Using Forest Carbon Credits in the EU ETS

On March 29th, 2006, the World Bank convened a group of policymakers to review options for including forestry credits in the European Union Emissions Trading Scheme (EU ETS). Toby Janson-Smith, Director of the Climate, Community & Biodiversity Alliance, gives the Ecosystem Marketplace an insider's take on the discussions.

Several years ago, the European Union decided to exclude carbon credits from forestry projects in its Emissions Trading Scheme (ETS) – which dominates the global carbon market and sets the tone for all carbon trading regimes around the world. This exclusion was a blow to forest-based communities and biodiversity in the developing world, since the demand for carbon forestry credits and the projects behind them is severely restricted without access to this $5 billion/year European market.

On March 29th, 2006, the World Bank convened a group of policymakers to review options for including forestry credits in the European Union Emissions Trading Scheme (EU ETS).

A number of European Member States requested the meeting because they felt it was time to revisit this topic since much had changed since the first EU ETS Linking Directive was negotiated almost three years ago. We, at the Climate, Community & Biodiversity Alliance (CCBA), could not agree more.

The purpose of the workshop, held at the British Council in Brussels, was to bring together key European climate policymakers to candidly discuss this issue and identify possible ways forward. A diverse team of organizations, the CCBA among them, worked to dispel misinformation and report recent developments. The day ended with a lively discussion about solutions for addressing the technical and legal barriers currently preventing Land-Use, Land-Use Change and Forestry (LULUCF) projects from being included in the ETS.

A Timely Conversation

There is no doubt that land use change is a significant contributor to climate change, causing more than 20 percent of global greenhouse gas (GHG) emissions. Land use change, dominated by deforestation in the tropics, is also the leading cause of species extinctions worldwide and a significant source of water and air pollution and soil erosion. LULUCF projects are unique in that they have the potential to mitigate climate change, while at the same time addressing these other pressing social and environmental challenges.

Given the ongoing EU ETS review, which may reshape the future of carbon trading in Europe, the March 29 workshop was a timely discussion. The event (download agenda) was co-chaired by the British, French, Dutch and Spanish Governments – each clearly articulating their desire to see forests included in the ETS as soon as possible. In total, 14 countries were represented, along with key climate policymakers from the European Parliament and Commission.

The tremendous interest in the event likely came from the growing realization that including LULUCF in the ETS could deliver valuable economic, sustainable development and political benefits for the European Union. Specifically, inclusion of credits from this sector will further the Linking Directive objective of increasing the diversity of low-cost compliance options for improving market liquidity, stimulating sustainable development, and ensuring consistency with the Kyoto Protocol. (For more about these benefits please refer to the paper "Local and Global Benefits of Including LULUCF Credits in the EU ETS"). Importantly, it will counter growing criticism that excluding LULUCF credits is an unfair trade barrier working against the poorest and most vulnerable people in developing countries. And, by opening its markets to quality LULUCF credits from some of the world's poorest communities, Europe would be sending a loud and clear signal that it recognizes the value of every country's contribution. The benefits to such a decision will have far reaching ramifications, particularly as developing countries enter negotiations on a post-Kyoto framework.

Furthermore, the key technical issues associated with carbon forestry projects that led to the exclusion of this sector when the first Linking Directive was negotiated, have been satisfactorily addressed during recent years when Parties to the Kyoto Protocol defined solutions for dealing with permanence, additionality, leakage and measurement & monitoring. (For more on how current regulations deal with each of these issues, read "Key Technical Issues Relevant to CDM Forestry Projects")

Compelling Arguments

Sustainable development was a key theme of the workshop, and the participants were clearly captivated by Wangari Maathai (2005 Nobel Peace Prize Winner and leader of the Green Belt Movement in Africa), who delivered a compelling videotaped message. She made an impassioned plea for the policymakers to include forestry in the ETS so that the developing world could tap the carbon market for restoring its degraded lands while creating sustainable livelihoods. Also, it was made clear that forestry projects are the only way that many of the least-developed countries (including most of Africa) will be able to meaningfully participate in the carbon market (see "Under-rated forests" article for more on this argument, and letter (http://carbondevinit.org/) signed by leading development groups urging European policymakers to include forestry in the ETS).

This message was supported by a series of presentations covering different aspects of the social and environmental benefits associated with well-designed carbon forestry projects, including a number of case studies (download). We showcased the Climate, Community & Biodiversity Standards (www.climate-standards.org) as a cost-effective tool for ensuring that projects deliver compelling local community and biodiversity benefits. And the session was capped by Dr. Bernhard Schlamadinger of the Joanneum Institute explaining why afforestation/reforestation projects will be needed to serve the world's growing appetite for bioenergy.

During a series of technical/legal presentations, Charlotte Streck, a lawyer with Climate Focus, delivered specific language for a one-page amendment (download) to the European law that would enable forest credits to be traded. Seeing such a simple and elegant legal solution to using temporary credits in the ETS clearly surprised and pleased the policymakers, since forestry had been something many had shied away from simply because of its perceived complexity.

Next Steps

The day concluded with a lively and positive discussion on next steps. Different policy options were discussed, including a mini-amendment to the ETS focused exclusively on forestry. To some this was preferable to including forestry in a larger amendment (e.g., with the expansion to other sectors or gases), which would likely result in additional delay.

The workshop participants decided, given the importance of this issue and the desire to keep discussions alive, that a follow-on event should be organized in September, allowing a wider group of stakeholders to participate, including NGO and industry groups. I urge all of you who are interested in this issue to engage in these ongoing discussions.

By the end of the workshop it became clear that there is strong and broad support among European policymakers for including forestry credits in the EU ETS.

However, given the EU legislative process, time is running out if forestry is to be included in the 2008-2012 trading period. European policymakers need to move quickly if this tremendous opportunity is not to be squandered.

Toby Janson-Smith is Director of the Climate, Community & Biodiversity Alliance – a partnership among leading NGOs and companies promoting the development of land-use projects that simultaneously mitigate climate change, support sustainable livelihoods and conserve biodiversity. For more information, visit www.climate-standards.org. The author may be reached at tjanson@climate-standards.org.