Delegates to a UN climate convention meeting in Ghana today begin hard discussions on establishing a carbon market system around avoided deforestation and its inclusion in a future global climate agreement. There is disagreement on what offers the best system of forest carbon payments to deliver for forest preservation, forest communities and the wider climate change mitigation effort. A number of approaches have been suggested from simply adding avoided deforestation activities into existing markets through to very limited use of any market mechanism.
Momentum has built quickly in 2008 in the so-called Reduced Emissions from Deforestation and Degradation (
REDD) process, and a workshop at the
UNFCCC meeting in Accra will consider if and how a carbon-credit-style trading system should be applied forest conservation. Accra is one of seven critical meetings leading up to the 2009 annual UN climate meeting late next year, which is the deadline for a new international climate treaty to extend the
Kyoto Protocol after 2012.
In recent years, the large contribution that the cutting down of tropical forests makes to human greenhouse gas emissions and global warming has become clearer. Estimates put emissions from deforestation at 18 per cent at least of total emissions, more than all the world’s road transport.
Nicholas Stern in his landmark 2006 report on the economics of climate change estimated that $10 to $15 billion a year could halve tropical deforestation, and be most efficiently delivered via carbon market payments. Other estimates range up to $30 billion annually. The Bali annual climate meeting last year put a REDD market firmly on the agenda for post 2012, resolving in the meantime to run trials and build up measurement and monitoring capacity in developing countries.
Fair progress has been made on methodology issues over the measuring, reporting and verifying of the carbon benefits of preserving native forests, including at the last UN meeting in Bonn. Attention in Accra will turn to consideration of how the financing mechanism should operate and the transfer system that would deliver payments to local communities in developing countries for protecting their forests.
The German Development Institute (DIE) and the US-based Environmental Defense Fund (EDF) are two research organisations to have released papers assessing the possible approaches to a global REDD financing mechanism.
Perhaps the simplest approach is to add avoided deforestation carbon credits into the existing UN carbon trading mechanisms. But DIE argues this threatens a flood of cheaper credits into UN and linked domestic carbon markets. REDD carbon credits are estimated to emerge in the range of $US4 to $10 per tonne of CO2 emissions avoided. A 2007 study from the Woods Hole Research Center (Nepstad, Soares Filho, et al) concluded that 94 per cent of Amazon deforestation could be avoided at a cost of less than $US5 per tonne of carbon. These levels compare to the $25 to $35 per tonne current trading range of existing UN offset credits,
CERs.
So if REDD credits were introduced to the global carbon market, industrialised countries could find it easy to fulfil much of their targets with cheap REDD offset credits. Friends of the Earth International is just one green group opposing the inclusion of forests in carbon markets, saying it will allow developed countries to avoid real carbon emissions reductions at home, in turn threatening the ultimate goal of stabilising greenhouse gas concentrations in the atmosphere at safe levels.
DIE also argues that unless rich nations’ emissions reduction targets are increased beyond even the highest current suggested levels of 25-40 per cent below 1990 levels by 2020, then forest carbon offsets should not be integrated into the global carbon market. It suggests the 25-40 per cent target range could be quarantined for fossil fuel emission reductions and a further component added to cater for land-based sink credits. But with targets currently at the heart of the stalemate in international climate negotiations, and doubts that even the 25-40 per cent cuts will ever be agreed, DIE’s position is that full integration not the best option.
The Environmental Defense Fund, however, maintains that as long as the framework is sound, integrating a system of REDD credits into world carbon markets would not flood them - assuming the US commits its mammoth economy to at least modest emission reduction targets.
EDF argues that the proposed approach so far to pay REDD credits for deforestation avoided below an agreed national baseline would see only a relatively small number of credits created at any one time and not undermine the market.
Using modelling based on the emission targets for world’s largest industrial economy and deforestation of the world’s biggest tropical forest, EDF finds that, even if the US bought all the REDD credits created from conceivable avoided deforestation in the Amazon of 2000 square kilometres per year, these would represent less than a quarter of the emissions allowances available under the weakest emissions caps scenarios in Senate proposals. Under the stronger proposals, the proportion may be less than 10 per cent.
The DIE goes on to examine three other approaches to REDD financing; two similar market-linked rather than fully market-based systems, and a non-market approach which would see the issue of REDD emissions allowances at the national level. The two market-linked options are the Dual-Markets Approach proposed by the US Center for Clean Air Policy (CCAP) and the Tropical Deforestation Emission Reduction Mechanism (TDERM) from Greenpeace.
CCAP would see a dedicated REDD trading mechanism set up, separated from the
CDM,
JI and other mechanisms. Some proportion of developed countries’ reduction targets would have to be met via the mechanism, setting a limit on the amount of reductions that can be bought from REDD but guaranteeing some revenue from credit demand. Each developed country would enter into an agreement to buy from one or more developing forest nations.
Already, the Forest Carbon Partnership between Australia and Papua New Guinea offers a fledgling example of such an arrangement.
Greenpeace’s TDERM would see the creation of a new class of carbon credit specific to avoided deforestation, the TDERU. Developed countries could meet part of their overall targets through the purchase of such credits. Minimum and maximum purchase levels would be set to ensure enough funding flowed in to avoided deforestation activity, and to prevent cheap credits crowding out more expensive reductions in industrial and fossil fuel emissions.
Neither of these options fully remove the issue of crowding out and still require sizeable overall targets to allow enough room for a REDD market to work without it being at the expense of other efforts. Others remain at odds with the EDF’s assessment maintaining that capping the use of REDD credits to appropriate levels for given targets couls restrict market volumes below those needed to make the serious inroads required into worldwide deforestation.
DIE concludes the non-market approach advocated by Norway and Climate Action Network International is a better bet. No private market trade for REDD credits would be created. Instead, a small proportion of international emission allowances, Kyoto’s AAUs, would be sold to developed countries rather than given out free. Revenue raised would go into approved UN funds to pay developing countries and their communities for avoided deforestation efforts, and possibly for other climate related needs as well.
This would de-couple REDD payments from reduction targets and the additionality of emission reductions from avoided deforestation would be assured, DIE says.
Both the DIE and EDF agree that robust transfer systems have to be in place at the other end in developing countries that recognise the rights of forest communities for REDD to work on the social as well as a financial level. That is, that credit revenues reach the people on the ground that rely on forests for their livelihood.
Friends of the Earth International warns that a REDD market placing greater value on forests risks more land rights abuses as state and corporate interests move to seize their control over forests at the expense of local forest communities.
Ian Hamilton
Carbon Positive
Downloads:
REDD in developing countries: Meeting the challenges ahead DIE
Getting REDD right EDF
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