CDM) have been carried out have suffered as a result of being evicted to make way for dams, or have had to cope with waste incinerators being built in residential areas – all in the name of providing carbon credits, so that rich countries and companies can continue polluting at will. The fixation with the CDM has also provided industrialised countries with a benevolent façade in climate-change negotiations, making a show of supposedly financing clean technologies, while conveniently ignoring the much more substantial sums that need to be paid for adaptation and technology transfer.

In April 2009, climate-change activists erected a protest camp outside the European Climate Exchange, the biggest carbon trading hub in the world, located in the financial district in London. These protesters were angry that carbon trading was actually making things worse by allowing the introduction of new carbon-intensive infrastructure in the United Kingdom, including the proposed first coal-fired power stations to be built in 30 years.

This frustration with carbon trading has been validated by a number of recent reports, which contribute to the growing critique of carbon trading. Last week at the climate-change talks in Barcelona, Spain, Friends of the Earth released “A Dangerous Obsession – The Evidence Against Carbon Trading and For Real Solutions to Avoid the Climate Crunch”, which recommends an immediate end to the expansion and interlinking of further carbon-trading schemes around the world.

But it is not only environmentalists who voice criticisms of carbon trading. A recent report from Deutsche Bank concluded that the carbon market is not likely to contribute to significantly cutting emissions “for the foreseeable future.” Billionaire businessman George Soros has also expressed scepticism, saying “The system can be gamed; that’s why financial types like me like it – because there are financial opportunities.”

The recent global financial crisis has dramatically highlighted the folly of dogmatic belief in the omnipotence of free markets. It is an ideological anachronism to promote those same free-market forces and processes of financialisation as being an effective means of bringing about the urgently needed transition to the global low-carbon economy.

Kevin Smith is a London-based researcher with Carbon Trade Watch, which is a project of the Transnational Institute.

At the end of the month, Carbon Trade Watch will publish the book Carbon Trading: How It Works and Why It Fails (Dag Hammerskjold Foundation). It will be available to download free online.

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Carbon trading: How to save a forest - Projects in Madagascar could provide a model for stemming deforestation. But first these efforts must deal with the poverty and political upheaval that threaten forests, reports Anjali Nayar.

Félix Ratelolahy and his team of field researchers are hiking through the dense growth of the Makira forest in northeastern Madagascar. Uapaca trees tower over them, with their spider-leg roots tall enough to walk under. Brilliant white orchids pour out of their perches in the trees. And every so often the leaves above rustle, as googly-eyed lemurs dance among the branches.

Ratelolahy, an ecologist with the Wildlife Conservation Society (WCS), and his team have spent most of the past year in this 5,200-square-kilometre forest to determine how much carbon is stored there. And today, after a three-hour hike up a precipitous slope to their first survey point, the team methodically gets to work setting up circular plots and measuring the diameter of trees.

"We record all the numbers — the trees, the dead wood and the leaf litter," says Ratelolahy, looking up from his clipboard. "And then back in the capital, poof, the computer calculates the amount of carbon in the forest."

On these multiple-week traverses through the forest, Ratelolahy has glimpsed much of the region's endemic beauty, such as the leaf-tailed gecko and the all-white silky sifaka — a type of lemur that is one of the rarest animals in the world. But his missions have also been disturbing, he says. Over the years, Ratelolahy has watched subsistence farmers slash and burn away the margins of the forest to grow rice. And he has come across gangs pillaging the forest for rosewood, ebony and quartz. "It looks as though bombs have fallen on the place," says Ratelolahy about the ransacked areas.

Makira is on the front line of the war being waged to slow global warming. As one of Madagascar's largest forests, it stores millions of tonnes of carbon. But as in most forests in the country, that carbon is being rapidly released to the atmosphere as trees are cut down for agriculture, timber, mining and firewood. The WCS, in collaboration with the government and other organizations, is hoping to protect Makira and, at the same time, generate money to support local communities by 'renting' the forest to rich countries.

The idea is that wealthy nations could meet their greenhouse-gas emissions targets in part by buying carbon credits from developing countries such as Madagascar. The poorer nations could earn money by keeping their forests standing, rather than cutting them down (see 'A growing market').

This strategy, known as reducing emissions from deforestation and forest degradation (REDD), is one of the topics up for discussion at the UN climate-change summit in Copenhagen this December. Countries will negotiate whether REDD should be included in the climate deal that takes over from the Kyoto Protocol when it expires in 2012.

Proponents for REDD say that this mechanism is key to cutting deforestation, which accounts for around 20% of greenhouse-gas emissions. It is also estimated that REDD could generate billions of dollars each year for forest conservation, far more than is currently spent. Hoping to cash in on the future market, projects have burgeoned around the developing world, with those in Madagascar being some of the earliest to take shape. The projects are also helping to establish technical standards and methodologies for carbon accounting.

REDD projects must keep the promised forests standing. To succeed, this means addressing the poverty and political instability in developing countries that often lead to deforestation. These problems are particularly acute in Madagascar, where a coup earlier this year disrupted conservation efforts and raised questions about the future of REDD there.

Non-governmental organizations such as the WCS and Conservation International are working through the turmoil. But even they are worried. "We could have a very difficult time selling carbon if this political situation becomes the norm," says Lisa Gaylord, head of the WCS in Antananarivo, the country's capital. "Why would an investor want to come here?"

Hungry for land

Madagascar is one of the wealthiest countries in terms of biodiversity, but its people are among the world's poorest. Around 85% of the population live below the World Bank's $2-a-day poverty line and most rely heavily on the country's natural resources.

The hilly countryside is scarred by slash-and-burn agriculture, locally known as tavy. Once people fully exploit the fertile river valleys, they head uphill, clearing the forests to cultivate rice, the country's staple food. These rain-fed fields are harvestable for only a few seasons before productivity drops and villagers clear new land for their crops.

Estimates of Madagascar's original forested areas vary widely, but some studies suggest that trees once blanketed 90% or more of the island. Since aerial photographs of the country were taken in the 1950s, forests have decreased by more than 40% and by about 2005, they covered only around 15% of the country.

Over the past two decades, deforestation has been decreasing slowly with the creation of protected areas. Grants from the World Bank and USAID helped Madagascar to become one of the first countries in Africa to develop and implement a national environmental action plan.

By 2000, the nation had protected 17,000 square kilometres of forest, mainly as national parks. But further expansion of the park system stalled because the funding stream from donors dried up. So, in 2001, the government teamed up with non-governmental organizations and started exploring the idea of selling carbon credits from their forests. "It was clear that there was a carbon market emerging and that avoided deforestation could be a very powerful way of protecting forests in Madagascar," says Frank Hawkins, vice-president for Africa and Madagascar of Conservation International in Washington DC. Hawkins was part of the team that popularized REDD on the island.

The efficacy of a REDD project depends on how much carbon the project will prevent from being released in the absence of protective measures. Calculating that number requires first measuring the current carbon content of a forest — as Ratelolahy and his crew are currently doing — and then projecting future deforestation rates with and without the project in place. The WCS is doing that by using past satellite imagery and making forecasts that account for factors such as the proximity of the forest to roads and villages.

A study in 2004, conducted in collaboration with the non-profit organization Winrock International in Little Rock, Arkansas, estimated that the annual rate of deforestation was 0.15% in Makira. The analysis projected that the rate would rise to 0.2% a year by 2034 without any intervention. But with the REDD project in place, the deforestation rate would slow to about 0.07%. These preliminary estimates indicated that the 30-year project would avert the release of more than 9 million tonnes of CO₂ equivalent, similar to taking 2 million cars off the road in the United States for a year.

Madagascar's other two active REDD projects, in the Ankeniheny-Zahamena and the Fandriana-Vondrozo forest corridors, run by Conservation International, are each projected to prevent emissions of 9 million to 10 million tonnes of CO₂ during the same time period.

Together, at a conservative price of US$5 per tonne, the REDD schemes in Madagascar could yield up to $5 million a year for conservation and community development in the country, about the same as the budget for the national park system. Christopher Holmes, the technical director of the WCS's Madagascar programme, says 50% of the money from future carbon sales will go to the communities. The rest will be used to cover the costs of running, monitoring and marketing the project.

In the future, the WCS intends to pay the affected communities directly using the carbon money from Makira, but currently there is no distribution mechanism in place. In the meantime, the money will go to health and development projects aimed at reducing poverty. "People are not walking five kilometres to find forest to cut down to plant rice on a 30° slope because that's the best thing to do," says Holmes. "They are doing it because it's the only thing to do."

But setting up a REDD project in this remote part of the country is challenging, he says. Without much existing infrastructure there, the WCS has had to establish community organizations and legislative bodies that allow each community to manage their forests.

In Madagascar, the government owns the forest, so the conservation organizations are helping local communities to gain rights over the natural resources through management contracts. But progress is slow. "Some of the communities require two days of driving and three days of hiking on foot to reach," says Holmes. Since the project started in 2003, only one-quarter of Makira's 83 community organizations have signed the contracts with the government.

The contracts give communities legal access to a buffer zone surrounding a core protected area of the forest. When someone in the community wants to build a new house or dugout canoe, that person applies to the community's organization for a permit to use the buffer zone.

Because such agreements effectively limit how much local residents can take from the forest, the WCS is trying to help communities in other ways, through projects to increase rice production and by expanding the country's ecotourism industry into the Makira region. But for now, communities such as the remote village of Andaparaty on the eastern cusp of Makira do not see the potential benefits of carbon sales.

Pressures on the forest

At sunrise, the riverside village is already bustling. Women are busy laying out a patchwork of woven mats topped with drying rice, beans and vanilla. Later, their meagre produce will be taken downstream to be sold.

Barnety, a man nearing 80, watches the ebb and flow of his village. He is a tangalamena or traditional leader in the community. When he was a boy, he says, there were only a few families in Andaparaty. Now there are hundreds of people competing for the same land. Bit by bit, the forested slopes around the village have been stripped away to plant rice and cassava. When the Makira project reached Andaparaty in 2004, Barnety supported it. "Our lives depend on the forests," he says. "If there aren't any forests, if there isn't any land, we can't live."

But without a sustainable source of income and food, some villagers are finding it difficult to accept restrictions on their access to the forest. "People are frustrated because before the project, they were completely free to hunt, fish and cut down the forests," says Cressant Rakotomanga, president of the local community organization.

It could be years before carbon payouts come through a UN-regulated REDD system. The WCS and its donors have already spent $1.9 million to establish the Makira REDD project, and the support going to local communities will increase when the carbon funds arrive. But for the people of Andaparaty, the support can't come soon enough. "People are wondering where the money from REDD is, or if it will ever come," says Ratelolahy.

Political unrest in Madagascar makes the future of REDD projects there even less certain. On 17 March this year, following two months of protest, the 35-year-old mayor of Antananarivo, Andry Rajoelina, took the presidency in a military-backed coup.

The ensuing political instability caused a surge in illegal wildlife trafficking, mining and logging activities, threatening the country's forests. "Because of the political instability, people feel liberated, which translates to more exploiting," says Haja Salava, the director of Masoala National Park, adjacent to Makira.

Armed gangs are ravaging the northeastern region for its valuable rosewood and ebony. The park rangers and community members who have tried to impede the illegal trade have been threatened with death, says Salava.

In the past few months, thousands of illegal loggers have been raiding his national park, Salava estimates. In his dilapidated office in the regional capital Maroantsetra, he scrolls through his monthly reports to the government. The pages are a collage of photos of men posing with freshly cut wood. The loggers aren't afraid of being caught because, despite Salava's repeated calls for assistance, the government police do not stop the trade, he says. "It's a free-for-all."

Mariot Rakotovao, who led the country's Ministry of the Environment and Forests at the time, said his department had ramped up police patrols in the region and had fined illegal loggers.

But the Missouri Botanical Garden, which has been following the illegal timber trade, estimates that more than 850 shipping containers of rosewood have left the country since January, when the political problems began. Almost all of the exported wood was from illegal logging, says Porter Lowry of the Missouri Botanical Garden, which has conservation programmes in Madagascar.

The environment ministry did not respond to requests from Nature for comment. A government official, who asked not to be named, challenged the claim about such shipments. "That's a lot of wood. I don't believe it," he says.

Wood for sale

Other details of the timber trade are more certain. On 21 September, the government issued an inter-ministerial order allowing another wave of timber exports. The new shipments would have a combined value of tens of millions of dollars. According to the ministerial order, the shipments are designed to empty the stockpiles of timber in the country's ports and are limited in number to discourage operators from returning to the forest to cut more precious wood. The order also stipulates that taxes on the exports will raise money for the central treasury and for forest conservation through a new fund called Action against the Degradation of the Environment and Forests (ADEF).

Jean Roger Rakotoarijaona, chair of the REDD technical committee that is putting together the country's national strategy, says legitimizing the exports of illegally felled wood will only propagate more cutting in Madagascar. He also questions the purpose of the new forest fund. "We already have a national forest fund that needs replenishment," he says. Regarding the new fund, he says, "I'm a little worried about what this is going to be used for".

The ongoing illegal felling of trees could lead to a lot of extra carbon emissions. But even worse for Madagascar's REDD projects, the country's political instability has caused international donors to cut funding for forest and development programmes.

In March, the World Bank's Forest Carbon Partnership Facility froze a $200,000 grant supporting Madagascar's work preparing a national REDD strategy. That delay imperils Madagascar's chances of winning a follow-up $3.6-million grant to implement the plan, says Rakotoarijaona.

The environment and forests ministry also lost about 95% of its funding, which had come from international donors, says Rakotovao. The cuts have severely impeded the ministry's ability to manage and patrol the country's forests, he says.

Investments in the country's carbon-credit projects have also stalled. The World Bank's BioCarbon Fund put a hold on its initial payment to buy offsets for 1.5 million tonnes of CO₂ emissions from one of Conservation International's REDD and reforestation projects in eastern Madagascar.

The loss of funding for development projects that provide rural communities with alternative livelihoods also means more people are returning to slash-and-burn agriculture. "The short-term pillaging of forests is a problem, but slash-and-burn agriculture is the worst poverty trap," says Hawkins. "In Madagascar, it leads to the permanent loss of forests — you can't dig yourself out of that."

In the past few months, pressure from the international community forced Rajoelina into power-sharing talks with the country's three former governments. The aim is to bring about elections before the end of next year. But even if the political situation stabilizes and investors come back, there is a long road ahead to get REDD working in the towns bordering Makira.

The WCS is running workshops to teach villagers how to increase their crop production. But few people have adopted the improvements, says Jean Jaonary, the local community organization president in the village of Ambodivoahangy, on the northeast side of Makira. "Using the new method, my rice production has doubled," he says, while wading through the neat rows of his lime-green fields. "I don't know why other people haven't caught on."

As Jaonary walks through Ambodivoahangy's rice fields with Ratelolahy, women and men are busy with work, their straw hats popping in and out of the greenery. Ratelolahy says the land is all the rural populations have, and they are weary of new ways of farming and efforts to keep them out of the forest. He has faith that REDD can help these communities, but it will take time to convince each of the villagers to change. Looking towards the future, Ratelolahy summons up an old Malagasy saying: "Cows don't all wake up at the same time."

Anjali Nayar is an International Development Research Centre fellow at Nature.

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Issued by:  Nature

Author: Anjali Nayar

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Issue date: November 4, 2009

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