Carbon Sinks and Climate Change

ADVANCES IN ECOLOGICAL ECONOMICS Series Editor: Jeroen C.J.M. van den Bergh, ICREA Professor, Universitat Autònoma de Barcelona, Spain and Professor of Environmental and Resource Economics, Vrije Universiteit, Amsterdam, The Netherlands Founding Editor: Robert Costanza, Gund Professor of Ecological Economics and Director, Gund Institute for Ecological Economics, University of Vermont, USA This important series makes a significant contribution to the development of the principles and practices of ecological economics, a field which has expanded dramatically in recent years. The series provides an invaluable forum for the publication of high quality work and shows how ecological economic analysis can make a contribution to understanding and resolving important problems. The main emphasis of the series is on the development and application of new original ideas in ecological economics. International in its approach, it includes some of the best theoretical and empirical work in the field with contributions to fundamental principles, rigorous evaluations of existing concepts, historical surveys and future visions. It seeks to address some of the most important theoretical questions and gives policy solutions for the ecological problems confronting the global village as we move into the twenty-first century. Titles in the series include: Joint Production and Responsibility in Ecological Economics On the Foundations of Environmental Policy Stefan Baumgärtner, Malte Faber and Johannes Schiller Frontiers in Ecological Economic Theory and Application Edited by Jon D. Erickson and John M. Gowdy Socioecological Transitions and Global Change Trajectories of Social Metabolism and Land Use Edited by Marina Fischer-Kowalski and Helmut Haberl Conflict, Cooperation and Institutions in International Water Management An Economic Analysis Ines Dombrowsky Ecological Economics and Sustainable Development Selected Essays of Herman Daly Herman E. Daly Sustainable Welfare in the Asia-Pacific Studies Using the Genuine Progress Indicator Edited by Philip Lawn and Matthew Clarke Managing without Growth Slower by Design, Not Disaster Peter A. Victor Carbon Sinks and Climate Change Forests in the Fight Against Global Warming Colin A.G. Hunt

Carbon Sinks and Climate Change Forests in the Fight Against Global Warming

Colin A.G. Hunt School of Economics, The University of Queensland, Australia

ADVANCES IN ECOLOGICAL ECONOMICS

Edward Elgar Cheltenham, UK • Northampton, MA, USA

© Colin A.G. Hunt 2009 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA

A catalogue record for this book is available from the British Library Library of Congress Control Number: 2009930868

ISBN 978 1 84720 977 1 Printed and bound by MPG Books Group, UK

Contents List of abbreviations Foreword Preface Acknowledgements

vi viii xi xiii

Introduction 1 2 3 4 5 6 7 8

1

The making of markets for carbon and the potential of forestry offsets Forestry in the Kyoto Protocol Forestry in voluntary carbon markets Biodiversity benefits of reforestation and avoiding deforestation Measuring the carbon in forest sinks Forests as a source of biofuels Forestry in the climate change policies of selected developed countries Policies for reducing emissions from deforestation and forest degradation (REDD)

Notes Index

8 33 67 95 121 144 166 187 218 223

v

Abbreviations A AAU BTU C CAMFor CBD CCBA CCX CDM CER COP CPRS DBH DEFRA e ER ERU ETS EU FAO FCPF FP GHG Gt Ha IFPRI IMF IPCC ISO IUCN JI Kt LCER ln LUCF

afforestation assigned amount unit British thermal unit carbon carbon accounting model for forests Convention on Biodiversity Climate, Community and Biodiversity Alliance Chicago Climate Exchange Clean Development Mechanism certified emission reduction conference of parties to the UNFCCC Carbon pollution reduction scheme diameter at breast height Department of Environment, Food and Rural Affairs equivalent emission reduction emission reduction unit emission trading scheme European Union Food and Agriculture Organization Forest Carbon Partnership Facility for profit greenhouse gas gigatonne hectare International Food Policy Research Institute International Monetary Fund International Panel on Climate Change International Organization for Standardization International Union for the Conservation of Nature Joint Implementation kilotonne long-term certified emissions reduction log number land-use change and forestry vi

Abbreviations

LULUCF M m M&P MSC NCAS NCAT NGO NP O2 R RED REDD RGGI RMU SBSTA T TCER Tg UK UN UNEP UNFCCC US USEPA VCS VCU VER

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land use, land-use change and forestry million meter Modalities and procedures marginal social cost National Carbon Accounting System National Carbon Accounting Toolbox Non-government organization not for profit oxygen reforestation reduction in deforestation reduction in deforestation and forest degradation Regional Greenhouse Gas Initiative removal unit Subsidiary Body for Scientific and Technological Advice tonnes temporary certified emission reduction teragram United Kingdom United Nations United Nations Environment Programme United Nations Framework Convention on Climate Change United States of America United States Environment Protection Agency Voluntary Carbon Standard verifiable carbon unit verified emission reduction

Foreword Mankind is faced with the long-term specter of global warming and its negative environmental and economic consequences. The need to respond effectively to this threat is now more widely accepted than ever before. However, on the eve of preparations to develop a successor to the Kyoto Protocol, another problem has come to the fore: namely the global economic recession which became apparent in 2008. It is expected to deepen and continue for some time and in the immediate future will influence government policies for addressing global warming. It has already done so in Australia’s case. It seems likely that international negotiations at Copenhagen in December 2009 to plan a successor to the Kyoto Protocol will be affected by it; for example, emphasis may be on greenhouse gas measures that add to employment in the short-term, and policies that reduce employment are likely to be avoided. Global warming is attributed by most scientists to the growing accumulation of greenhouse gases in the atmosphere as a result of anthropogenic activities, primarily economic activities. Carbon dioxide is the main greenhouse gas accumulating in the atmosphere. Continuing global deforestation is a significant contributor to carbon dioxide emissions, and other land-use changes (such as loss of other vegetation and organic matter in soil) also add to these emissions. Forests are ‘doubly’ important in fighting global warming: (1) on the one hand, deforestation adds CO2 to the atmosphere as the carbon contained in the forest is burnt or decomposes, and (2) an increase in forest biomass (or more generally plant biomass) extracts CO2 from the atmosphere and stores it. Trees and other plants (as well as some lower order organisms) that rely on photosynthesis for their continuing existence extract CO2 from the atmosphere. There is biophysical evidence that the expansion of forests and tree cover can significantly help to reduce the rate at which CO2 is accumulating in the atmosphere due the combustion of fossil fuels. Nevertheless, as Colin Hunt makes clear in this contribution, governments cannot rely just on biophysical relationships in developing policies to combat global warming, even though it is necessary to consider these relationships. The success of global warming policies and the contribution of forestry depend on the deepness of the global cuts in emissions agreed. Within countries, socioeconomic conditions and the formulation and execution viii

Foreword

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of these policies is considerably constrained by political considerations and institutional structures. Colin Hunt’s Carbon Sinks and Climate Change: Forests in the Fight Against Global Warming provides a timely and constructively critical analysis of the prospects for using forest policy to combat global warming. The initial focus in his book is on the use of economic instruments such as tradable carbon credits, market systems, subsidies and taxes and other economic measures to achieve desired goals. However, Hunt’s findings in this regard are tempered by his consideration of the constraints on forest policy imposed by political structures and environments as well as the transaction costs involved in the implementation and monitoring of compliance. In addition, constraints generated by previous policy choices are considered. Thus some path-dependence is recognized in the development of global warming policies. Consequently, global warming policies based on neoclassical economic analysis (which has been center-stage) are modified by taking into account features of importance in both old and new institutional economics. There is overriding emphasis on the practicality of policies. A narrow economic approach is avoided. This is to be welcomed. A feature of this book is its careful attention to current global warming policies affecting forestry. After providing a very useful overview of the subject matter of this book and an accessible general outline of carbon policies and forestry offsets, Hunt gives particular attention to forestry in the Kyoto Protocol and the development of voluntary carbon markets. However, optimal land use is not just about carbon sequestration. For example, forests have multiple attributes, of which their role as carbon sinks is just one. One important aspect of forests is their contribution to biodiversity conservation. As pointed out and discussed by Hunt, forest policy intended to moderate global warming needs to be modified to take this aspect into account. Further modifications may also be required to allow for local and regional environmental spillovers generated by forests. Hunt also considers the problem of measuring the amount of carbon contained in forests as well as new challenges that are likely to arise in the future as forests start to be used to produce biofuels. As underlined by Hunt, many policies to produce biofuels add to greenhouse gas emissions rather than reduce these when the whole chain of production is taken into account. A large-scale switch out of food crops to growing plantations for carbon credits in developed countries needs to be monitored for its effect on global food prices and on emissions elsewhere. At the personal level, Hunt has been actively involved for some years in afforestation and reforestation projects as a volunteer. He therefore values

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such projects. At the same time, this passion has not blinded him to the socioeconomic obstacles to using forest policy to lower the rate of global warming. For example, he argues that Nicholas Stern has been overly optimistic in his assessment of the role that forest conservation can play in moderating global warming. One reason for Hunt’s skepticism is that Stern has, in his view, underestimated the opportunity costs and transaction costs of sustaining forests in developing countries. Furthermore, in developing countries there are several important political constraints to the avoidance of deforestation. Hunt is relatively optimistic about the socioeconomic prospects of managing forests in developed countries as a way to offset greenhouse gas emissions and less so (to some extent pessimistic) about this happening in less developed countries. But he acknowledges that if developing countries such as India and China were to accept caps on their emissions (something that he believes necessary if emissions are to be reduced to a level that will avoid dangerous climate change), afforestation would likely become an important component of these countries’ forestry policies. This book will make a significant contribution to the debate about what type of policies should be adopted to combat global warming after the Kyoto Protocol expires in 2012. Clem Tisdell Professor Emeritus School of Economics The University of Queensland

Preface Nothing pleases me more than to look down on a primary tropical rainforest, the greenness interrupted here and there by a tree in flower, the canopy punctuated by great emergents and knowing that the whole teems with life. It is also satisfying to look across the landscape to where a dark line of a thriving plantation provides a contrast to the grassland in the foreground. While one can romanticize about forests, I have set out to be realistic in assessing their role in augmenting and complementing the deep cuts that need to be made in the burning of fossil fuels. This book took some 14 months to write, but its gestation was much longer. As a boy, biking to school in London, I was concerned about the impacts of exhausts from factories and vehicles, and in an early physics lesson I saw how heat rays were trapped by carbon dioxide. I was only partly reassured by the knowledge that trees were splitting carbon dioxide molecules and incorporating the carbon: how effective would forests be against the inexorable increase in emissions? During my work in agricultural development I became acquainted with diverse forests in many countries. On my journey to Southern Rhodesia (now Zimbabwe), to work as a soil and water conservation officer, I marveled at the endless savannahs of southern Africa. Later, I visited the vast tropical rainforests of Indonesia, the Solomon Islands and Papua New Guinea, but I also saw their destruction first hand. Later still, I achieved an ambition of living and working in Papua New Guinea, much of the time researching sustainable alternatives to logging. Returning to Australia to live adjacent to the rare remaining rainforests of far north Queensland, I spent several instructive years as a volunteer with Trees for the Evelyn and Atherton Tablelands Inc. (TREAT). I believe there is no better place than TREAT to learn the practicalities of rainforest restoration (from seed collection to maintenance regimes) and the establishment of wildlife corridors. In 2004 I was fortunate in being offered a position as lecturer in socioeconomics and environmental policy at the nearby School for Field Studies (SFS), an American school affiliated with Boston University. The SFS philosophy emphasizes field-based projects. I took the opportunity of employing students (to our mutual advantage) to measure the carbon stored and its value in the tropical rainforests and plantations of the area. xi

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These experiences resulted in the delivery of a paper on the economics and ecology of carbon sequestration and a workshop on emission trading to the United States Society for Ecological Economics Conference, in New York, in June 2007. Publisher Edward Elgar had mounted a stall at the conference and there were conversations with the publisher’s representative, Heather Perkins, about the need for a book on the role of forestry in climate change policy. In October 2007 I was delighted to receive an invitation from Alan Sturmer to produce this book. Chapters in the book are designed to stand alone, but they are also unavoidably interdependent. It is impossible to discuss the effectiveness of the inclusion of forestry in the Kyoto Protocol and the potential for the inclusion of the reduction in deforestation in post-Kyoto arrangements without background in carbon markets. And underlying the role of forestry in carbon markets is the need for understanding the practicalities of measuring, and the difficulties of guaranteeing, the carbon captured by forests. The nations of the world are due to convene in Copenhagen in December 2009 to discuss, and hopefully to formulate, the successor to the Kyoto Protocol, which expires at the end of 2012. The election of Barack Obama changed the political landscape; comprehensive participation in addressing climate change now seems more likely. However, the financial and economic crisis will constrain the actions of leaders of developed and developing nations alike. Whatever the rate of progress in negotiations, the agenda will nevertheless continue to include the need for protection of existing forests and the establishment of new ones. It is my hope that interested parties and policymakers will find insights in the book that contribute to appropriate roles being given to forestry in climate change policy.

Acknowledgements The unstinting moral support from my wife, Maxine Pitts, made the task enjoyable. The generous material support from my son, Justin Hunt, made the book possible. A visiting fellowship in the Economics School at Queensland University in 2008 and 2009 provided access to library resources that are second to none. For this privilege I thank Professor Emeritus Clem Tisdell and Professor John Foster. Appreciation is extended to authors for the permission to use figures, as follows: Figure 1.3, Satoshi Kambayashi; Figure 1.4, Mike Apps and Gert-Jan Nabuurs; Figure 2.4, Till Neeff; Figures 2.5a and 2.5b, Bruno Locatelli; Figure 2.5e, Neil Bird, Michael Dutschke and Lucio Pedroni; Figure 4.3, The Ozone Hole Inc.; Figure 6.3, Thomas Adams and University of Georgia Research Foundation; Figure 8.4, Danillo Mollicone; Figure 8.5, Lorenzo Ciccarese, Michael Dutschke, Philip Fearnside, Sandra Brown and Daniel Murdiyarso on behalf of the late Bernard Schlamadinger; and Figure 8.7, Scott Willis. Alan Sturmer of Edward Elgar provided prompt and valuable advice throughout and Suzanne Mursell of Edward Elgar provided timely editorial assistance. C.H. Brisbane January 2009

xiii

Introduction A range of techniques is employed in teasing out the role of forestry in tackling climate change. Socioeconomic analysis complements the technical data, and in most chapters leads to a policy position being taken. The introduction gives a flavor of the book and summarizes what are considered the major issues surrounding forestry’s role. Global warming is the greatest known challenge facing the world. While future armed conflicts or global pandemics could possibly be more sudden in their devastation, human-induced climate change is already a reality, and we know that, unchecked, it will visit dire consequences on future generations (Parry et al., 2007). We only have a few years in which to act to keep the rise in concentration of greenhouse gases within the limits that will avoid dangerous climate change (den Elzen and Meinshausen, 2007). In economic theory, and in practice, substitutes for depleted resources are readily available. If we run out of potable water supplies because climate change has affected rainfall patterns we can substitute recycled waste-water or desalinated sea water. When agricultural land becomes scarce we substitute fertilizers and pesticides for land, and so increase crop yields. However, there is no substitute for the capacity of the atmosphere, the oceans and the forests to act as sinks and absorb our gaseous wastes, and we are far exceeding that capacity. Unless these wastes can be channeled into caverns and deep into the oceans, a solution that seems unlikely in the time available, we have little choice but to cut our reliance on fossil fuels and bring the output of greenhouse gases into balance with the absorptive capacity of the planet. Trees in forests take in carbon dioxide, the main greenhouse gas, and store it as carbon in their leaves, branches, trunks and roots. A tonne of carbon in trees is the result of the removal of 3.67 tonnes of carbon dioxide from the atmosphere. The world’s forest ‘sink’ already holds more carbon than is in the atmosphere (Prentice et al., 2001), but part of that sink is being reduced rapidly by the cutting of forests in tropical developing countries, contributing some 17 percent to global greenhouse gas emissions. Forestry, which includes the maintenance of existing forests as well as increasing forest area, can make a very important contribution to the mitigation of global climate change, but only a small proportion of this potential is being realized (Nabuurs et al., 2007; Capoor and Ambrosi, 2007). 1

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Carbon sinks and climate change

INCENTIVES AND MARKETS William Nordhaus (2007: 20) provides salutary advice: ‘[I]t is unrealistic to hope that major reductions in emissions can be achieved by hope, trust, responsible citizenship, environmental ethics, or guilt alone.’ Climate change mitigation requires finance: just reducing deforestation will cost billions of dollars every year for the foreseeable future. Who is going to put up this kind of money? The solution that has most promise is to harness the market. Creating a demand for allowances to emit greenhouse gas reduction and allowing their trade is the approach adopted by the United Nations Framework Convention on Climate Change in its Kyoto Protocol. Most rich countries have accepted emission allowances that are less than 1990 levels. To comply with their caps, countries are bound to adopt domestic policies that restrict greenhouse gas emissions. The cost of compliance is reduced by the ability of countries to trade emission allowances. If the price of allowances is above the cost of abatement, there is an incentive for the country to cut to below its cap and sell surplus allowances to countries with costs of abatement above the price of allowances, and the overarching cap is still achieved. The policy instruments available to countries to reduce emissions within their borders boil down to two main types: a tax on greenhouse gas emissions, and this can easily be applied to the use of fossil fuels depending on their carbon content; or a cap on emissions by industries and businesses, and making the emission allowances tradable. These policies can be complemented by subsidies for research and development and adoption of new technology that makes targets cheaper to achieve. If greenhouse emissions are taxed, industries and businesses can either avoid the tax if the cost of abatement is lower than the tax, or pay the tax if this is cheaper than abatement. Governments with greenhouse gas taxes can give a role to reforestation by paying subsidies for, or by applying tax rebates to, the carbon dioxide removed by plantations from the atmosphere. In the alternative policy of cap and trade, so far the preferred option of several countries, reforestation can be given a role by treating a tonne of carbon dioxide removed from the atmosphere as equivalent to a tradable emission allowance. Developers of plantations can then sell the allowances generated by the carbon captured in the forestry sink. Moreover, capped industries and businesses may be allowed to offset their emissions by importing allowances generated by forestry projects elsewhere. Whatever the means, the greenhouse gas reductions achieved are entered into the national accounts, which all participating governments are required to maintain.

Introduction

3

Thus the answer to the question ‘who pays?’ in the case of growing new forests as carbon sinks, is that industry and business will pay. Money can be made by selling emission allowances generated, or money can be saved by buying offsets rather than by abating. The effectiveness of both cap and trade and tax systems in stimulating forestry investment is dependent on the price of carbon; this in turn depends on the deepness in the cuts in greenhouse emissions or the size of the tax.

IS A TONNE OF CO2e A TONNE OF CO2e? Emission allowances to countries, and to emitters within countries, are in terms of carbon dioxide (CO2) equivalent. The major greenhouse gases are rated for their global warming potential and converted to CO2e, which is the commodity traded in the world’s carbon markets. The workings of the markets for emission allowances and the role and potential for forestry in those markets are analyzed in Chapter 1. In assessing the potential role and importance of forestry the chapter finds that there is great range in forecasts in the literature, prompting attempts at clarification in later chapters. The question that heads this section needs to be asked because the potential market is for billions of tonnes CO2e, withdrawn or withheld from the atmosphere and stored as carbon in forests’ biomass. Markets can work well if the commodity being traded is divisible, uniform and capable of accurate description. However, every forest differs and every tree in it, and so does the amount of atmospheric CO2e a tree extracts, and is expected to extract, over time. Another complicating factor when we come to estimating the carbon in forests, and hence how much CO2e has been removed, is the amount of carbon in soils and how this changes when we establish plantations. Chapter 5 discusses the sophisticated measurement techniques that need to be deployed in estimating the carbon in tracts of native forests, something that is crucial if payments are to be made for the conservation of forest carbon in the tropical zone. The chapter also emphasizes the importance of ground-truthing these estimates; a case study shows how the amount of carbon in forests can be confirmed by physical measurement. It is known with accuracy how much CO2e is released by burning a gallon of gasoline. However, buyers may not have such confidence in the amount of CO2e removed by a forest in a reforestation or a tropical forest, even after the carbon in the trees is measured. Buyers’ confidence may be eroded by the knowledge that there is a risk that a proportion of the forest’s carbon may be released any time back into the atmosphere as CO2e,

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as a result of fire, disease, accidental clearing or climate change. In these circumstances, potential investors in forest carbon have every right to discount its value. A recurrent theme in the book is how markets cope, or fail to cope, with the idiosyncratic nature of forest carbon sinks. Chapter 2 focuses on the role of forestry in international markets created under the Kyoto Protocol, including those that give flexibility to the developed nations by allowing then to mount forestry projects in other developed and in developing countries. Questions are raised about the architecture of the existing schemes and whether the market is able to deliver the volume of projects that will allow forestry to make a telling contribution to tackling climate change. A conclusion is that the rules governing forestry in the Kyoto Protocol should be changed only at the margin to eliminate inconsistencies. If the global price of carbon rises, for example as a result of deeper global cuts in global emissions agreed at the Copenhagen conference in December 2009, the interest in afforestation and reforestation will increase from its present low level. However, it is argued that the inherent nature of forestry (as reflected in unfavorable prices, costs and risks) means that afforestation and reforestation under the Protocol is likely to remain less attractive to private investors than other types of offsets. The informal markets are developing quite outside the formal architecture of the Kyoto Protocol and official domestic climate change policies of countries. These so-called ‘voluntary’ markets allow investors anywhere, large and small, to buy into projects that are conserving carbon in new forests or that are protecting forests. By doing so they offset a quantity of their own emissions. These types of investors can be distinguished from the corporates responding to taxes or caps on emissions in that their motivation for investing is pure altruism, desire to create a favorable image, reduce guilt, or a combination of all three. Chapter 3 reports on research that delves into the rather chaotic voluntary market and finds that most voluntary forestry offsets are sold before they have been verified as existing, that is before the trees have had a chance to grow; that is they are offsets not only in space but also in time. In fact these offsets are commonly sold on the basis that they will be still sequestering carbon in 100 years’ time, so that the question ‘Is a tonne of CO2e sequestered in a forestry offset a tonne of CO2e?’ is a very relevant one. While progress is being made in the forestry offset market in defining its product, there are still improvements to be made in the verification that carbon has actually been sequestered. This would increase the confidence of buyers of forestry offsets. The protection of the world’s remaining biodiversity in the face of the rapid clearing of forests could be said to be one of the greatest challenges of our time. Yet there is no integrated international effort backed

Introduction

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by finance to curb it. Chapter 4 asks the question whether the markets for forestry offsets and the accompanying rapid increase in afforestation and reforestation will benefit biodiversity, given that the market rewards carbon sequestered but not biodiversity conserved. It does this through case studies of projects in both developed and developing countries. Liquid biofuels will increasingly replace fossil fuels in transport. The use of biofuels derived from cellulose, including from wood, is a technique that delivers impressive greenhouse gas savings per gallon compared to the level of emission savings from crops, as detailed in Chapter 6. The commercialization of such ‘second generation’ processes will take time, however, and the price of carbon, or subsidies, will need to be high for them to fulfill their promise.

POLICY ANALYSIS AND PROPOSALS Having reviewed how measurement, markets and money enable forestry to join the fight against global warming, the actual policies being followed by some developed countries are investigated. Countries that are advanced in their policies, or that have announced their policies, are chosen for this exercise in Chapter 7. Forestry has no role in the EU Emission Trading Scheme. In contrast, in the US, Australia and New Zealand, afforestation and reforestation is likely to emerge as a very important instrument in mitigation and in reducing compliance costs. In practice, the significance of the contribution of forestry will depend on the price of emission allowances, which will depend in turn on the deepness of emission cuts. Domestic policies governing the acceptance of emissions allowances from forestry projects and constraints applied to the use of forestry offsets will also determine the importance of forestry’s role. The impact on global food prices of the subsidization of biofuels mainly derived from annual crops in the United States and the European Union is an issue that surfaced in 2008. These subsidies were found to be perverse incentives in that they had the indirect effect of increasing emissions from tropical forests in Brazil and south-east Asia. Large-scale diversions of land from food crops to carbon-capturing plantations will be likely to cause food prices to rise, with consequences for the poor. It is argued that the type of socioeconomic impact analysis that has been done for biofuels needs to be extended to include the impact of the future establishment of extensive forests for their carbon. Deforestation is rapid and is being driven by powerful forces, yet there is no global market for emissions abated by avoiding deforestation and degradation. Now there is a renewed interest in saving the tropical

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forests, not just because this promises immediate and major reductions in greenhouse gas emissions but also because of the rich biodiversity and the other unpriced services they deliver. Innovative mechanisms are now being trialed and introduced, outside the Kyoto Protocol, to reward the retention of standing forests. Devising schemes for prevention of deforestation in tropical developing countries raises the same set of marketing problems as afforestation and reforestation, that is defining the product and permanence of the forest. There is also a new set of complications that needs to be dealt with before the market will channel funds to prevent the main cause of deforestation, which is the conversion of land to agriculture. The process of conversion has been going on for millennia, enabling an increasing world population to be fed (Williams, 2003). But in the case of preventing deforestation in tropical countries, the buyer of carbon needs to be sure that the avoidance of deforestation being paid for would not have happened anyway. Even when the investor is satisfied that a forest has genuinely been saved from clearing, a doubt may remain about whether the deforestation avoided has not simply been transferred to another location. There are many beneficiaries of tropical deforestation and conversion to agriculture from humble growers to industrial giants and illegal loggers. Governments are also large beneficiaries through taxes on logs and on agricultural commodities. The burning question addressed in the last chapter is: given the social, economic and political implications of reducing deforestation (not to mention technical requirements), can markets be harnessed to make it an effective climate change strategy and, if not, what are the alternatives?

REFERENCES Capoor, K. and P. Ambrosi (2007), State and Trends of the Carbon Market 2007, Washington, DC: World Bank. den Elzen, M. and M. Meinshausen (2007), ‘Multi-gas emission pathways for meeting the EU 2oC climate target’, in H. Schellnhuber, W. Cramer, N. Nakicenovic, T. Wigley and G. Yohe (eds), Avoiding Dangerous Climate Change, Cambridge, UK: Cambridge University Press, pp. 299–309. Nabuurs, G., O. Masera, K. Andrasko, P. Benitez-Ponce, R. Boer, M. Dutschke, E. Elsiddig, J. Ford-Robertson, P. Frumhoff, T. Karjalainen, O. Krankina, W. Kurz, M. Matsumoto, W. Oyhantcabal, N. Ravindranath, M. Sanz Sanchez and X. Zhang (2007), ‘Forestry’, in B. Metz, O. Davidson, P. Bosch, R. Dave and L. Meyer (eds), Climate Change 2007: Mitigation, contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge, UK and New York: Cambridge University Press, pp. 541–84.

Introduction

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Nordhaus, W. (2007), ‘The challenge of global warming: economic models and environmental policy’ (draft), available at www.econ.yale.edu/~nordhaus/ DICEGAMS/DICE2007.htm. Parry, M., O. Canziani, J. Palutikof, P. van der Linden and C. Hanson (eds) (2007), ‘Summary for policymakers’, in IPCC, Climate Change 2007: Impacts, Adaption, and Vulnerability, Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge, UK: Cambridge University Press, pp. 7–22. Prentice, C., G. Farquhar, M. Fasham, M. Goulden, M. Heimann, V. Jaramillo, H. Kheshgi, C. Le Quéré, R. Scholes and D. Wallace (2001), ‘The carbon cycle and atmospheric carbon dioxide’, in J. Houghton et al. (eds), Climate Change 2001: The Scientific Basis, Contribution of Working Group 1 to the Third Assessment Report of the International Panel on Climate Change, Cambridge, UK: Cambridge University Press. Williams, M. (2003), Deforesting the Earth: From Prehistory to Global Crisis, Chicago and London: University of Chicago Press.

1.

The making of markets for carbon and the potential of forestry offsets

The atmosphere can be characterized as an unmanaged commons in which pollution by greenhouse gases (GHGs) is unrestricted, and emissions by one party reduce the welfare of all other parties. Because of the cumulative rise of unassimilated concentrations of GHGs over time and the delay in the manifestation of their impact on climate, it is future generations who will pay the heavy price of unconstrained pollution. The need to rein in GHGs is an urgent one, and one that requires deep cuts to global emissions if serious economic and social costs of climate change are to be avoided. The first part of this chapter is devoted to an exploration of the options available for controlling international and national GHGs with a focus on how markets work to lower the costs of compliance with emission targets. The markets for carbon that ensue from cuts are in terms of carbon dioxide equivalent (CO2e) where the main greenhouse gases, listed in Annex B of the Kyoto Protocol (United Nations, 1998), are expressed in terms of their equivalence to CO2 in global warming potential. The second part of the chapter takes a look at the potential role of forestry in the market mechanisms for mitigating climate change.

1.1

EMISSION TAXES

One obvious way to control greenhouse emissions globally is to put a tax on emissions of CO2e. The tax would need to be the same per tonne of CO2e across countries and sectors. All emitters facing the tax would reduce their output of gases so that the cost of reduction of the last tonne of CO2e they emitted equals the emission tax. This is so because the cost of control of pollution rises with the level of control, so that if the cost of control is greater than the tax at the margin then the units controlled are cut back. If the cost of control of the last unit is less than the tax, then more units are controlled. The tax is a very efficient instrument because all polluters are motivated to cut to a point where their marginal abatement 8

Markets for carbon and potential of forestry offsets

9

cost equals the tax, and the cost of exercising controls across the board is minimized. Prominent economist Nordhaus (2007) supports a tax system because of the cost uncertainties of quantitative limits on emissions, and because the public receives revenues from the taxes that can be applied to minimize social problems caused by the tax. The UK’s Climate Change Levy is a direct carbon tax. For an effective and efficient global tax policy there are two conditions: ● ●

The rate of carbon tax needs to be uniform across countries, developed and developing alike; The level of tax needs to reflect the marginal damage cost of CO2e emissions, that is the damage caused by the emission of one extra tonne of CO2e to the atmosphere.

A question is how uniform taxes could be applied to developed and developing countries, given the equity and welfare implications of taxes in the latter (Aldy et al., 2003). Moreover, there is already a raft of different taxes across countries applying to fossil fuels. For example, gasoline taxes tend to be relatively heavy in Europe compared with the US (Babiker et al., 2003). It can be concluded that the fundamental and universal tax reform across countries that is needed to make the tax on the carbon content of fuels uniform, would be very difficult to achieve politically, given the budgetary and socioeconomic implications. The second condition for an effective tax is its link to the marginal damage cost, or marginal social cost of CO2e emissions. The marginal social cost represents the optimal carbon price or optimal carbon tax, given that it balances the incremental costs of abating CO2e emissions with the incremental benefits. But estimates of marginal social costs in the literature are many, and they vary greatly. Tol (2007) reviewed 211 published estimates under business-as-usual (that is with no comprehensive system for reducing emissions in place). The peer-reviewed studies reported ranges from 2US$0.6 to $136 per tonne of CO2e, with a mean around $35 and a standard deviation of $66. A major cause of the variations is the choice of discount rate. The difficulties posed by the choice of discount rate are summarized in Box 1.1. An illustration of how changes in the discount rate can produce very different results in calculating the marginal cost of emissions, and therefore the benefit of marginal abatement, is illustrated by the change in present value of $100 in a hundred years’ time, at different discount rates (see Table 1.1). Apart from the different equity weightings adopted in different studies,

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Carbon sinks and climate change

BOX 1.1

SETTING A TAX ON EMISSIONS: THE DILEMMA OF THE DISCOUNT RATES

Climate change will intensify as global temperatures rise with increasing concentrations of GHGs in the atmosphere. Economic growth fueled by the burning of fossil fuels will continue to add emissions to an atmosphere whose absorptive capacity has already been exceeded. Estimation of the global economic costs of climate change and particularly the marginal costs of a unit of CO2e emissions is important in that it signals the optimal tax that should be imposed. What makes this exercise difficult is that emitters are separated in time from the consequences of their emissions; the current generation bears the costs of the climate benefits felt by future generations. Economists typically discount the future taking trends in the long-term bond rate together with the expectation that people in the future will be better off than they are today. Studies of the costs of climate change commonly discount the future at a rate of 3 percent. Recently, however, there has been much argument about rates as result of the Stern Review (Stern, 2006), in which discount rates employed were very low, thus generating high estimates for the cost of future emissions. Stern argues that discounting techniques that apply to changes at the margin where one project is being compared with another should no longer apply to costing global changes at a global scale. Moreover, recognition that relatively poor people will be most impacted by climate change is another reason why discount rates should be eased. the underlying assumptions in climate models can also change the size of damage costs. An example is provided by Nordhaus. In 1999 he estimated the optimal tax to be US$2.50, but in his 2007 study the optimum tax had risen to US$7.50 per tonne of CO2e (Nordhaus, 2007: 62).1 The latter estimate is still lower than the mean of study estimates reported by Tol (2007), however, due to the fact that Nordhaus applies a relatively high discount rate of 4 percent to future damage costs. One way of overcoming the problem of uncertainty of the optimum tax would be to introduce a tax at a modest level and then to adjust it upwards while monitoring the impact on GHG emission levels. It is expected that

Markets for carbon and potential of forestry offsets

Table 1.1

Present cost of $100 in 100 years’ time at various discount rates

Discount rate % 4.0 3.0 1.0 0.1

11

Present value $ 1.98 5.20 36.97 90.47

the tax would need to be increased by some 2.4 percent yearly, simply to keep pace with the increase in the marginal social cost of carbon emissions (IPCC, 2007: 822). Nordhaus suggests rises from US$9.30 per tonne of CO2e in 2010 to $11.40 in 2015, $24.50 in 2050 and $56.40 in 2100. While taxes are unwieldy on a global scale they are a more feasible option for adoption by individual countries in meeting their national targets. Tax harmonization is relatively easy within a country and the direct flow of tax revenues, which are then available to assist adjustment among sectors of society affected by the tax, is attractive to governments. Within countries that adopt taxes, tax rebates or subsidies can apply to the CO2e reductions achieved by reforestation.

1.2

SUBSIDIES TO ACHIEVE EMISSION REDUCTIONS

An alternative to taxes to change behavior is subsidization of the introduction of low emission technology. Australia is an example of a country that paid heavy subsidies to industry to achieve its Kyoto target of an 8 percent increase in emissions. (While Australia had refused to ratify the Protocol until 2007, it nevertheless still maintained a national goal of meeting its target.) Even though Australia invested some A$2 billion in subsidies, its total emissions from power generation, industry and transport rose well above target. Fortuitously, the states of New South Wales and Queensland banned clearing of native vegetation in 2004 and it is this, rather than its national greenhouse policies per se, that has enabled Australia to come close to meeting its target (Hunt, 2004). The choices for countries boil down to either ‘price’ or ‘quantity’ instruments. The price instrument, as we have seen, gives some certainty as to cost but does not fix the quantity of emissions. A system that fixes the quantity of emissions and allows the trading price per tonne to vary is commonly known as ‘cap and trade’. In the next section cap and trade as a global system for tackling climate change is reviewed.

12

1.3

Carbon sinks and climate change

THE INTRODUCTION OF GLOBAL CAP AND TRADE

There have been scientific warnings that feedback mechanisms could cause runaway global warming. It will be necessary to attempt to meet targets in GHG emissions and caps provide a greater degree of certainty in reaching targets than a tax. Global warming requires global solutions, and setting an overall limit on global emissions is the preferred method that has been adopted by the global community. However, the caps still need to be linked objectively and effectively to temperature objectives. The process involves the setting of the total quantity of emissions at a level that will deliver a desired concentration of greenhouse gases by a certain date, and thus limit the rise in global temperatures. The introduction of taxes or the setting of targets or caps on greenhouse emissions then follows in individual countries party to a global agreement. The global scheme for capping emissions that is in place is the Kyoto Protocol (United Nations, 1998), adopted in Kyoto, Japan, on 11 December 1997, entering into force on 16 February 2005 and to date ratified by 183 countries. The major distinction between the Kyoto Protocol and the United Nations Framework Convention on Climate Change (UNFCCC, 2002) is that while the Convention encouraged industrialized countries to stabilize GHG emissions (developed countries that adopted this goal are listed in Annex I), the Protocol commits them to doing so. In recognizing that developed countries are principally responsible for the current high levels of GHG emissions in the atmosphere, due to more than 150 years of industrial activity, the Kyoto Protocol, through Article 10 (United Nations, 1998), places a heavier burden on developed nations under the principle of ‘common but differentiated responsibilities’. The Protocol, in its Annex B, thus sets binding targets for 37 industrialized countries and the European Community for reducing GHG emissions. 1.3.1

Varying Costs of Compliance Create a Global Market

The allowances to pollute issued to developed countries are listed in Annex B of the Kyoto Protocol and average 5.2 percent below countries’ 1990 levels. Annex B countries have each been issued with assigned amounts which together equal the total amount of CO2e emissions agreed for 2008–2012. For example Great Britain and Northern Ireland agreed to cut their CO2e emissions by 8 percent. Their assigned amount for the first commitment period is therefore five times 92 percent of their 1990 emissions. A country can express all or part of its assigned amount in terms of tradable assigned amount units (AAUs).

Markets for carbon and potential of forestry offsets

13

While it may be equitable for industrialized nations to bear similar burdens in terms of a cap, the fact is that the costs of compliance will vary between countries. This cost disparity, together with the ability to trade, engenders a market for AAUs; the buyers of AAUs, which are in tonnes of CO2e, reduce their costs of compliance, and the sellers make deeper cuts but at a cost lower than the market price for AAUs. The overall amount of allowances remains the same, but trade allows the achievement of the target at least cost. The tighter the cap, the higher the price per tonne of CO2e in the market because of the increased demand for allowances by high-cost emitters. Figure 1.1 illustrates trade in AAUs in a two-country model. The system accommodates trading of AAUs government to government, government to authorized trader, and vice versa, and authorized trader to authorized trader. Forward contracts and call options on AAUs can be sold, and any entity authorized by an eligible Annex I party can buy. The first trade in AAUs was brokered in 2002 between an Eastern European government (the seller) and a Japanese corporation (the buyer) (Evolution Markets, 2002). The previous section suggested that the marginal social cost (MSC) of a tonne of CO2e should equal its price. While it was shown that there are very wide variations in estimates of the MSC, the price in the market can nevertheless be monitored under the cap and trade system adopted globally to see how the trading price of allowances compares with MSC estimates. If the price of carbon in the market is well below the MSC then there are benefits in tightening the cap and raising the price. On the other hand if the MSC is well above estimates of MSC there are benefits in loosening the cap and lowering the price. 1.3.2

Offsets in the Global Market

The Kyoto Protocol allows Annex B countries to offset their emissions by undertaking projects, including forestry projects, and to record the offsets in their national carbon accounts (UNFCCC, 2008b). Net removals of greenhouse gases from eligible land-use change and forestry (LULUCF) activities generate so-called removal units (RMUs), equal to 1 tonne of CO2e, that Parties can count against their emission targets. They are deemed valid only when the removals have been verified by expert review teams under the Protocol’s reporting and review procedures, and they cannot be banked (that is credits cannot be carried over to future commitment periods). The Marrakesh Accords (UNFCCC, 2008b) provide definitions for four additional LULUCF activities, these being:

14

Carbon sinks and climate change

Country A tCO2e Purchase AAUs

1990

2008

2012

Country B tCO2e

Sell AAUs

1990

2008

2012

1990 emissions Reduction commitment Actual emissions Note: Country A and Country B have the same emissions in 1990 and an equal commitment to reduce by 5% below their 1990 base year emissions. Country A purchases AAUs to cover emissions 10% above commitment. B achieves its target of 95% of 1990 emissions and, while doing so, also sells AAUs to satisfy B. The combined AAUs held by the two countries in the commitment period, 2008–2012, amounts to 5% below the 1990 level.

Figure 1.1

● ● ● ●

A two-country model of trade in Assigned Amount Units (AAUs), each equal to 1 tonne of CO2e

forest management; cropland management; grazing land management; and revegetation.

Markets for carbon and potential of forestry offsets

15

Parties to the Protocol may choose to include any of these activities to help meet their emission targets; the choice is then fixed for the first commitment period. While the Protocol allows these activities domestically, it has a special scheme, the Clean Development Mechanism (CDM), to facilitate the offsetting of GHGs by mounting projects in non-Annex B (developing) countries. The tradable units generated by these offsets are certified emission reduction units (CERs) (UNFCCC, 2008a). The CDM allows two types of forestry projects, afforestation (on land that has not been forested for at least 50 years) and reforestation (on land that was forested but did not contain forest on 31 December 1989). The Conference of the Parties (COP) 7, at Marrakesh in 2001, decided that greenhouse gas removals from such projects may only be used to help meet emission targets up to 1 percent of an Annex B party’s base year emissions for each year of the commitment period (UNFCCC, 2008b). Projects under the CDM are expected to achieve sustainable development objectives as well as creating carbon sinks. The mechanism for offset projects in other Annex B countries is known as Joint Implementation (JI). JI projects, including afforestation and reforestation, generate emission reduction units (ERUs). The forestry components of the Protocol are summarized in Box 1.2. Outside the CDM and national cap and mandatory cap and trade schemes, forestry is a global mechanism by which companies, institutions and individuals can participate directly in climate change mitigation on an unofficial basis. But these ‘voluntary’ offsets generally do not comply with the strict methodologies for additionality and verification demanded under the Kyoto Protocol, so that emission abatement by voluntary offset projects does not enter the national carbon accounts of countries. The Chicago Climate Exchange (CCX) with subsidiaries in Europe, Montreal, the US North East and New York is a unique institution in that participation is voluntary but caps are mandatory. The CCX facilitates trade between members who have voluntarily signed up to its mandatory reductions policy of reducing CO2e emissions by 6 percent below the 1998–2001 baseline by 2010. Trades are mainly between members either below or above their targets, but forestry offsets are an option. Chapter 2 deals in detail with the mechanisms of the CDM of the Kyoto Protocol and how national schemes might link with it. 1.3.3

In-country Cap and Trade

National or regional cap and trade schemes are designed to achieve the same objective as the global Kyoto Protocol, that is an emissions target at least cost. In order to meet their targets, individual Annex B countries

16

Carbon sinks and climate change

BOX 1.2

THE KYOTO PROTOCOL AND FORESTRY CARBON SINKS

The accounting period in which Annex I Parties to the UNFCCC that have ratified the Kyoto Protocol need to meet their emission targets, as specified in the Protocol, begins in 2008 and ends in 2012. These targets are expressed as levels of allowed emissions, divided into ‘assigned amount units’ (AAUs); each AAU being equal to one tonne of CO2e. Emissions trading allows countries that have emission units to spare, that is emissions permitted them but not ‘used’, to sell this excess capacity to countries that are over their targets (United Nations, 1998: Article 17). Parties to the Protocol may offset their emissions by increasing the amount of greenhouse gases removed from the atmosphere by so-called carbon ‘sinks’ in the land use, land-use change and forestry sector. The activities in this sector that are eligible are afforestation, reforestation and revegetation. The Kyoto carbon accounting rules specify that, to qualify, reforestation or afforestation must take place on land cleared before 1990. Greenhouse gases removed from the atmosphere through eligible sink activities generate credits known as removal units (RMUs). These are interchangeable with AAUs which can be traded internationally. The amount of credit that can be claimed by parties through forestry is subject to a cap. The Protocol also establishes three mechanisms known as Joint Implementation (JI), the Clean Development Mechanism (CDM) and emissions trading. These are designed to help Annex I Parties cut the cost of meeting their emissions targets by taking advantage of opportunities to reduce emissions, or increase greenhouse gas removals that cost less in other countries than at home. Under the CDM, Annex I Parties may implement projects in non-Annex I Parties that reduce emissions and use the resulting certified emission reductions (CERs) to help meet their own targets. The CDM also aims to help non-Annex I Parties achieve sustainable development and contribute to the objective of the Convention (UNFCCC, 2008a). At the end of the first commitment period a country must demonstrate compliance with its emission reduction target by holding as many, or more, AAUs, CERs, ERUs and RMUs as its actual tonnes of CO2e emissions during the period 2008–2012.

Markets for carbon and potential of forestry offsets

17

need to undertake measures to reduce their domestic emissions unless they are in surplus and in a position to sell allowances. Countries have policy choices ranging from the introduction of mandatory requirements for power generation by renewable energy, and the subsidization of renewable energy, to the introduction of a carbon tax or mandatory cap and trade schemes. All countries are interested in adopting policy approaches that do least damage to their economies and this is where carbon taxes and cap and trade have an advantage over trying to ‘pick winners’ and subsidizing them. The effect of caps on industry is to raise costs, albeit to lower levels if trade is allowed between scheme participants. The price on allowances to emit CO2e automatically makes energy sources and goods and services that are not carbon intensive more competitive. The imposition of caps on emissions by industry is a mechanism that has already been successful in controlling the level of damaging pollutants in the US, but there are no caps on greenhouse emissions in that country at the time of writing. The largest regulatory cap and trade scheme by far is the EU Emission Trading Scheme (ETS) launched in 2005. It is estimated that under the EU ETS, 2 billion tonnes of CO2e allowances changed hands, worth US$50 billion in 2007 (Capoor and Ambrosi, 2008). But while EU member countries can trade allowances with one another, and they may buy and sell CERs generated under JI or CDM projects, forestry credits cannot be generated by entities within the EU. Box 1.3 summarizes the mechanism for in-country cap and trade. There is a strong case for linking country cap and trade schemes internationally. The more participants, the greater the spread of marginal costs of abatement and the greater the gains through trade. And the deeper the market, the better its price formation. Cap and trade systems can raise money for government if emission allowances are auctioned. Their weakness, compared with a tax, is that political pressure is inevitably applied by industry facing caps. This results in permits being allocated or ‘grandfathered’ without cost to emitters. This was the case in the EU ETS where most allowances to industry at the outset were allocated rather than auctioned. Moreover, due to misreporting by industry and EU members of emissions levels, the emissions allowances were only slightly less than business-as-usual levels, causing the price of allowances to collapse. The same problem has appeared in the Regional Greenhouse Gas Initiative (RGGI) in the US, whose cap is 188 million tonnes of CO2e, but whose emissions in 2007 were only 164 million tonnes. This over-allocation resulted in a price of only US$3.07 per short ton of CO2e on 29 September 2008 (Evolution Markets, 2008).

18

Carbon sinks and climate change

BOX 1.3

CAP AND TRADE IN-COUNTRY

Under a cap and trade scheme emitters are allocated or purchase a quantity of emission allowances, an allowance being one tonne of CO2e. Emitters may then face progressive reductions over time in their allowances designed to achieve national greenhouse gas targets. The cap and trade scheme may be global, applying to nations involved in a global cap and trade scheme, for example to the industrialized Annex B countries under the Kyoto Protocol, or it may apply to companies under a mandatory cap and trade scheme within a country. The principles remain the same, whatever the boundaries of the scheme. A country that faces high cost of abatement has the option of purchasing emission allowances (AAUs) from a country that has low-cost abatement. Likewise a firm within a country that is part of a national cap and trade scheme also has the option of abatement or purchase. Each country will have different level of AAUs at the end of the period, depending on purchases and sales. Holdings of Kyoto Units from project activities are also counted along with AAUs towards overall emissions reduction and are reflected in the bottom line of the country’s carbon accounts. Reductions in AAUs below a cap can be banked against future requirements. New Zealand in 2007 enacted a national cap and trade scheme. A new government, elected in 2008, suspended the scheme and will be introducing a modified approach in late-2009 (Point Carbon, 2008). Nevertheless, the enacted scheme is summarized in Box 1.4, as it demonstrates the integration of a country scheme with global markets. The few emission cap and trade schemes in place in other countries are run by individual states or groups of states. The United States Congress refused to ratify the Kyoto Protocol and there is no national scheme to cut emissions. A cap and trade scheme passed by the House in June 2009 goes before the Senate in September, however. A regulatory scheme that allows forestry offsets is the Greenhouse Gas Reduction Scheme of the State of New South Wales. The RGGI of 10 eastern US states will cap emissions after 2009 and will include forestry. California will cap emissions after 2009 and already has a Climate Change Registry that includes forestry protocols. A new government in Australia is committed to introducing a national cap and trade scheme in 2011.

Markets for carbon and potential of forestry offsets

19

BOX 1.4 NEW ZEALAND’S CAP AND TRADE SCHEME Participants are required to hold one NZU (equal to an AAU) or a Kyoto unit2 to cover each metric tonne of CO2e emitted within the compliance period. Allowing international trading means scheme participants can buy or sell emission units without causing a significant movement in their price. Integration with global carbon markets also means that emission prices in New Zealand align with international prices. This, in turn, helps to ensure that the level of price exposure in the New Zealand economy is not too far ahead of, or too far behind, prices determined by international efforts to reduce greenhouse gas emissions. The support of the Kyoto Protocol mechanisms such as the Clean Development Mechanism, a tool for reducing greenhouse gas emissions and assisting sustainable development in developing countries, gives New Zealand businesses access to leastcost ways to reduce emissions overseas. This has the effect of limiting the cost to companies of reducing emissions. The Ministry of Economic Development administers the emissions trading and the electronic New Zealand Emissions Unit Register which records: ● ● ●

1.4

the holders of emission units and the amount of emission units held; transfers of emission units between holders; the surrender of emission units by participants in order to meet their obligations under the emissions trading scheme (Ministry for the Environment, 2008).

OPERATIONAL CAP AND TRADE AND THE BENEFIT OF OFFSETS

Offsets may be included in cap and trade schemes at both the global and national levels. An offset is a project initiated by a country or a company that will decrease emissions in another location or jurisdiction. Offsets encompass a range of projects, including the substitution of low emission fuels, the introduction of renewable energy to replace electricity from coal

20

Carbon sinks and climate change Firm A

Purchases 15

Firm B

Sales 15

Final 50 Final 110

Abatement 35

Offset 5 Note: Trade is between an emitter with high cost of abatement and an emitter with a low cost of abatement under a mandatory cap and trade scheme with offsets. The two firms each emit 100 units, but the total of allowances issued is 160 units. After abatement, trading and offsetting, the two firms hold 160 allowances and so comply with the 20% cut at the lowest possible cost.

Figure 1.2

A two-firm model of trade in CO2e emission allowances

fired power stations and the sequestration of carbon by afforestation or reforestation. The emissions offset, by reduction or capture, can be claimed by the project initiator, be it country or company, against its allowances. The motivation for undertaking projects by governments or companies is the desire to reduce the cost of compliance where offsetting a tonne of CO2e is cheaper than abatement. Under the Kyoto Protocol’s CDM the motivation can also be to capture co-benefits such as sustainable development in the country in which the offset project is initiated. A representation of the hypothetical trade in allowances between two firms and the use of offsets is shown in Figure 1.2, demonstrating how the firms make decisions that result in their compliance with the overall cap. Table 1.2 shows the financial results of the same trade between the same two firms, A and B. Each firm saves money by trading allowances or purchasing offsets. Each has an obligation to meet the requirement at the end of the compliance period. A has a marginal cost of abatement of $10 per unit of reduction of CO2e but, instead of abating 20 allowances, purchases additional allowances from B and also purchases offsets at a relatively low cost. B

Markets for carbon and potential of forestry offsets

Table 1.2

21

A two-firm model of trade in allowances

A. High Cost of Abatement ● Allowances at start 100 ● Must purchase, offset or abate 5 or > 20 allowances ● Marginal cost of abatement $10 per allowance ● Limit to offsets 5 allowances ● Fine for purchases plus offsets < 20 is $20 per allowance < 20 Record of emission trading and change in allowances for A Number 1 2 3 4 5 6 7 8 9

Allowances start Allowances purchased from B Allowances offset Allowances abated Allowances traded Fine (20 2 (15 1 5))*20 Total costa Allowances finish 100 1 15 2 5 Total cost without tradea

100 15 5 0 20 – – 110 20

Price $ per allowance – 27.50 26.50 0 27.25 – – – 210.00

$ cost – 2112.50 232.5 0 2145 0 2145 – 2200

B.

Low Cost of Abatement Allowances at start 100 ● Must abate (less allowances sold) 5 or > 20 allowances ● Marginal cost of abatement is $5 per allowance for first 30 allowances, and $7.50 thereafter ● Fine for abatement less sales 5cm, in six 10m2 randomized plots in the plantation was recorded. The allometric equation 1.896712.3698 (lnDBH) (source: Snowdon et al., 2000: Table 1.14) was applied to the DBH measurements to find the biomass in trees and plots and the biomass per hectare for each plot. Carbon ha21 5 0.5 × biomass ha21, as reported in Table A5.1. The formula applied to find the optimum number of plots to be randomly sampled is: n 5 (N 3 s)2/ ((N 2 3 E 2/t2) 1 (N 3 s2))

(5.1)

where: n 5 the number of sampling units or plots; E 5 the desired confidence interval (0.1 for 10 percent interval); t 5 the sample statistic from the t-distribution for the 95 percent confidence level (set at 2 for an unknown sample size); N 5 number of sampling units for the stratum, which is area of the stratum divided by the area of the plots; s 5 standard deviation in stratum (Pearson et al., 2005: 16). The area of the plantation is 10 hectares. The size of plots is 0.01 hectares. The standard deviation of the carbon per hectares in sample plots (from Table A5.1) is 29.69. Inserting this data in equation (5.1) gives n 5 5: that is, 5 plots are

Table A5.1

Carbon per hectare by measurement in six sampled plots

Plot number

C t–1 ha

1 2 3 4 5 6

90.57 89.38 56.07 132.48 52.32 99.70

Source:

Author’s own data.

Measuring the carbon in forest sinks

143

required to be randomly sampled in this plantation to provide an estimate of the carbon in the whole plantation with a confidence level of 95 percent and with a confidence limit of 10 percent.

6.

Forests as a source of biofuels

For thousands of years wood has been a major energy source. But in developed countries fossil fuels have become dominant, with renewables making up only 3.9 percent of all fuels in terms of oil equivalents in 2007 (International Energy Agency, personal communication, 2008). In contrast, in many developing countries wood remains the predominant household fuel for cooking and heating. Of the renewables, wood is second only to hydropower in importance globally (see Table 6.1). One of the ways that biomass, provided by plants or forests, can contribute to tackling climate change is as a source of liquid fuel to replace fossil fuels used in transport. Before undertaking an investigation of what might be the specific future role for forests in providing renewable energy, it is necessary to examine in some depth the global trends in overall biofuel production, presently dominated by annual crops. Biofuels cost more than other forms of renewable energy but they are the only form that can address the challenges of the transport sector, including its almost complete reliance on oil and the fact that greenhouse reductions in this sector are difficult to obtain. Both the US and the EU have announced policies designed to greatly increase the contribution that biofuels20 make to the energy requirements of transport, summarized in Box 6.1. Biofuels require large subsidies to be competitive. Governmentsupported policies could lead to an increase in the share of biofuels in global transport from 1 percent to 6 percent in 2020 (World Bank, 2008a: 2). The willingness of governments to support biofuel production has four main drivers: First, industrial nations, as typified by the US and EU members, are heavily reliant on imports of crude oil to fuel their large transport sectors. This makes their economies vulnerable to supply shortages caused by the depletion of global oil reserves or by political instability in oil-rich regions. Second, the biofuels are expected to effect a saving in greenhouse gases, which is an important criterion given that all major countries except the US have ratified the Kyoto Protocol and are committed to reducing their emissions during 2008–2012 and beyond.

144

Forests as a source of biofuels

Table 6.1

World renewable energy consumption Quadrillion BTU

Biomass Biofuels Waste Wood derived fuels Geothermal energy Hydroelectric conventional Solar/Photovoltaic energy Wind energy Total Source:

145

3.277 0.758 0.404 2.114 0.349 2.89 0.07 0.258 6.844

Change 2006/2005 (%) 6.2 27.6 0.3 20.1 1.8 6.9 6.5 45.1 6.9

Energy Information Administration (2007: Table 1).

Third, the volatility of feedstock prices and energy input prices. Fourth, biofuel-supporting policies will boost rural net farm incomes and employment opportunities in regional areas.

6.1

TYPES OF BIOFUELS

The most common type of biofuel is bioethanol, made by fermentation and distillation of sugar and starch. No engine modifications are needed in cars for blends of petrol and 10 percent ethanol. In the US the main feedstock is corn, in the EU sugar beet, feed wheat and barley, while in Brazil it is sugarcane. While biodiesel makes up only 5 percent of biofuel production it is important in Europe where diesel is in increasingly short supply and where increasing the diesel/gasoline ratio is costly for refineries. Biodiesel is made mainly from rapeseed in Europe and soybeans in the US. Figures 6.1a and 6.1b show the regional sources of ethanol and biodiesel production in 2006. The above biofuels are conventional or first generation types. The socalled second generation biofuels are made from any kind of biomass, including for example forest or crop residues, which are generally cheaper sources than dedicated energy crops. The principal advantage of second generation biofuels is the saving on fossil fuels in their production. The substitution of corn ethanol for fossil fuels requires, on average, 19 percent less fossil fuels than burning gasoline.21 In contrast, using ethanol from cellulose, such as straw and hybrid poplar, substitutes

146

Carbon sinks and climate change

BOX 6.1

US AND EU TARGETS FOR BIOFUELS

The President’s 2007 State of the Union Address (Bush, 2007) urged Congress to agree to increase the supply of renewable and alternative fuels by setting a mandatory Renewable Fuels Standard requiring 35 billion gallons of renewable and alternative fuels in 2017. This was nearly five times the 2012 target already in law. The Energy Independence and Security Act of 2007 already required 36 billion gallons of renewable fuel by 2022. In 2017, the President’s plan would displace 15 percent of projected annual gasoline use. A 10 percent substitution of petrol and diesel is estimated to require 43 percent of current cropland area of the US (International Energy Agency, 2004). It has been estimated (Perlack et al., 2005; US Department of Energy, 2008a) that there will be sufficient biofuel feedstock to meet the projected demand from several sources: ● ● ●

Crop residues, presently unused; Grains, mainly through large increases in yield; Perennial crops (grasses and trees) on cropland, idle cropland and cropland pasture.

In the case of Europe, the European Council has agreed to a target of 20 percent share of renewable energies in overall European Community fuel consumption by transport in 2020. The specific target for biofuels is 10 percent of total fuel consumption by transport by 2020. The target is conditional on the production being sustainable and second-generation biofuels (those using cellulosic sources) becoming commercially available. However, this rate of substitution will require 38 percent of current cropland in the EU (International Energy Agency, 2004). The growth in the EU will be in bioethanol and biodiesel. Domestically grown cereals and tropical sugarcane would be the main ethanol feedstocks, complemented later by cellulosic ethanol from straw and wastes. Rapeseed oil, both domestically grown and imported, projected to remain the main biodiesel feedstock, complemented by smaller quantities of soy and palm oil and later by second-generation biofuels, mostly from farmed wood (Commission of the European Communities, 2007).

Forests as a source of biofuels

147

European Union 4%

Other 8%

United States 46% Brazil 42%

140 billion liters Source:

F.O. Licht Consulting Company (2007) cited by the World Bank (2008b).

Figure 6.1a

Ethanol production by region, 2006

Other 12% United States 13%

European Union 75%

6.5 billion liters Source:

F.O. Licht Consulting Company (2007), cited by The World Bank (2008b).

Figure 6.1b

Biodiesel production by region, 2006

for 92 percent of gasoline energy, according to Wang et al. (2007: Figure 11). Another advantage is the possibility of using waste biomass to generate the heat necessary for the second generation thermochemical production process.

148

Carbon sinks and climate change

A disadvantage of second generation processes is that the investment costs in plant are high. In Europe the cost of producing biodiesel is $155 per barrel and second generation production $235 per barrel (Edwards, 2008). Moreover the large-scale plants may face difficulties with supply and transport cost of materials. However, recent research results suggest that costs could fall in the future. The next sections highlight the large rise in biofuel production in recent years and how research promises expanded production and lower costs.

6.2

THE RISING TIDE OF BIOFUELS

The sustained rise in world oil prices has made renewable energy more cost-competitive. Previous oil price increases have tended to spike but then subside without having provided sufficient stimulus for large-scale private and public capital investments in plant and equipment for the production of biofuels. The rise in oil prices and the attendant increase in the production of biofuels from 1999 to 2006 are illustrated in Figure 6.2. The higher oil prices coincided with maturing technology for the production of biofuels. The increase in world biofuel production in 2006 over 2005 was 27.6 percent (Table 6.1). While in the short term, prices may continue to fluctuate, in the long term they are likely to do so around a higher average price. In the US in 2001 the discovery that methyl tertiary butyl ether (used 40000

30000 25000

Other liquid biofuels Biodiesel Biogasoline Oil price

60 50 40

20000 30

15000

20

10000

Oil price, US$ per barrel

Biofuels production, Kt

35000

70

10

5000 0

0 1999 2000 2001 2002 2003 2004 2005 2006

Sources:

International Energy Agency, personal communication, 2008; BP (2008).

Figure 6.2

World biofuels production, 2000–2006, and West Texas Intermediate oil spot price

Forests as a source of biofuels

149

as an additive in reformulated gasoline) was polluting groundwater led several states to ban its use, which led to its replacement by ethanol. The 2005 Energy Policy Act established a renewable fuel standard that increased the mandated use of renewable ‘efuels’ including ethanol and biodiesel from 4 billion gallons in 2005 to 7.5 billion gallons in 2012. By the end of 2006 fuel ethanol use in the US had already reached almost 5 million gallons, far exceeding the mandate in the Act. President Bush’s 35 billion gallon Renewable Fuels Standard will further increase present production by a factor of five by 2022. In 2000 US biodiesel production was 2 million gallons; anticipated production by 2010 as a result of policies adopted is 680 million gallons. The increase in biofuel production in the US, the EU and most other producing countries has been driven by subsidies and mandates. In all there are about 200 support measures that cost between $5.5 billion and $7.5 billion a year in the US and reflect the support of $0.38 to $0.49 per liter of petroleum equivalent for biofuels (World Bank, 2008a: 2). The EU has a specific tariff of €0.192 per liter of ethanol and an ad valorem duty of 6.5 percent on biodiesel. Member states can also exempt excise taxes on biofuels. A common policy tool is to mandate the blending of biofuels with fossil fuels. Brazil goes beyond all other countries with a blending requirement of 25 percent of ethanol. In addition there are tax incentives favoring ethanol and for the purchase of vehicles that run on blends or pure ethanol. In the longer term the development of second generation biofuels using existing cellulosic feedstocks is said to be capable of producing 30 percent of current fuel needs by 2030. The impact on regional America by widely dispersed production and ownership of the new industrial infrastructure will be profound. This growth is said to represent an ‘[H]istoric opportunity for wealth creation in rural communities, both in the US and around the world’ (Dorr, 2008: 1). 6.2.1

Commercialization of New Technology

Acceleration of the commercialization of new technology is by tax breaks incentives and tariffs. The US provides a $0.51 per gallon tax refund for blenders of ethanol and $1.00 per gallon for biodiesel from vegetable oil. Federal incentives are also provided for small biofuel plants. Domestic industries are commonly protected by tariffs on ethanol imports, which in the US are 25 percent, and up to 45 percent in the EU. Given the potential for second generation cellulosic ethanol, sourced from wood chips, wood waste and residues to raise yield dramatically, many other countries are subsidizing its commercial application (Coyle, 2007). Recent scientific breakthroughs suggest that the present high costs will

150

Sources:

Carbon sinks and climate change

Image courtesy of the University of Georgia Research Foundation.

Figure 6.3

Wood pellets used to make biofuel

be reduced for the production of second generation fuels. The derivation of oils from wood has long been possible but the inexpensive processing of the oil for use in engines has not. A team of researchers at the University of Georgia developed a new process that treats the oil so that it can be used in unmodified diesel engines or blended with biodiesel or conventional diesel. Wood pellets are heated in the absence of oxygen to produce charcoal and gas (pyrolysis); (see Figure 6.3). The gas is condensed and chemically treated. Research is underway to increase the fraction of oil derived from wood (Garcia-Perez et al. 2007). Another team of researchers at the University of MassachusettsAmherst, also using the pyrolysis method, have been able to directly convert plant cellulose to a liquid that can be used in gasoline engines on the road now or that can be blended. The feedstock is any woody biomass, such as the inedible portion of food crops and wood from trees (The Scientist Community, 2008). The inroads into the crude oil market by bioethanol and biodiesel from first generation plants are presently minor, and limits to land that can be switched to biofuels without large impacts on food prices are already approaching. The need for scientific breakthroughs and commercialization of new processes that increase the range of feedstocks that can be used in the commercial production of biofuels, is illustrated by the large gap between a business-as-usual scenario and President Bush’s target of ‘20 in 10’. If 30 percent of the corn crop is devoted to bioethanol in 2017 (27 percent in 2007) it will produce 12 billion gallons. If 23 percent of the soy

Forests as a source of biofuels

151

40

Billions of gallons

35 30 25 Deficit

20 15 10 5 0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Deficit Biodiesel Corn ethanol

0

22.3

0.5

0.7

9

12

Note: Cellulosic sources, for example crop wastes and forests, are expected to contribute to reducing the projected deficit in achieving President Bush’s goal of producing 35 billion gallons of biofuels by 2017. Source:

Collins (2008).

Figure 6.4

US production of biofuels in 2007 and projected for 2017

crop is devoted to biodiesel in 2017 (17 percent in 2007) it will produce 700 million gallons (Collins, 2007). These combined will still leave a deficit of 22 billion gallons to be met from sources other than grains, as illustrated in Figure 6.4. The Energy Independence and Security Act of 2007 requires 21 of the 35 billion gallon target to come from ‘advanced fuels’ or second generation biofuels from non-edible plant sources. These sources include crop residues, perennial crops, forest fuel treatment and logging residues, and animal manures (Perlack et al., 2005). While the developments on the technical side of biofuels production may be exciting, there needs to be a countervailing examination of the social costs of large biofuel increases.

6.3

THE SOCIAL COSTS OF INCREASES IN BIOFUEL PRODUCTION

High food prices led to violent riots in 21 countries and non-violent riots in 44 countries according to the International Food Policy Research Institute

Carbon sinks and climate change

Commodity food price index, 2005 = 100

152 200 180 160 140 120 100 80 60 40 20 0

2000- 2001- 2002- 2003- 2004 2005- 2006- 2007- 2008Jan Jan Jan Jan Jan Jan Jan Jan Jan

Source:

IMF (2008).

Figure 6.5

World food prices

(IFPRI) (von Braun, 2008). Figure 6.5 charts the IMF’s commodity food price index since 2000. The World Bank has highlighted the problem of rising food prices: ‘Based on a very rough analysis, we estimate that a doubling of food prices over the last three years could potentially push 100 million people in low-income countries deeper into poverty’ (Zoellick, 2008). Some authorities are in denial about the role of biofuels as a major driver of the increase in food prices (US Department of Energy, 2008a). But the analysis of many authoritative commentators has laid much of the blame at the door of subsidized biofuels production using food grains and oilseeds. The IFPRI, for example, estimated that the biofuel demand increase between 2000 and 2007 accounted for 30 percent of the increase in weighted average grain prices. Mitchell (2008: 17) estimates that 70 to 75 percent of the increase in food commodity prices between June 2002 and 2008 to be due to biofuel production, together with the related consequences of large land-use shifts, speculative activity and export bans. Mitchell (2008) suggests that the increase in land area devoted to maize and oilseeds for biofuels prevented an expansion of wheat production that would have alleviated the declines in wheat stocks and the resulting rise in wheat prices. The large increase in the price of rice was largely a response to the rise in wheat price rather than to a change in rice production or stocks. To contain domestic price increases caused by the switch to biofuel production, many countries placed bans or restrictions on grain exports, which further forced up grain prices. Without the subsidization, mandates and tariffs of the US and the EU,

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153

biofuel production would have been lower and food commodity prices increases smaller. The balance of the price increase can be explained by a combination of higher energy prices and the related increases in fertilizer prices and transport costs, as well as the weakness of the US dollar. Brazilian ethanol production is at a much lower cost than in the US and EU and its increase has not raised sugar prices because sugarcane production has grown fast enough to meet the demand for sugar and ethanol. Removing the tariffs in the US and EU would enable Brazil and many African countries to produce ethanol profitably for export (Mitchell, 2008). The chapter continues to review the costs and benefits of biofuels by considering the climate change implications of increases in global biofuel production, including from forests.

6.4 IS GREENHOUSE GAS ABATEMENT ACHIEVED BY BIOFUELS? A major benefit claimed for the replacement of fossil fuels by biofuels is their potential to reduce (GHG) emissions. This claim needs to be subject to rigorous analysis because GHG savings depend on whether a simple life-cycle approach is taken to their estimation or a wider approach that recognizes the fact that the markets for biofuels are global. This analysis divides GHG emissions from biofuels into direct: the savings incurred by replacing fossil fuels by growing and processing crops to deliver biofuels at the pump in the US and EU, and indirect: the impacts on GHG emissions elsewhere of US and EU biofuels policies. A comprehensive analysis by Wang et al. (2007) in the case of corn ethanol in the US shows that GHG savings are profoundly influenced by the method of production and in particular by how the process is fuelled. If the plant is fired by coal then there is net increase in emissions compared with gasoline. Using natural gas together with by-products such as distillers’ grains or wood chips as fuel sources reduces emissions compared to gasoline by 40 to 50 percent. The current average GHG reduction in corn ethanol plants is 19 percent (Wang et al., 2007: Figure 11). Wang et al. (2007) conclude that the methods that are economical with respect to GHGs and energy should be identified and promoted. They suggest that the use of cellulosic feedstock in second generation plants, which cut emissions by 86 percent, may in fact represent the long-term sustainable ethanol pathway (Wang et al., 2007: Figure 11). In the EU the direct savings in GHGs by growing biofuels are positive and similar in dimension to those in the US; savings of 20 to 35 percent are

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Carbon sinks and climate change

achieved by conventional means. Using dried distillers’ grains as a supplement to combined heat and power energy source raises the savings to 50 percent compared with gasoline. Biodiesel savings of GHGs are higher, at between 50 and 60 percent (Joint Research Centre, 2008: Appendix 1). Nitrous oxide from the cultivated soils in growing feedstock for biodiesel in the EU is a major contributor to GHGs. The variation from field to field can be 100 times, depending on soils’ organic matter content. This means that the error range of the above estimates of GHG savings of biofuels from crops is wide. As in the case of the US, the use of cellulosic feedstock (in the form of straw) stands out, with a saving of about 70 percent. Given that capital is always a limiting factor, a way of looking at the effectiveness of biofuels in reducing direct GHG emissions is to examine the cost per tonne of carbon dioxide equivalent (CO2e) emissions avoided. Edwards (2008) shows that biofuels are a very expensive avoidance mechanism with costs of conventional bioethanol at €200–300 per tonne of CO2e at best and biodiesel at €175. The cost of avoidance by producing liquid fuels from wood is €250 per tonne of CO2e, while second generation processes using ethanol from straw are only slightly cheaper. Costs of all methods were well above the EU trading price for a tonne of CO2e of around €20. Land is also a limiting factor in biofuels production. Edwards (2008) shows that using wood directly for electricity production is about equal to the savings by processing the wood to liquid fuel and superior to biofuels from annual crops. However, such a use of wood does not solve the problem of the need to replace liquid fossil fuels. The above analysis concerns direct savings of GHGs; the total savings are more likely to be negative if indirect savings are included, as the next sections illustrate. 6.4.1

Globalization, Biofuels and GHGs

The major feedstocks of biofuels are maize in the United States and rapeseed in the EU. All grains and oilseeds (or cooking oil) are storable and easily transported, and the large global market has been traditionally supplied by EU and US exporters. The other characteristic of the market is the ready substitution that takes place between grains and oilseeds. If one of the major export crops such as maize is scarce and rises in price then more of the close substitutes such as wheat and rice will be used and their price may also rise triggering increases in supplies. Steady productivity gains have tended to keep grain prices low, even in the face of an increase in world population. The key to understanding the social and environmental impacts of an increase in subsidies for biofuels production from annual crops in the US

Forests as a source of biofuels

Table 6.2

155

Impacts of subsidizing biofuels production in the US and EU

Market Impacts

Social, GHG and Environmental Impacts

Subsidies in the US and EU raise the price of corn and rapeseed oil and divert production to biofuels

r A change in land use with more land devoted to maize for ethanol in the US and to rapeseed for biodiesel in the EU

p

Direct impacts

r A reduction in the amount of maize and rapeseed oil entering global food markets

r A rise in the global prices of grains and cooking oils

r A change in land use in other countries with an increase in the land area producing grains and cooking oils to supply global markets

p

Indirect impacts

and EU is the recognition of the ‘knock-on’ effect of subsidies in the US and EU. Table 6.2 shows how markets are interconnected and how subsidies have direct and indirect social, GHG and environmental impacts. The social impacts of subsidization policies on other countries are difficult to escape given the well publicized food riots. But analysis of the environmental and GHG implications of biofuel subsidies has been mainly of the direct kind until recently. Two examples serve to underline land-use change impacts of biofuel subsidies, or indirect impacts. The first concerns deforestation in the Amazon Basin. The net returns to US farmers from corn increased from around $125 per acre to $325 per acre in 2007 (Collins, 2007). This prompted an increase in US corn production but a fall in soybean production in 2007 of 19 percent and a consequent price rise of soybeans of 38 percent in 2007, over the 2006 price, and 84 percent over the 2005 price (US Department of Agriculture National Agricultural Statistical Service, 2008). The area deforested for cropland and the price of soybeans in the

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Carbon sinks and climate change

same year are highly correlated in the Brazilian Amazon (Morton et al., 2006). Deforestation rates and fire incidence increased sharply in 2007 in the main soybean-producing states in Amazonia (Laurance, 2007). The second example is of deforestation in Malaysia and Indonesia. The replacement of 10 percent of EU diesel consumption by biodiesel by 2020 would use 19 percent of world vegetable oils and cause an estimated price rise of 24 percent. A consequent increase in palm oil production will take place in Indonesia and Malaysia on forested lands and peat lands (Edwards, 2008). 6.4.2

Indirect GHG Impacts of Biofuels Policies

Given the global nature of the market for agricultural commodities, global agricultural models are required to measure the indirect GHG implications of biofuels. The results of selected models are now reviewed. A study of impacts of US corn-based ethanol production found that, instead of generating 20 percent savings in GHG emissions, it nearly doubles them over a 30-year period. Forest and grassland conversion that released large quantities of GHGs was accelerated by the higher crop prices. Brazilian sugarcane ethanol is credited with high direct savings of GHGs because bagasse, the waste product of crushing, is used to fuel the process. Nevertheless, GHGs will increase if Brazilian ranchers displaced by sugarcane convert more forest to pasture (Searchinger et al., 2008). Another global study by Fargione et al. (2008) showed how carbon debts were incurred by the clearing of rainforests, peatlands, savannahs or grasslands to produce biofuel crops in Brazil, south-east Asia and the US. The CO2e releases were 17 to 240 times more than the annual reductions that these biofuels would provide by displacing fossil fuels. Edwards (2008) concluded that emissions from the production of palm oil induced by the EU’s biofuels policy can negate all of the EU’s GHG reductions from biofuels. 6.4.3

Second Thoughts on Biofuel Policies

In reviewing whether EU biofuels policy would achieve its objectives, the Joint Research Commission (2008) of the European Commission came to the following conclusions: ●

Security of supply: Fossil fuels are required in the production of many types of biofuels, lessening the GHG benefits. Biomass is much better used for the generation of heat and electricity than biofuels.

Forests as a source of biofuels ●

●

●

157

Greenhouse gases: Indirect effects make it impossible to be certain that GHG reductions would be achieved. Employment: Rural employment will benefit but taxation needed to generate subsidies will cause job losses elsewhere. Economic benefits and costs: Even with the most favorable combination of assumptions the economic costs of biofuels far exceed their benefits.

The World Bank (2008b), in joining the debate, called for a return to a level playing field for biofuels given that the dependence on subsidies distorts market behavior and hides real costs. However, the US Department of Energy (2008b) disagreed that ethanol pollutes more than gasoline and that rainforests will be destroyed for biofuels. Moreover, the US Agricultural Secretary denied that ethanol is having a major impact on food prices and downplayed calls to make changes to biofuel programs (Reuters, 2008). Thus the US looks set to maintain its policy of tariff protection and heavy subsidies for biofuels unless the administration of President Obama has a different view. Europe has maintained its overall policy of increasing the contribution of renewable energy. However, the European Parliament (2008) made some major modifications to targets that acknowledged the social costs and GHG uncertainties of renewables. Ten percent of road transport fuels must come from renewable sources by 2020, but 40 percent of this must come from more sustainable sources, including second generation biofuels, than from traditional biofuels. In 2015 the target is 5 percent of road transport fuel from renewable sources and 1 percent from sources that do not compete with food production. In addition, transport biofuels must save at least 45 percent of greenhouse gases compared with fossil fuels; from 2015 the saving must be 60 percent. Many countries had already had second thoughts on the benefits of their biofuels programs. Australia, Britain, France, Germany, the Netherlands and Switzerland, as well as Quebec, had removed or are revising incentives for farmers, biofuel refiners and distributors (New York Times, 2008). Given the perverse incentives associated with the subsidization of biofuels that are produced mainly by annual crops, our examination now turns to the scale of the contribution that forests could and should make to the generation of transport fuels, presently and in the future.

158

6.5

Carbon sinks and climate change

A ROLE FOR FORESTS IN THE PROVISION OF BIOFUELS?

Wood is already an important source of renewable energy worldwide (Table 6.1); its main contribution is to thermal energy via furnaces. About half the renewable energy of the US is sourced from biomass, and twothirds of this comes indirectly from forests in the form of residues in the pulping and forest products industries but also directly from fuelwood. In Europe about 42 percent of total wood volumes available are used for energy generation. 6.5.1

Use of Forest Residues

When derived from residues, biofuels do not compete with food crops. Their growing does not use large inputs of fossil fuels, and biomass wastes are often used to generate the heat for processing. On the other hand, if the biofuels are made from plantation forests then there is competition with food crops for land and water, and there may well be net GHG emissions if the plantations replace grassland. Wood’s potential for conversion to liquid transportation fuels is the subject of a great amount of research and development. This is being driven in the US by the realization that production from corn-based ethanol is likely to peak at 12 billion gallons (Collins, 2007), leaving a gap of some 22 billion gallons from other sources to meet President Bush’s target of 35 billion gallons by 2017, as illustrated in Figure 6.4 One ton of forest waste can be converted to 75 to 85 gallons of ethanol fuel (Perlack et al., 2005); 231 million tons of this is already being exploited, leaving 137 million tons available mainly from improved fire treatment, logging residues and urban wood residues, which could contribute some 10 billion gallons of ethanol fuel (see Figure 6.6). This would be produced by fermentation or by gasification. For every BTU of gasoline that is replaced by cellulosic alcohol, total life cycle GHG emissions would be reduced by 90.9 percent. Figure 6.7 compares the GHG savings of different fuels according to the US Environmental Protection Agency (2007). The Perlack et al. (2005) calculation of the contribution of forests excludes all protected, wilderness and roadless areas, steep slopes, environmentally sensitive areas and areas where regeneration would be difficult. The calculation excluded the potential contribution of short rotation energy crops using rapidly growing species such as alder, cottonwood, hybrid poplar, sweetgum, sycamore, willow and pine. An increase in biomass from agriculture and conversion of idle land, Conservation

Forests as a source of biofuels

Million dry tonnes per year

Unexploited

Existing use

159

Growth

22

16

16

11

15

8

46 52

49 32

28 11

Fuel Logging treatment residue (timberland)

Source:

35

8 8

Urban Fuel Wood wood treatment residue residue (other forest (forest land) products)

9

Other removal residues

Pulping liquors (forest products)

Fuelwood

Perlack et al. (2005).

Figure 6.6

Potentially available biomass from forests in the US

Reserve Program (CRP) land and some cropland to perennials could amount to almost one billion tonnes of biomass. It is important to note that incentives in the form of tax credits, subsidies and price supports would be necessary to overcome a host of technical, market and cost barriers in achieving such targets. Even then, large-scale bioenergy and biorefinery industries are not expected to exist until around mid-century (Perlack et al., 2005), that is, much later than the target date of 2017 set by President Bush. The European situation with respect to the potential of wood as a biofuel is somewhat different from that in the US, given the relative scarcity of land, the demand for wood by industry, together with the high demand for fuel for energy and heat generation. By the time second generation plants come on line that can process wood in around 2020, the more accessible EU wood will already have been dedicated to local district heating/electricity plants. Only the most remote and expensive sources will be available for processing to liquid fuel. However, second generation plants must be large-scale if they are to become commercial. They will probably be located at ports where they can gather enough material and also access imports which will be cheaper than domestic sources given the competition for feedstock with the domestic heating/electricity generation sector (Joint Research Centre, 2008).

160

Carbon sinks and climate change Coal to liquid w/o carbon C&Sa

118.5

Natural gas to liquid diesel

8.6

Liquid hydrogen Coal to liquid w/ carbon C&S

6.5

a

3.7 –8.5

Methanol Liquefied petroleum gas

–19.9

Corn ethanol (average)b

–21.8 –22.6

Liquefied natural gas

–28.5

Compressed natural gas Gaseous hydrogen

–41.4

Electricity

–46.8

Sugar ethanol Biodiesel Cellulosic ethanolc –150

–56 –67.7 –90.9 –100

–50

0

50

100

150

Percentage change in GHG emissions

Notes: a C&S 5 carbon capture and sequestration. b Natural gas is the primary fuel source. c Average of mix of fermentation and gasification processes and of hybrid poplar, switchgrass and corn stover feedstocks. Source:

US Environmental Protection Agency (2007: 2).

Figure 6.7

6.5.2

Percentage change in GHG emissions by displacing petroleum fuel on an energy equivalent basis

Growing New Forests for Biofuels

Analysis by the author suggests that unharvested plantations are much more effective in saving GHG emissions over a 34-year period than if they are harvested for ethanol production. Using the carbon sequestration model of the Australian Government (2007) the comparison was made between the amount of CO2 removed from the atmosphere by a hectare of hoop pine (Araucaria cunninghamii) grown in north Queensland and the carbon dioxide savings of a plantation that was clear felled, with the resulting biomass being used for ethanol production. Forest thinnings prior to harvest were also used for ethanol production. Ethanol is derived from wood at a rate of 313 to 355 liters of ethanol per tonne of biomass (Perlack et al, 2005; Malmsheimer et al., 2008). Ethanol derived from wood is assumed to emit 90.9 percent less CO2e

Forests as a source of biofuels

161

than the gasoline that it replaces, which produces 2.3kg of CO2e per liter burned. Both types of forest, the unharvested and the harvested, remove CO2e from the atmosphere and sequester it as carbon in biomass. When the forest is thinned and harvested it gives up a portion of its sequestered carbon for conversion to ethanol. Discounting the future savings in CO2 emissions at 2 percent gave a result more than 2 to 1 in favor of leaving the plantation unharvested rather than harvesting it for ethanol. It should be emphasized that this simple analysis ignores the life-cycle emissions involved in the growing and harvesting of the trees, and in the transport of ethanol and gasoline and the production of gasoline. However, it is unlikely that the inclusion of these extra emissions, on both sides of the ledger, would alter the conclusion. A similar result was obtained by Johnson and Heinen (2007) in comparing the GHG implications of growing trees or growing rapeseed for biodiesel. Replacing biodiesel with petroleum diesel and devoting the land to forest was twice as effective, in terms of reducing GHG emissions, as producing biodiesel to replace petroleum diesel. Despite the likelihood that the GHG benefits of carbon sequestration exceed those of bioethanol production, both the US and Europe are bent on policies that will require substantial sources of cellulosic biomass in order to meet their targets for biofuel replacement of petroleum-based fuels. In the US much of this is expected to come from unexploited available sources, better use of residues and perennial and fast-growing trees in short rotation such as hybrid poplar and willow (Geyer and Melichar, 1986; De La Torre Ugarte et al., 2003). Residues require no land-use change and come at a low financial cost, while fast-growing tree plantations deliver cellulose with far less fossil fuel use than annual crops (Wang et al., 2007). If the price is high enough for biomass, land will be switched out of crop, pasture and the CRP to the growing of herbaceous species such as switchgrass and short rotation forests for cellulosic ethanol production (De La Torre Ugarte et al., 2003). At a price around $30 per dry ton, bioenergy crops offer greater profits than existing land uses, and produce 8.51 billion gallons of ethanol, 8.2 million hectares of CRP lands being converted where sensitive lands are excluded. If the price for dry biomass rises to around $40 per dry ton, 16.7 billion gallons of ethanol would be forthcoming from land switched to cellulosic production, almost a third (12.9 million acres) being CRP land. Conventional crop prices rise under both scenarios. In contrast to the US, the contribution of forests in the EU is constrained and cellulosic biomass requirements are more likely to be imported, as concluded above.

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It should be emphasized that while marginal or degraded land in both the US and EU have been considered to be available for cellulosic biomass production, it is likely that yields will be low from such lands and production may well be uneconomic. Moreover, marginal lands may harbor considerable biodiversity and this should be considered when contemplating the benefits and costs of their conversion to short-rotation forest monocultures.

6.6

GLOBAL SCENARIOS IN BIOFUELS PRODUCTION

The OECD has forecast rising prices for agricultural commodity prices, particularly vegetable oils (OECD, 2008). While the world financial crisis of 2008 will slow demand for commodities in the near future, world economic growth will in time regain its former momentum. Given constraints on domestic supply, a likely scenario is that much of the developed world’s needs for vegetable oils for biodiesel and human consumption and for ethanol to replace petroleum fossil fuels will be outsourced. Production is likely to come from existing low-cost countries in south-east Asia and Brazil. The OECD (2008) expects palm oil production to increase by 40 percent by 2017, for example, and Brazilian sugarcane production to increase by 75 percent over the same period. This growth will entail the clearing of tropical forests and savannah lands unless drastic measures are taken to modify the economic drivers. Three measures to avert accelerating deforestation present themselves: First is the regulation of land-use change. This has high political risks for governments in the countries concerned, and is unlikely. Second is the payment of landholders for conserving carbon and preventing its release into the atmosphere. If the price of carbon is high enough, that is higher than present prices, then retaining the forests and savannahs becomes a viable option compared with conversion to croplands. Such an incentive scheme will be on the table for negotiation at the climate change conference in Copenhagen in late 2009. (The complexities of implementing such a scheme have been addressed in Chapters 1 and 2, and policy issues surrounding it are addressed in Chapter 8.) Third is the removal of distorting subsidies by the US and the EU for biofuels and instead focusing on other measures to reduce dependency on liquid fuels, such as fuel efficiency. The mounting criticisms of subsidy policies have paralleled the growing body of evidence of their negative environmental and GHG consequences. However, the twin problems for governments are the limit to fuel efficiency gains in

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163

transport and the lack of alternative sources for liquid transport fuels, other than biomass. A reduction in US and EU tariffs on biofuels, as advocated by the International Monetary Fund (2007), would need to be accompanied by a reduction in subsidies; otherwise an increase in land-use change would occur, particularly in Brazil and south-east Asia. It is likely that domestic policy settings will prove to be flexible, given the dynamic nature of world commodity markets and the need to accommodate international agreements to control global greenhouse gas emissions. Preferable to subsidizing biofuels or for that matter any alternative energy source is the adoption of a domestic policy that would put a price on all greenhouse gases. Such a policy is a comprehensive cap and trade scheme. Greenhouse gases involved in the production, processing and transport of fuels would be priced. The genuinely low emission alternative fuels and other energy sources emerge as the market performs its function.

REFERENCES Australian Government (2007), The national carbon accounting toolbox and data viewer, Canberra, Australia: Department of Environment and Heritage and Australian Greenhouse Office. Bush, G. (2007), ‘State of the Union Address’, available at http://www.whitehouse. gov/stateoftheunion/2007/index.html. BP (British Petroleum) (2008), ‘Historical data’, available at http://www.bp.com/ sectiongenericarticle.do?categoryId59023773&contentId57044469. Collins, K. (2007), ‘The new world of biofuels: implications for agriculture and energy’, presentation to EIA Energy Outlook, Modeling and Data Conference, 28 March, available at www.eia.doe.gov/oiaf/aeo/conf/collins/collins.ppt. Commission of the European Communities (2007), ‘Renewable energy road map: Renewable energies in the 21st Century: building a more sustainable future’, Communication from the Commission to the Council and the European Parliament, Brussels. Coyle, W. (2007), ‘The future of biofuels: a global perspective’, Amber Waves, 5(5), 24–9. De La Torre Ugarte, D., M. Walsh, H. Shapouri and S. Slinsky (2003), ‘The economic impacts of bioenergy crop production on US agriculture’, Agricultural economics report number 816, Washington, DC: USDA. Dorr, T. (2008), ‘Biofuels and food’, Cereal Foods World, 53(2), 76–7. Edwards, R. (2008), ‘EU biofuels: costs, supply and greenhouse gas savings’, Powerpoint presentation to 2nd European symposium on technological developments in renewable energies, 26–7 June, Hamburg, Petten, the Netherlands: Joint Research Centre, European Commission. Energy Information Administration (2007), ‘Renewable energy consumption and electricity’, Preliminary 2006 statistics, available at http://www.eia.doe.gov/ cneaf/solar.renewables/page/prelim_trends/rea_prereport.html.

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European Parliament (2008), ‘More sustainable energy in road transport targets’, available at http://www.europarl.europa.eu/news/expert/infopress_ page/064-36659-254-09-37-911-20080909IPR36658-10-09-2008-2008-false/ default_en.htm. Fargione, J., J. Hill, D. Tilman, S. Polasky and P. Hawthorne (2008), ‘Land clearing and the biofuel carbon debt’, Science, 319, 1235–38. F.O. Licht Consulting Company (2007), ‘Key world energy statistics’, cited by International Energy Agency, IEA, Paris. Garcia-Perez, M., T. Adams, W. Goodrum, W. Geller and K. Das (2007), ‘Production and fuel properties of pine chip bio-oil/biodiesel blends’, Energy and Fuels, 21(4), 2363–72. Geyer, W. and M. Melichar (1986), ‘Short-rotation forestry research in the United States’, Biomass, 9, 125–33. IMF (International Monetary Fund) (2007), ‘Biofuel demand pushes up food prices’, available at http://www.imf.org/external/pubs/ft/survey/so/2007/ RES1017A.htm. IMF (International Monetary Fund) (2008), ‘Primary commodity prices’, available at http://www.imf.org/external/np/res/commod/index.asp. International Energy Agency (2004), Biofuels for Transport, an International Perspective, Paris, France: IEA. Johnson, E. and R. Heinen (2007), ‘The race is on; biodiesel is big and getting bigger, but is it any better than its petroleum-derived equivalent in terms of global warming?’, Chemistry and Industry, 8, 22–3. Joint Research Centre (2008), ‘Biofuels in the European context: facts and uncertainties’, Joint Research Centre of the European Commission, Petten, Netherlands. Laurance, W. (2007), ‘Switch to corn promotes Amazon deforestation’, Science, 318, Letters: 1721. Malmsheimer, R., P. Heffernan, S. Brink, D. Crandall, F. Deneke, C. Galik, E. Gee, J. Helms, N. McClure, M. Mortimer, S. Ruddell, M. Smith and J. Stewart (2008), ‘Preventing GHG emissions through biomass substitution: forest management solutions for mitigating climate change in the United States’, Journal of Forestry, 106(3), 136–40. Mitchell, D. (2008), ‘A note on rising food prices’, Policy Research Working Paper 4682, Washington, DC: The World Bank. Morton, D., R. DeFies, Y. Shimabukuro, L. Anderson, E. Arai, F. Espirito-Santo, R. Freitas and J. Morisette (2006), ‘Cropland expansion changes deforestation dynamics in the southern Brazilian Amazon’, Proceedings of the National Academy of Sciences, 103(39), 14637–41. New York Times (2008), ‘Europe, cutting biofuels subsidies, redirects aid to stress greenest options’, 22 January. OECD (Organization for Economic Cooperation and Development) (2008), ‘Rising agricultural prices: causes, consequences and responses’, OECD Observer, August 2008. Perlack R., L. Wright, A. Turhollow, R. Graham, B. Stokes and D. Erbach (2005), ‘Biomass as feedstock for a bioenergy and bioproducts industry: the technical feasibility of a billion-ton annual supply’, Tennessee: Oak Ridge National Laboratory. Reuters (2008), ‘USDA head downplays calls to cut biofuel mandate’, available at http://www.reuters.com/articlePrint?artiocleId5USN1950660520080519.

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The Scientist Community (2008), ‘Tree’s wood fiber converted into fuel for your car?’, available at http://the-scientist.com/community/posts/list/89.page. Searchinger, T., R. Heimitch, R. Houghton, F. Dong, A. Elobeid, J. Fabiosa, S. Tokgoz, D. Hayes and T. Yu (2008), ‘Use of US croplands for biofuels increases greenhouse gases through emissions from land-use change’, Science, 319, 1238–40. US Department of Agriculture National Agricultural Statistical Service (2008), ‘Soyabeans’, available at http://www.nass.usda.gov/QuickStats/index2.jsp. US Department of Energy (2008a), ‘Biomass and biofuels update to Congress’, available at http://apps1.eere.energy.gov/views/pdfs/may_2008_hill_briefing. pdf. US Department of Energy (2008b), ‘Biofuels and greenhouse emissions: myths versus facts’, available at http://www.energy.gov/media/BiofulesMythFact.pdf. US Environmental Protection Agency (2007), ‘Greenhouse gas impacts of expanded renewable and alternative fuel use’, Office of Transportation and Air Quality, available at http://www.epa.gov/OMS/renewablefuels/420f07035.htm. von Braun, J. (2008), ‘Responding to the world food crisis: getting on the right track’, Washington, DC: IFPRI. Wang, M., M. Wu and H. Huo (2007), ‘Life-cycle energy and greenhouse gas emissions: impacts of different corn ethanol plant types’, Environmental Research Letters, 2, April–June, 17 pp. World Bank (2008a), ‘Biofuels: the promise and the risks’, available at http://econ. worldbank.org/WEBSITE/. World Bank (2008b), ‘Biofuels: big potential for some . . . but big risks too’, available at http://www1.worldbank.org/devoutreach/textonly.asp?id5506. Zoellick, R. (2008), ‘Food price crisis imperils 100 million people in poor countries’, available at http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,, contentMDK:21729143~pagePK:64257043~piPK:437376~theSitePK:4607,00. html.

7.

Forestry in the climate change policies of selected developed countries

This chapter reviews the national policies that have been adopted by developed countries for the mitigation of greenhouse gases (GHGs) and the role of forestry within those policies. Climate change policy is dynamic, and discussions are well underway on the international framework that will replace the Kyoto Protocol, post-2012. While land-use change and forestry (LUCF) are mechanisms for flexibility that are likely to be built into a new protocol, their effectiveness is also dependent on the policies adopted by those countries agreeing to GHG emission cuts. Cap and trade schemes, rather than tax policies, have emerged as the preferred vehicle for curbing emissions in the US, Europe, Australia and New Zealand. The restriction on allowances to emit GHGs under cap and trade schemes puts a price on the allowances.22 The deeper the cuts required by the caps, the higher the prices of allowances and the greater the demand for offsets from forestry projects that sequester carbon. Very few countries have announced medium-term targets for emissions or detailed schemes for achieving them. This chapter examines climate change policies in selected developed countries and regions where caps on emissions have been adopted or policies are at a sufficient stage of development to enable the potential role of forestry to be reviewed; these are the Kyoto Protocol’s Annex I countries, the US, Australia, New Zealand and the EU. The chapter then examines policies that are in place that cover the execution of forestry projects by developed countries in developing countries. Finally the chapter develops some policy guideposts for forestry in the new international regime that will replace the Kyoto Protocol. The discussion and recommendations are informed by the analysis in previous chapters on the role of forestry in mitigating climate change. Annex B countries that have ratified the Kyoto Protocol (at the time of writing, all major industrialized countries except the US) have agreed to reduce their emissions by an average of 5.2 percent by 2012, compared with 1990 levels.23 The ability of Annex B countries to trade their allowances, or assigned amount units (AAUs) (each equal to one tonne of 166

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carbon dioxide equivalent, CO2e), allows them to lower national costs of compliance with their caps, as explained in Chapter 1. Similarly, where domestic policy allows, the forest sector can generate allowances for sale, while industries subject to caps can offset their emissions by buying into forestry projects at a lower cost than by abating their own emissions. The Kyoto Protocol already allows developed countries to offset their emissions in other developed countries and in developing countries. Forestry is one option amongst an array of possible offsets that include fuel switching and the adoption of renewable energy technologies. The US was until recently, when it was overtaken by China, the country with the greatest greenhouse gas emissions, so its policies will be crucial in meeting global targets for GHG emissions. Twenty-eight US states and Canadian provinces have already developed cap and trade policies but, while President Obama is intent on cutting US greenhouse gas emissions, a cap and trade bill needs to pass Congress. The European Union is a large economic bloc containing 27 countries which already operates within the world’s first scheme and presently by far the largest: the EU emission trading scheme (EU ETS). Australia has the distinction of being the highest emitter of greenhouse gases per person. It also has vast forests and lands capable of supporting plantations. Its imminent introduction of a carbon pollution reduction scheme provides insights into the role of forestry and the mechanics of its incorporation into domestic climate change policy. New Zealand has also framed a cap and trade scheme that includes forestry.

7.1

CLIMATE POLICY AND FORESTRY IN THE UNITED STATES

The US Congress refused to ratify the Kyoto Protocol, thus there is no national scheme to cut US emissions at the time of writing. This vacuum in climate change policy led to the development of several regional schemes to cut greenhouse gases, in particular the cap and trade schemes of the Western Climate Initiative of 11 US and Canadian Provinces and the Regional Greenhouse Gas Initiative (RGGI) of 10 eastern US states.24 This section focuses on the nature of nascent national climate policy in the US, and the potential role of forestry. 7.1.1

Characteristics of a Federal Cap and Trade Scheme

Reduction in future emissions in the US is made difficult by the fact that the country is likely to continue to be characterized by strong population

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growth and economic growth (subsequent to the economic downturn in 2008/2009), together with a reliance on carbon-based power generation. A range of sources suggests a rise in US emissions from 7 Gt of CO2e in 2005 to 10 Gt in 2020, that is an increase of some 30 percent. The US is a country with a very large land mass, much of which is capable of growing forests; Sathaye and Chan (2008) estimate that up to 66 million hectares could be suitable for tree planting. The national potential of forests for climate change mitigation under a cap and trade scheme can be explored by examining the results of an analysis by the US Environmental Protection Agency (USEPA, 2008) of the prominent Lieberman-Warner Climate Security Act of 2008 S. 2191 (hereafter referred to as S. 2191). The significance of this bill is that it caps emissions from industry and is detailed enough in its specification to enable the forecasting of its impacts on US emissions and the contributions of different sectors of the economy, including forestry. S. 2191 achieves coverage of 87 percent of US CO2e emissions, issuing allowances and allowing the trading of such allowances to industries such as oil refining, facilities that use more than 5000 tons of coal per year and industrial gas producers. Importantly, S. 2191 allows the purchase of domestic and international offsets, including from forestry, to each meet 15 percent of compliance obligations. Compared with a businessas-usual scenario, S. 2191 is projected to reduce total US CO2e emissions by some 50 to 60 percent by 2050 compared with 2010 levels. The ability of capped industry to purchase forestry offsets is crucial to reducing costs of compliance. The relaxation of the restraint of 15 percent on the use of international offsets reduces the cost at the margin by 26 percent, while the removal of the 15 percent use of domestic offsets increases costs at the margin by 34 percent. The relaxation of the offsets both domestically and internationally reduces costs by 71 percent (see Figure 7.1). The USEPA (2008: 9) analysis estimates that no less than 46 percent of the abatement is achieved in year 2015 by the use of domestic and international offsets in S. 2191. This level reduces over time as the overall constraint of 15 percent of total use of offsets starts to bite. Land-use change, that is forestry combined with agriculture, makes by far the largest contribution of domestic offsets, making large annual reductions of around 400 Mt CO2e after the price of allowances reach $50 per tonne of CO2e, which is expected in years 2020 to 2025. Modeling by USEPA (2005) of an unconstrained (that is without constraints on the use of offsets as in S. 2191) supply function for US forestry and agriculture showed that the opportunity cost of converting land to forestry is relatively high, and at lower prices for CO2e the cheaper options for carbon sequestration of forest management and soil management

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120 Change in marginal cost of abatement, %

100 80 60 40 20 0 –20 –40 –60 –80 Unlimited domestic Unlimited domestic 15% domestic and international offsets, 15% offsets, 15% offsets international international offsets offsets (reference case) % change

–71

–26

0

15% domestic offsets, no international offsets

No domestic or international offsets

34

93

Note: The bill specifies 15% use of domestic, plus 15% use of international offsets. The figure shows the increase or decrease in the marginal costs of abatement with the increase or decrease in the level of offsets allowed. Source:

USEPA (2008: 11).

Figure 7.1

Change in the marginal cost of abatement with change in domestic and international offsets in the Lieberman-Warner Bill S. 2191

dominate. The modeling confirms that forest management is a low-cost activity, but as prices rise, afforestation and then biofuels become dominant (see Table 7.1). A study by McKinsey (2007) also found that forest sinks on private lands would increase with the price of CO2e. As noted in Chapter 1 great caution is needed in interpreting the magnitude of the forestry’s potential suggested by such top-down models. Bottom-up studies that take into consideration local barriers to implementation, estimate levels of CO2e removals for North America at less than a third of the top-down estimates (Nabuurs et al., 2007: Figure 9.13). Table 7.1 also indicates biodiversity implications and reversibility problems of activities involving forestry. If only afforestation25 is included and forest management is excluded, the latter suffers, leading to carbon losses. To reduce this leakage both afforestation and forest management need to be included in a scheme. The USEPA (2005) emphasizes that forestry programs must also include liability provisions to minimize reversal. Other potentially important issues in mitigation by agriculture and forestry noted are the difficulties of measuring monitoring and verifying projectlevel effects and setting project baselines (USEPA, 2005). Whether President Obama’s intent to reduce emissions (Obama, 2008),

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Table 7.1

Characteristics of CO2e removal activities

Activity

Price of CO2e necessary to induce activitya

Environmental Co-effects

Reversal risk

Afforestation

Medium to high

High

Forest management

Low to medium

Biofuels

Medium to high

Biodiversity either 1 or – depending on character of new forest and ecosystem replaced by new forest. Water quality improvement. Longer rotations can provide critical habitat. Biodiversity impacts depend on previous land use.

Note: Source:

a

High

Low

Low prices are $30 per tonne of CO2e. USEPA (2005: Tables 8-1, 8-2).

or cap and trade legislation that passes Congress, will impact food prices depends on the provisions governing the use of forestry offsets by capped industries. While US involvement in global GHG cuts is essential, the results of the USEPA (2008) study demonstrate that its contribution to reduction on a global scale can only be modest, confirming that a global approach is essential to achieve emission reductions that will avoid catastrophic climate change. Without action by the international community, S. 2191 would lower CO2 concentrations in the atmosphere by 2095 by 23 ppm, to 696 ppm; concerted international action assumed in the modeling lowers concentrations to 488 ppm (USEPA, 2008:19). 7.1.2

Indirect Effects of a US Cap and Trade Scheme

McCarl et al. (2002) forecast that biofuel and cap and trade policies divert land away from food crops to forestry and biofuel feedstocks. US agricultural producers will gain but US consumers lose as agricultural commodity prices increase, particularly as CO2e prices rise above $50 per tonne. The catch-22 is that increasing access to forestry and agricultural offsets allows cuts to be made in emissions at a lower cost, but with higher food prices.

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As with all such heavy policy interventions, the global indirect effects of cap and trade schemes need to be carefully examined. It was seen in Chapter 6 that the increase in US and EU subsidies for biofuels had negative social and climate change consequences. The poor were affected by rising food prices and, moreover, GHG emissions increased rather than decreased because biofuels policy led to an accelerated rate of conversion of tropical forests to agriculture. To fully appreciate the impacts of US policy it is necessary to undertake modeling of a change in land use in other countries in response to higher global prices resulting from diversion of land to forestry and biomass in the US. Given that other countries that export food grains such as Australia will also undergo land-use change as a result of the adoption of climate change policy, it is imperative that global models should be constructed that examine the indirect effects of concerted actions. If food production is threatened by land-use change then the ultimate objective of the UNFCCC (1992; Article 2) to: ‘[A]chieve stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system . . . achieved within a time-frame sufficient to . . . ensure that food production is not threatened . . .’, is compromised. 7.1.3

The future of US initiatives

The successful passage of an emissions cap and trade bill through Congress will be no easy task and will involve the intersection of many disciplines and interest groups and much political haggling. The pace of development and implementation of legislation will probably be affected by the diversion of the attention of representatives and the administration on the immediate task of avoiding a deepening of the financial crisis. An unavoidable development associated with the eventual implementation of a federal scheme is the pre-emption of state and regional carbon markets to avoid overlaps of regulation and markets. Should there be an opportunity for pre-existing emission reduction projects including forestry in both voluntary and state markets to convert to the federal system, a precondition would be that they meet federal standards (Berendt, 2008).

7.2

CLIMATE POLICY AND FORESTRY IN THE EU

The EU has flagged a target of lowering its greenhouse gas emissions by at least 50 percent, compared with 1990 levels, by 2050 (EU, 2008). Abandoned crop and pasturelands and sparse woodlands available for

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afforestation in the EU amount to some 50 million hectares, or 75 percent of that available in the US. Afforestation rates have been much lower in the EU than in the US, at just over 200 000 hectares a year compared with almost a million hectares a year. With a price of up to $20 per tonne of CO2e removed from the atmosphere, afforestation rates would increase and the EU would become a source of carbon sequestration by the end of the century, but still small compared with the US (Nabuurs et al., 2007; Sathaye et al., 2007). This is explained by the very high cost of carbon sequestration in Europe compared with the US; a study by van Kooten and Sohngen (2007) found that Europe was the world’s highest cost region. Meanwhile, even the relatively modest potential of EU forests to contribute to the stabilization of atmospheric greenhouse gas concentrations is not being harnessed. The EU ETS does not enable capped industries to use forestry offsets generated by plantation forestry in EU countries. A Commission of the European Communities (2008) memorandum reiterated the reasons for maintaining its ban on crediting forestry sinks. The ban extends to the generation of credits by avoiding deforestation in tropical countries as well as to afforestation within the EU. The EU’s reasons for the ban on forestry are as follows: ● ● ● ● ●

The temporary and reversible nature of carbon storage poses risks for companies and Member States. Monitoring and reporting methods do not match the standard currently adopted by installations in the EU ETS. Monitoring and reporting is expensive, reducing the attractiveness of forestry projects. The transparency, simplicity and predictability of the EU ETS would be compromised. The sheer quantity of credits could undermine the market and would require limitation, rendering benefits marginal (EUROPA, 2008a: Clause 23).

The EU has undertaken a review of its policy on deforestation and forest degradation in developing countries. The review was in response to the agreement by the UNFCCC conference of the Parties (COP) in Bali, in December 2007, to address these issues though a long-term action plan. While the EU supports action to limit deforestation, it proposes to exclude emission credits generated by avoided deforestation from entering global markets; the reasons stated being the same as those listed above (Commission of the European Communities, 2008). Nevertheless, at the 2008 Poznań climate change conference, the EU, supported by a number

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of developing and developed countries, proposed the creation of an international financial mechanism for rewarding the reduction of deforestation and forest degradation (REDD) that would lie outside but complement global markets (EUROPA, 2008b). Policy proposals for REDD are examined in some detail in Chapter 8.

7.3 7.3.1

CLIMATE POLICY AND FORESTRY IN AUSTRALIA AND NEW ZEALAND Australia

If passed by the Senate, cap and trade will be in place in Australia in 2011. Australia’s target is to reduce emissions by 60 percent below 2000 levels by 2050, and its interim target is a reduction of between 5 and 25 percent below 2000 levels by 2020. The willingness of the rest of the world to adopt targets, following the Copenhagen climate change conference in December 2009, will influence Australia’s targets post-2013 (Australian Government, 2009). A considerable amount of independent research has been done to inform the Australian people and the Australian government of the need to reduce and to target global and Australian carbon emissions. Garnaut (2008) emphasizes the imperatives of climate change policy, the methods that can be used to achieve greenhouse gas reduction targets and the consequences of proposals for households and industry. The Australian government also conducted modeling of forestry’s role in the cap and trade scheme (Lawson et al., 2008) prior to issuing a white paper that signals its preferred policy options (Australian Government, 2008). The importance of including forestry in Australia’s cap and trade scheme is emphasized by the results of modeling with and without forestry. Excluding forestry consistently drives the carbon price 30 percent higher for the same level of mitigation. GNP is half a percentage lower in 2100 when forestry is excluded (Lawson et al., 2008). The role of forestry is very sensitive to the price per tonne of CO2e and the deeper the cuts in emissions, the higher the price. In dealing with the crediting of removals of CO2e by reforestation in its scheme, the Australian government is innovative. It tackles the permanence issue by making a small deduction for a buffer each time credits are issued. In the case where forests are continually harvested and replanted, credits are issued in the initial growing phase with a limit determined by the average removals (less an allowance for the buffer). This system avoids the necessity to debit and credit annually. Where the harvested forest is

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Removals and permits

70 60 50 Permits issued Buffered permit limit Cumulative removals

40 30 20 10

5 Y2 02 0 Y2 02 5 Y2 03 0 Y2 03 5 Y2 04 0 Y2 04 5 Y2 05 0 Y2 05 5 Y2 06 0 Y2 06 5 Y2 07 0 Y2 07 5 Y2 08 0

01 Y2

Y2

01

0

0

Note: Annual permits are issued ex-post during the growing phase, removals being verified every five years. The limit to permits issued is less than the total of net CO2e removals, creating a buffer against losses. Source:

Author’s own design.

Figure 7.2a

Stylized representation of the generation of permits for CO2e removals by unharvested reforestation under Australia’s Carbon Pollution Reduction Scheme

not replanted, permits need to be surrendered. Figures 7.2a. 7.2b and 7.2c illustrate how the scheme credits reforestation in unharvested and harvested reforestation.26 The crediting for reforestation projects is based on output from the National Carbon Accounting Toolbox (CAMFor) that provides a high degree of certainty in estimating the profile of CO2e removals in any reforestation situation; a fuller description of Australia’s NCAS is in Chapter 5. While Australia’s Carbon Pollution Reduction Scheme (CPRS) will allow the import of unlimited certified emission reductions (CERs) from its commencement in July 2011, forestry CERs under the CDM will not be able to be used.27 The avoidance of contingent liabilities is the main reason given for this exclusion (Australian Government, 2008). The contingent liability is created by the need to replace both temporary CERs (tCERs) and long-term CERs (lCERs) at the end of their lives, which is two commitment periods for tCERs and between 20 and 60 years for lCERs. Australia’s scheme does not include deforestation even though landuse change contributes about 7 percent to Australia’s total emissions and will emit 44M tonnes of CO2e per year during 2008–12 (Australian Government, 2008: 6-3). The reasons given for this exclusion are that deforestation is much lower than in 1990, there are now restrictions in

Forestry in climate change policies of developed countries Permits issued

Buffered permit limit

175

Cumulative removals

Removals and permits

60 50 40 30 20 10

5 Y2 02 0 Y2 02 5 Y2 03 0 Y2 03 5 Y2 04 0 Y2 04 5 Y2 05 0 Y2 05 5 Y2 06 0 Y2 06 5 Y2 07 0 Y2 07 5 Y2 08 0

01 Y2

Y2

01

0

0

Note: The total of permits generated during the growing phase is based on the average cumulative net CO2e removals, calculated over the long term, less a buffer allowance. Author’s own design.

Stylized representation of the generation of permits by CO2e removals by a harvested reforestation under Australia’s Carbon Pollution Reduction Scheme

60 50 40 30 20 10 0 –10 –20 –30

Source:

06 5 Y2 07 0 Y2 07 5 Y2 08 0

06 0

Y2

0

05 5

Y2

5

05 Y2

0

04 Y2

5

04 Y2

0

03 Y2

5

03

02

Y2

0 02

Y2

01

Y2

Y2

01 Y2 Note:

5

Permits issued Buffered permit limit Cumulative removals

0

Removals and permits

Figure 7.2b

Y2

Source:

Permits are surrendered if the forest is not re-established. Author’s own design.

Figure 7.2c

Stylized representation of the generation of permits for CO2e removals by a harvested reforestation that is not replanted, under Australia’s Carbon Pollution Reduction Scheme

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Carbon sinks and climate change

place on clearing land, and what forest is cleared tends to be in very small pockets or classified as regrowth. Administrative costs of including deforestation would thus be high. Moreover, if deforestation coverage were in prospect, preemptive clearing would be given a powerful incentive (Australian Government, 2008). It is likely that interest in the Australian voluntary market will fall off now the CPRS has been announced. The forestry sector will instead be able to create government certified permits under the emission trading scheme. 7.3.2

New Zealand

The inherent instability in climate change policy is demonstrated by the suspension of New Zealand’s already enacted cap and trade scheme by a newly-elected government. The enacted scheme required participants to hold one NZU (equal to an AAU) or a Kyoto unit (see note 2) to cover each metric tonne of CO2e emitted within the compliance period. Integration with global carbon markets means that emission prices in New Zealand would align with international prices, ensuring that the level of price exposure in the New Zealand economy is not too far ahead of, or too far behind, prices determined by international efforts to reduce greenhouse gas emissions. Support for the CDM gives New Zealand businesses access to least-cost ways to reduce emissions. Forestry had been included in the scheme from 2008, covering both deforestation and afforestation (Ministry for the Environment, 2008). The new government intends to revise the scheme or switch away from a cap and trade to a carbon tax regime, announcing its decision in late-2009 (Point Carbon News, 2008).

7.4

POST-KYOTO POLICIES AND RULES FOR FORESTRY IN DEVELOPED COUNTRIES

This brief review of domestic climate change policies has served to highlight the potential of forestry but also to raise questions concerning the extent of forestry’s role. Should there be free rein on forestry credits, and if so what will be the indirect effects of induced land-use change? This question must be addressed by further research. The current rules for land use, land-use change and forestry under the Kyoto Protocol relate almost specifically to developed countries. The LULUCF rules were adopted as a means by which Annex I countries could meet their targets at least cost. From the analysis above of selected developed countries it is evident that climate change policies are still in their development stage, and while

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177

there are stated potential roles for forestry, with the exception of the EU, the strength of the price signals that will encourage forestry sinks is as yet unpredictable. Even if the schemes in the offing stimulate the initiation of forestry projects in the next two years, their impact will be negligible by 2012 when the first commitment period expires. It takes time for projects to be funded and initiated and for trees to become established and sequester carbon in any quantity. Indeed in the years immediately after establishment it is not uncommon for projects to be net emitters of greenhouse gases (see Table 5.1 and Figure 5.4). Notwithstanding the lack of experience with the implementation of the land use and forestry provisions of the Kyoto Protocol as they apply to developed countries, some observations and recommendations can still be made concerning a future framework. Given the massive international investment already made in the development of a quantitative accounting approach for land-use change and forestry (Höhne et al., 2007), the transition to a post-Kyoto system should be as seamless as possible. Radical departures from the current system would require parallel administrations of the old and new (Schlamadinger, 2007b). Any significant deviation from current systems would also undermine the continuity of national systems that are in the implementation phase as outlined above. Nevertheless, there are some changes that would improve accounting for carbon and facilitate the mobilization of investment in forestry activities in developed countries. These emerge from the analysis of the Kyoto Protocol in Chapter 3 and broadly follow the recommendations of Schlamadinger et al. (2007a; 2007b). These recommendations are for: ●

● ● ●

making accounting for revegetation the same as for afforestation and deforestation, that is that the contribution is within a year rather than against a base year; the removal of caps on credits and debits in managed forests; the inclusion of stored carbon in harvested wood products, if satisfactory means of accounting can be devised. allowing crediting in future commitment periods.

The growth in greenhouse gas emissions from non-Annex I countries which are not subject to caps is rapid with the likelihood that their total emissions will exceed those of Annex I countries in the not-too-distant future (see Figure 7.3). If global emissions are to be brought under control the proportion of emissions generated by developing countries will need to be substantial, requiring a number of developing countries to come under caps and LULUCF provisions.

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Carbon sinks and climate change

Million tonnes of CO2e emitted

25000 20000 15000 10000 5000

Non-Annex I countries increasing at 5.5% per annum Annex I countries increasing at 0.2% per annum

0 2002

2004

2006

2008

2010

2012

2014

Year Note: Source:

The annual increases are based on the growth in emissions from 1990 to 2004. World Resources Institute (2008).

Figure 7.3

7.5

Projected greenhouse gas emissions for Annex I and nonAnnex I countries, 2004 to 2013

POLICIES FOR AFFORESTATION AND DEFORESTATION BY DEVELOPED COUNTRIES IN DEVELOPING COUNTRIES: THE CDM

The policy analysis now extends to the Clean Development Mechanism (CDM) of the Kyoto Protocol which allows Annex B countries to mount forestry projects in developing countries and to claim the reductions in greenhouse emissions achieved against their national carbon accounts. Developing countries are expected to benefit from the investment and the sustainable development aspects of such projects. This section analyzes and discusses the effectiveness of the CDM in terms of providing viable carbon sinks and what role it might have in the future. The conclusions rest on detailed analysis conducted in Chapter 2. Forestry under the CDM is bound by strict rules designed to overcome the temporary nature of forests and the risk that forestry offset credits would overwhelm markets and reduce the incentive to reduce emissions. In the first commitment period the role of forestry has been limited to afforestation and deforestation (A/R), reduced deforestation being excluded. Moreover, the role that A/R can play is constrained: the Marrakesh Accords of COP 7 placed limitations on the amount of credits claimable

Forestry in climate change policies of developed countries

Table 7.2

Certified Emission Reductions (CERs) under the Clean Development Mechanism (CDM) to 2012, by type of offset, millions, as at November 2008

Offset

Certified Emissions Reductions, Millions

Renewables CH4 reduction & cement & coal mine/bed Energy efficiency Fuel switch HFC & N2O reduction Afforestation & reforestation Accumulated total Source:

179

971.6 544.2 349.8 204.3 757.1 11.0 2,838.1

UNEP Risoe (2008).

to Annex B Parties under the CDM to 1 percent times 5 of their 1990 emissions (or 5 percent of their 1990 emissions for the period 2008–12) (UNFCCC, 2006: 7). And under the CDM, A/R projects are restricted to those that would not have occurred without CDM financing and to areas that were not forested prior to 1990. The Certified Emissions Reductions (CERs) achieved under the CDM are deemed to be temporary. CERs cannot be carried over to the next commitment period but must be replaced at the end of five years. Longterm CERs must be replaced at the end of 20 to 60 years by non-forestry CERs, or when the certification report indicates a reversal of net removals of CO2e. The contribution of forestry under the CDM to the creation of carbon sinks can be assessed by examining the CDM project pipeline. Only 34 A/R projects have reached the stage where they are being assessed and are in the CDM pipeline at the time of writing, a number which represents less than 1 percent of the total number of projects of different kinds that are coming forward. Moreover no CERs (each equivalent to one tonne of CO2e) had yet been issued to A/R projects, although the total CERs issued to all projects was over 2 billion (UNEP Risoe, 2008). Table 7.2 shows that the A/R projects make up only 0.4 percent of the 2.8 billion CERs expected to be generated before the end of the first commitment period in 2012. An important explanatory factor is the late start of forestry projects under the CDM. While other CDM projects could accumulate credits from year 2000, the basic rules governing forestry were not resolved until

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the end of 2003, which makes the implementation of projects before the end of 2005 unlikely, given the long lead times for project development and registration. By the end of the first reporting period in 2012, that is six years after planting in the beginning of 2006, only a fraction of the potential removal of CO2e by A/R can be achieved, as shown in Figure 2.3. Neeff et al. (2007: 3) reported that there were some 50 to 70 late-starting projects under development. However, it remains to be seen how many are capable of reaching the point where they are issued with CERs by 2012, given that the monitoring process in A/R projects is highly complex and may delay or prevent the issue of CERs, and that there is limited time to correct any project design deficiencies. Further, Neeff at al. (2007) suggested that the profitability of projects was dependent on CER prices well in excess of the current market price of $3.00. Even if all these projects are successful the contribution of forestry in the CDM, compared with other offsets, would still be relatively minor. There are several factors that contribute to the minor contribution of forestry. The sheer complexity of the pipeline was illustrated in Chapter 2, where Figure 2.4 shows that there are 13 major steps in achieving the issuance of CERs. Complying with the technical criteria necessitates expensive advice from international consultants, a major cost component in administration costs of $100 000 to $250 000, which is in addition to the costs of physically mounting a project. The project development costs and some of the administrative costs need to be met up to two years before there is a prospect of sale of CERs. Only a fraction of these high establishment and administrative costs could be covered by the sale of CERs generated before 2010 by A/R projects established at the beginning of 2006. Moreover, as Chapter 2 points out, a deterrent to the establishment of forestry projects in the beginning of 2006 and since is that credits are not bankable. There is no guarantee that credits generated post-2012, which by the nature of the growth of forests is the bulk of credits, will be saleable. Thus their very intrinsic value and tradability is brought into question. Adding to the risk of investment in A/R is the discount that applies to the value of forestry CERs, because they are temporary and must be replaced. Their value to investors appears to be principally as a bridge to be followed by investment in permanent offsets. Chapter 2 points out that if the increase in replacement cost over time is in excess of the discount rate, then the future replacement price of expiring credits is greater than their repurchase costs and a loss will be made on the investment. The long delays in the fulfillment of forestry projects exacerbate the market price risk.

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It is not surprising, given these impediments, that CDM forestry has been all but ignored by project developers and that most projects have been funded by the World Bank, rather than the private sector. A post-Kyoto protocol could remove some of the impediments such as bankability, and speed up the approval process. The ability to earn credits in a future commitment period would make A/R more attractive to investors. However, it is doubtful if the general rules that apply to A/R can be relaxed without compromising the veracity of the CERs it generates. It was noted in Chapter 3 that even the voluntary forestry offset market, where there has been an absence of complexity, was moving towards the adoption of similar rules to the CDM in its validation of forestry projects. Projects that have complied with CDM rules are automatically accepted under the Voluntary Carbon Standard. Little has been said about the role of forestry under the other flexibility instrument of the Kyoto Protocol, which is Joint Implementation (JI). At the end of 2008 there were no afforestation or reforestation projects in the pipeline (UNEP Risoe, 2008). A possible reason for this lack of interest on the part of Annex I countries in investing in forestry in other Annex I countries is that it is not cost-effective. 7.5.1

The Future of the CDM

There has already been a great deal of effort expended in the development of rules and methodologies for afforestation and reforestation. A change in these basic rules would undermine the investments already made in A/R. It is suggested that the A/R provisions in the CDM should be retained, while accepting the bankability of forestry credits, thus guaranteeing the viability of existing projects and encouraging new investment. This policy recognizes implicitly that while improvements can be made at the margin, the role of A/R in the CDM will in all probability remain a limited one; as a consequence the role of A/Rs in the CDM in reducing the costs of compliance with caps will probably continue to be limited relative to other types of offsets. The greatest change that could be made in a post-Kyoto Protocol is the inclusion of reduced deforestation and degradation (REDD) to apply to both developing and developed countries. Given that some 15–20 percent of greenhouse gas emissions are caused by deforestation in tropical developing countries this inclusion has the potential to contribute substantially to the UNFCCC goal of stabilizing atmospheric GHG concentrations. The arrangements that could be made to include REDD are the subject of Chapter 8, including both market and non-market approaches to its funding.

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POLICY FOR FORESTRY OFFSETS IN VOLUNTARY MARKETS

The voluntary market allows businesses, institutions and individuals to offset their GHG emissions by paying for abatement elsewhere. Voluntary offsets are outside the formal arrangements under the Kyoto Protocol, and as such the reductions in GHG achieved are not entered in a country’s carbon accounts and thus do not assist an originating country in meeting its emissions target. Nevertheless, the voluntary market is cheap to administer, depending on the rigor of verification and location, and as a whole the market is growing. A review of policies towards voluntary forestry offsets is included in this chapter because most offsets are originated by developed countries even though about half the projects are executed in developing countries. These projects allow small investors to contribute to projects in Asia, Africa and South America, marketed as providing carbon sequestration plus social and economic benefits to local communities. Such offsets projects may reduce deforestation as well as establishing new plantations. The contribution to biodiversity enhancement of forestry offset projects in developing countries can be said to be modest, however, unless they are certified under the Climate Community and Biodiversity Alliance. (Chapter 4 evaluates the biodiversity benefits of forestry offset projects.) In the case of forestry offset projects mounted in developed countries there is no guarantee that the social and biodiversity co-benefits claimed for forestry projects are any more than window-dressing, given that forestry monocultures generally lower costs and deliver more sequestered carbon per hectare than mixed species plantings. In Chapter 3 the negative trends in the volume of forestry offsets per se were linked to the fact that a large proportion of the market lacked rigor. Where forestry offsets are not verified by a third party, real possibilities exist for the double-counting of the sequestration benefits and exaggeration of the offsets achieved. The finalization of comprehensive rules for forestry in the Voluntary Carbon Standard, which is already the most favored standard in the market, suggests that buyers could be drawn back to forestry. But an issue that still needs to be resolved is the increase in transparency in the market with respect to timing of the forestry offset being sold, as emphasized in Chapter 3. Subsequent to the Bali Climate Change Conference there has been a surge of interest in the development of avoided deforestation projects (REDD). Where the voluntary market is likely to flourish is in the development of financial and technical instruments for delivering REDD in developing countries. Notwithstanding the difficulty of verifying that the

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forest would be lost without the project and that deforestation would not be shifted elsewhere, REDD has the advantage over plantation projects of delivering immediate emission abatement and potentially large biodiversity co-benefits. The development of standards for REDD, the involvement of the World Bank in piloting such projects, together with the interest shown by major financiers, augurs well for the growth in this segment of the voluntary market. Chapter 8 concludes that a funds-based approach to REDD, which could include investors large and small, would be more likely to succeed in the near future than a regulated market-based approach to REDD. The conclusion is that there will always be a market for voluntary carbon offsets that suit the needs of companies and industries, not to mention households that are not covered by mandatory schemes in reducing their carbon footprint. Buyers are also able to satisfy their desires for supplementary benefits, such as biodiversity conservation and sustainable development. The introduction of standards by the market that have the prospect of being widely adopted promises increased buyer confidence that the reduction in greenhouse emissions will actually occur. It would appear that the best policy is to allow the voluntary market to continue to self-regulate and thus increasingly to protect the investments of buyers and enhance the reputation of sellers.

7.7

SUMMARY AND CONCLUSIONS

Forestry has a major role to play in reducing the cost of compliance with emission reduction schemes in the US, Australia and New Zealand as well as in other countries that have yet to contemplate or announce targets. Deforestation is now very low in developed countries so that the in-country contribution will come from sequestration of carbon by afforestation and reforestation projects. The extent of the role of forestry will depend on the global price of emission allowances and this in turn will depend on the deepness of the cuts that nations embrace in the post-Kyoto regime. There is a distinct possibility that the combination of the increasing demand for land for afforestation and reforestation, combined with the increasing demand for land for biomass production for biofuels, will raise the price of food and disadvantage the poor. Policies will need to be modified if research shows that such a scenario is likely. It is apparent that non-Annex I countries, not subject to limitations under the Kyoto protocol, will soon, as a group, overtake Annex I countries as emitters of GHG emissions. For an international agreement to be effective in curbing global emissions, major emitting countries including

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principally the large emitters, India and China, will need to agree to GHG emission limits. If this were the case, the demand for forestry offsets in those countries could well be high depending on domestics policies adopted. An examination of forestry in the CDM, through which countries with Kyoto caps can reduce their compliance costs through projects in developing countries, suggested that the role of forestry offsets will always be limited. The recommendation of this chapter is to continue with the basic scheme but with some improvements. There is no time to lose in reducing deforestation in the tropical developing countries. The voluntary market is poised to make a contribution now that it is addressing the development of rules and transparency issues and given the strong motivation among developed countries to provide financial incentives.

REFERENCES Australian Government (2008), ‘Carbon pollution reduction scheme: Australia’s low pollution future’, White paper, Department of Climate Change, Canberra, Australia, available at http://climatechange.gov.au/whitepaper/report/index.html. Australian Government (2009), ‘New measures for the Carbon Pollution Reduction Scheme’, available at http://www.environment.gov.au/minister/wong/2009/ pubs/mr20090504.pdf. Berendt, C. (2008), ‘Gazing into the crystal ball’, Point Carbon, 2(9), 30–32. Commission of the European Communities (2008), ‘Addressing the challenges of deforestation and forest degradation to tackle climate change and biodiversity loss’, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regional Commission of the European Communities, CEC, Brussels. EU (European Union) (2008), ‘Climate change: IPCC report confirms EU call for deep cuts in global greenhouse emissions’, press release 4 May, EU, Brussels. EUROPA (2008a), ‘Will it be possible to use carbon credits from carbon sinks like forests?’, memo/08/35, available at http://europa.eu/rapid/pressReleasesAction. do?reference5MEMO/08/35&format5HTML&aged50&language5EN&guiL anguage5en. EUROPA (2008b), ‘Climate change: Commission endorses Poznań declaration on reducing emissions from deforestation’, available at http://europa.eu/rapid/ pressReleasesAction.do?reference5IP/08/1965&format5HTML&aged50&lan guage5EN&guiLanguage5en. Garnaut, R. (2008), ‘Garnaut climate change review’, available at http://www. garnautreview.org.au/index.htm. Höhne, N., S. Wartmann, A. Herold and A. Freibauer (2007), ‘The rules for land use, landuse change and forestry under the Kyoto protocol: lessons learned for the future climate negotiations’, Environmental Science and Policy, 10, 353–69.

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Lawson, K., K. Burns, K. Low, E. Heyhoe and H. Ahamamad (2008), ‘Analyzing the economic potential of forestry for carbon sequestration under alternative carbon price paths’, Canberra, Australia: Australian Bureau of Agricultural and Resource Economics. McCarl, B., H. Lee, D. Gillig, D. Adams, K. Andrasko, R. Sands, U. Schneider, B. Murray, R. Alig, B. Deangelo and F. Delachesnaye (2002), ‘Assessment of GHG mitigation opportunities in the US forest and agricultural sectors’, available at http://epa.gov/sequestration/mitigation_national.html. McKinsey (2007), ‘Reducing US greenhouse gas emissions; how much at what cost’, New York, NY: The Conference Board. Ministry for the Environment (2008), ‘Major design features of the emissions trading scheme’, Wellington, New Zealand: Ministry for the Environment. Nabuurs, G., O. Masera, K. Andrasko, P. Benitez-Ponce, R. Boer, M. Dutschke, E. Elsiddig, J. Ford-Robertson, P. Frumhoff, T. Karjalainen, O. Krankina, W. Kurz, M. Matsumoto, W. Oyhantcabal, N. Ravindranath, M. Sanz Sanchez and X. Zhang (2007), ‘Forestry’, in: B. Metz, O. Davidson, P. Bosch, R. Dave and L. Meyer (eds), Climate Change 2007: Mitigation, contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge, UK and New York: Cambridge University Press, pp. 541–84. Neeff, T., L. Eicher, I. Deecke and J. Fehse (2007), ‘Update on markets for forestry offsets’, Tropical Agricultural Research and Higher Education Center (CATIE), Turrialba, Costa Rica. Obama, B. (2008), ‘New energy for America, 2008’, available at http:// my.barackobama.com/page/content/newenergy. Point Carbon News (2008), ‘Investors pull out of NZ carbon projects’, Point Carbon News, 1(3), 2–3. Regional Greenhouse Gas Initiative (2008), RGGI, available at http://www.rggi. org/states. Sathaye, J. and P. Chan (2008), ‘Costs and carbon benefits of global forestation and reduced deforestation in response to a carbon market’, Report for the Australian Government Treasury, available at http://www.treasury. gov.au/lowpollutionfuture/consultants_report/downloads/Global_Forestation. pdf. Sathaye, J., W. Makundi, L. Dale, P. Chan and K. Andrasko (2007), ‘GHG mitigation potential, costs and benefits in global forests: A dynamic partial equilibrium approach’, Energy Journal, Special Issue, 3,127–72. Schlamadinger, B., N. Bird, T. Johns, S. Brown, J. Canadell, L. Ciccarese, M. Dutschke, J. Fiedler, A. Fischlin, P. Fearnside, C. Forner, A. Freibauer, P. Frumhoff, N. Hoehene, M. Kirschbaum, A. Labat, G. Marland, A. Michaelowa, L. Montanarella, P. Moutinho, D. Murdiyarso, N. Pena, K. Pingoud, Z. Rakonczy, E. Rametsteiner, J. Rock, M. Sanz, U. Schneider, A. Shvidenko, M. Skutsch, P. Smith, Z. Somogyi, E. Trines, M. Ward and Y. Yamagata (2007a), ‘A synopsis of landuse, land-use change and forestry (LULUCF) under the Kyoto Protocol and Marrakech Accords’, Environmental Science and Policy, 10, 271–82. Schlamadinger, B., T. Johns, L. Ciccarese, M. Braun, A. Sato, A. Senyaz, P. Stephens, M. Takahashi and X. Zhang (2007b), ‘Options for including land use in a climate agreement post-2012: improving the Kyoto Protocol approach’, Environmental Science and Policy, 10, 295–305.

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UNEP (United Nations Environment Programme) Risoe (2008), ‘CDM pipeline spreadsheet’, available at http://cdmpipeline.org/overview.htm. UNFCCC (United Nations Framework Convention on Climate Change) (1992), ‘United National Framework Convention on Climate Change’, Article 2, available at http://unfccc.int/resource/docs/convkp/conveng.pdf. UNFCCC (United Nations Framework Convention on Climate Change) (2006), ‘Report on the Conference of the Parties, 28 November – 10 December 2005, Montreal, Decision 16/CMP, Annex, D. Article 12, Para.14, 30 March, FCCC/ KP/CMP/2005/8/Add.3 available at http://unfccc.int/resource/docs/2005/cmp1/ eng/08a03.pdf#page53. United Nations (1998), ‘Kyoto Protocol to the United Nations Framework Convention on Climate Change’, New York: United Nations. USEPA (United States Environment Protection Agency) (2005), ‘Greenhouse gas mitigation potential in US forestry and agriculture’, Washington, DC: USEPA. USEPA (United States Environment Protection Agency) (2008), ‘US Environmental Protection Agency analysis of the Lieberman-Warner Climate Security Act of 2008’, available at http://www.epa.gov/climatechange/economics/economicanalyses.html. van Kooten, G. and B. Sohngen (2007), ‘Economics of forest ecosystem carbon sinks: a review’, International Review of Environmental and Resource Economics, 1(3), 237–369. Western Climate Initiative (WCI), (2008), ‘Draft design recommendations on the elements of the Cap-and-Trade Program’, available at http://www.westernclimateinitiative.org/. World Resources Institute (2008), ‘Climate Analysis Indicators Tool (CAIT)’, WRI, available at http://cait.wri/org/cait.php.

8.

Policies for reducing emissions from deforestation and forest degradation (REDD)

The first part of this chapter discusses the mechanisms that have been put forward to account for the reduction in deforestation and forest degradation (REDD) in developing countries and to reduce the risk associated with the impermanence of forests and the leakage of deforestation to other locations. It also reviews funding mechanisms that are being considered. The second part takes a hard look at REDD, examining the political economy in which deforestation is embedded, the socioeconomic implications of REDD and the prospects for its effective financing and implementation. Under the Kyoto Protocol (United Nations, 1998, Article 2), Annex I countries with quantified emissions limitations and reductions are bound to promote sustainable forest management practices, afforestation and reforestation. Land use and forestry practices within Annex I countries can contribute substantially to reducing the costs of achieving national emissions caps, as discussed in theory in Chapter 1 and in relation to in-country policy in Chapter 7. Annex I countries also have the option of using the Clean Development Mechanism to mount forestry projects in developing countries to reduce their costs of compliance. However, deforestation takes place almost exclusively in non-Annex I tropical developing countries that are not subject to limits on their emissions (Figure 8.1), and is responsible for global carbon emissions of some 1.35 Gt per year, equal to about a fifth of global emissions generated by the burning of fossil fuels (Figure 8.2). If deforestation remains unchecked it is likely to increase steadily due to the demands for agricultural products by growing local and global populations (Figure 8.3). Tropical developing countries are unlikely to accede to caps on their emissions and they will therefore lack a built-in incentive to reduce deforestation. Therefore special measures must be designed for REDD. Specific proposals that included incentives or compensation for avoiding deforestation and forest degradation began to come forward in 2005 when Papua New Guinea, Costa Rica and several other countries proposed 187

GtC yr–1

188

Carbon sinks and climate change 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 –0.1

Source:

1980s 1990s

0.6

0.8

0.7

0.6 0.2

Tropical America

0.3

0.06

Tropical Africa

Tropical Asia

–0.02

Non-tropics

IPCC (Solomon et al., 2007: Table 7.2: 518).

Figure 8.1

Carbon emissions to the atmosphere from land-use change, mean estimates for the 1980s and 1990s

Tropical deforestation, 1.35

Fossil fuel burning, 6.3

Sources:

The mean estimate is the mean of Achard et al. (2004) and Houghton (2005).

Figure 8.2

Carbon emissions to the atmosphere in the 1990s, mean estimates, GtC yr21

that REDD should be included in future climate agreements (UNFCCC, 2005). The eleventh session of the Conference of the Parties of the United National Convention on Climate Change (UNFCCC) in Montreal in 2006 set in train a two-year process to review the scientific, technical and methodological issues, as well as policy and positive incentives for REDD in developing countries. The UNFCCC’s Subsidiary Body for Scientific and Technological Advice (SBSTA) was active in policy development, holding three workshops on REDD, in 2006, 2007 and 2008 (UNFCCC, 2006; 2007; 2008a).

Policies for reducing emissions from deforestation

Hectares per year, millions

14

189

13.1

12 11

10 8 6.9

6 4 2 0

1990–2000

2000–2010

2010–2020

Note: This forecast takes account of the agricultural expansion required by an increasing population, but does not include conversion of forests for bioenergy. Source:

Mollicone et al. (2007).

Figure 8.3

Forecast of global net annual forest area loss under ‘businessas-usual’ i.e. no intervention

At its Conference of the Parties (COP) 13 in Bali in December 2007, the UNFCCC decided to further stimulate action to reduce emissions from deforestation in developing countries through the Bali Action Plan. The plan launched a process that will enhance national/international action to mitigate climate change, culminating in an agreed outcome and decision at its fifteenth meeting in Copenhagen in 2009. The plan considers: ●

●

Nationally appropriate mitigation actions by developing country parties in the context of sustainable development supported and enabled by technology, financing and capacity-building in a measurable, reportable and verifiable manner. Policy approaches and positive incentives on issues relating to reducing emissions from deforestation and forest degradation in developing countries; and the role of conservation, sustainable management and enhancement of forest carbon stocks in developing countries (UNFCCC, 2008b: 3).

The impetus for the inclusion of REDD in a scheme to succeed the Kyoto Protocol is enhanced by the relative effectiveness of reducing deforestation as opposed to afforestation and reforestation. Planted trees take decades to reach their full carbon storage capacity and face many hazards on the way that can limit their potential. Moreover, after a certain age the plantation forest may well deteriorate and become a net emitter

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of greenhouse gases. In contrast, where the deforestation of a hectare of primary tropical forest is avoided there is an almost immediate prevention of emissions of several hundred tonnes of GHGs, especially where the forest is burnt before being converted to agriculture. Intact primary tropical forests are generally old and in carbon equilibrium and, if not disrupted by climate change and direct human activity, could be managed to retain their carbon in perpetuity. In addition, the preservation of tropical forests maintains biodiversity and the delivery of vital services such as local climate moderation, watershed protection and maintenance of inshore water quality. Another factor that has re-ignited interest in the potential for forestry is the assertion that REDD would generate substantial reductions in emissions cheaply and quickly (Stern, 2006). Before discussing policy for REDD, it is instructive to first consider the complex nature of causes of deforestation and degradation. Causes may be classified as proximate and underlying (Lambin and Geist, 2003). The nature of the proximate causes of deforestation differs greatly from country to country and locality to locality. A major proximate cause is the expansion of agriculture. The conversion of forests to oil palm and other highly profitable crops is a major cause of deforestation in Indonesia and Malaysia; in South America it pays to convert large areas of forest to pasture for cattle grazing and soybeans for export; in Africa small-scale subsistence agriculture is a major driver. The extraction of wood and extension of infrastructure such as settlements and roads are also major proximate causes of deforestation. The proximate causes reinforce each other. For example logging roads allow access to logged land that can be more easily burned, cultivated and colonized. The powerful underlying factors of growth in population and increasing consumption per capita lead to the increase in demand for agricultural commodities. At the same time national policies favor exploitation of the forest resource and the development of large-scale plantations, and these are facilitated by globalized capital and product markets together with improved technology in extraction of forest resources. The inability of weak governments to police logging and forest clearing, together with the propensity for government dealings in forest concessions to be corrupted, add to the underlying pressures for deforestation. Property rights with respect to land and forest constitute an important factor that may serve to vary the causes of deforestation and forest degradation. In most tropical developing countries the land and forest is ostensibly owned by the government. But this by no means precludes the exploitation of forests and lands by local communities who may have depended on these resources for many generations. The infinite variations and combinations in proximate and underlying

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causes of deforestation and forest degradation mean that there is no silver bullet solution. Nevertheless, the provision of incentives for REDD has the potential to alter the crucial economic equation by increasing the opportunity cost of forest conversion, thereby affecting proximate decisions on land conversion and also underlying decisions on agricultural policy. Some prominent proposals for REDD that are on the table are now reviewed.

8.1

PROPOSALS FOR REDD ACCOUNTING

Deforestation is already accounted for under the Kyoto Protocol for the industrialized Annex I countries. Where deforestation was a net source of emissions in 1990, then the deforestation in the first commitment period 2008–12 is measured against the 1990 level. This is termed ‘net–net’ accounting. In applying REDD to developing countries the same net–net principle can apply of measuring emissions from deforestation or degradation for an accounting period against a previous base period. One of the major obstacles to the inclusion of REDD in the Clean Development Mechanism of the Kyoto Protocol was the problem of being certain about how much deforestation has been avoided. Baselines are a tool to assess performance in REDD and to determine target levels that go beyond what would have been achieved. Deforestation rates may already be declining in a country and may go on declining as the areas of forest available for profitable agriculture decline. There is a very real risk in this situation that the baseline will be set too high and REDD will be rewarded for reductions in emissions that would have taken place anyway. In Costa Rica, according to Karousakis (2007), deforestation rates were already on the decline in the 1990s, which casts doubt on the validity of payments for environmental services in that country. The base periods need to be set over a period long enough to minimize the problems of using remote sensing due to cloud cover and inter-annual variation in deforestation rates. Over the last 15 years Amazonian annual deforestation rates have varied from 1 million to 3 million hectares (Instituto Nacional de Pesquisas Espaciais, 2005). Radar remote sensing can be used in areas with frequent cloud cover to verify annual forest stocks. In all cases it is preferable to couple remote sensing with field data, as was emphasized in Chapter 5. Given the inter-year variability of deforestation within countries, the baseline suggested by Mollicone et al. (2007) is 1990 to 2005 with the average conversion rate per year derived from the satellite imagery survey at the start (1990) and the end (2005) of the period. This proposal provides

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incentives only if the rate of global deforestation in the accounting period is less than the rate in the baseline period. Here ‘global’ refers to the sum of the participating countries or all countries. The baseline is lowered for successive accounting periods. If a country has a deforestation rate higher than half the global rate during the baseline period then it is a high conversion rate country. If this country has a reduced conversion rate (conversion rate in accounting period less than conversion rate in baseline period) then it has preserved carbon calculated according to forest type (humid tropical, dry tropic) and forest category (intact, non-intact). If a country has a conversion rate less than half the global rate then it is a low conversion country and its reduced deforestation rate is the difference between the global rate and the national rate during the accounting period. These two situations are compared in Figures 8.4a and 8.4b. The Mollicone et al. (2007) approach prevents countries receiving incentives when global deforestation rates are above the baseline. The net global incentive is apportioned among countries according to their performance. In a different approach by Santilli et al. (2005) an incremental increase in deforestation rate in a country in the accounting period above baseline would be transferred to the next commitment period.28 In heavily logged regions such as Kalimantan, Sumatra and Sulawesi, for example, where much of the lowland forest has been removed after logging to make way for oil palm plantations, crediting for increase in carbon stocks in a commitment period could include reforestation or regrowth. In the case of countries with substantial forests but very little deforestation, for example Peru and Bolivia, the approach is to allow baselines higher than their recent deforestation rates as an inducement to participate and avoid future increases.29 Schlamadinger et al. (2005) emphasize the crucial importance of setting targets against which future emissions are assessed that, on the one hand, are not so low as to allow a country to claim credits simply by following a business-as-usual approach and, on the other, are not set so high as to be unachievable. The authors also ask the crucial question ‘should nonachievement of targets lead to penalties?’ (Schlamadinger et al., 2005: 57), given that such penalties may deter countries from participating in the REDD scheme. The Schlamadinger et al. (2005) proposal rejects penalties and instead opts for graduated incentives for achieving REDD within a band which encompasses achievable targets based on projected emissions rather than historical levels. If emissions from REDD are below the lower threshold the country can claim full credit for each tonne of CO2e reduced. Emissions below the upper band would be discounted, the discount rate

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Conversion rate

(a)

Credit

GC/2

Baseline

Accounting

Conversion rate

(b)

Credit

GC/2

Baseline

Accounting

Notes: (a) country with conversion rate of forest above half the global rate (GC/2) in the baseline period is credited with a reduction below its baseline in the accounting period (b) country with conversion of forest below half the global rate (GC/2) in the baseline period is credited for staying below GC/2 in the accounting period Source:

After Mollicone et al. (2007: Figure 5).

Figure 8.4

Comparison of countries with conversion rates of forest above and below half the global rate

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Past emissions

Upper target of target band

0 Lower target of target band

1 Credits

Time Note: Expected emissions are the basis for setting the upper and lower targets of the target band (dotted lines). The smaller graph shows the changing fraction of each tonne of emissions avoided that can be sold as a credit. In achieving the lower target all credits are sold, while at the upper target level no credits can be sold. Source:

After Schlamadinger et al. (2005: Figure 1).

Figure 8.5

Credit allocation for achieving REDD targets

decreasing as emission levels approach the lower threshold. How discounts would apply to credits in the target band is illustrated in Figure 8.5. 8.1.1

Accounting for Emissions from Degradation

Under the Kyoto Protocol forests are defined as lands with more than 10 to 30 percent crown cover (UNFCCC, 2001). Carbon pools will thus consist of forests with 100 percent tree canopy down to 10 percent tree canopy. The degradation of a forest through selective logging, shifting agriculture or livestock grazing, seriously undermining its carbon content, may escape detection by remote sensing technologies (DeFries et al., 2007). Emissions from land-use conversions were estimated to be 25 percent greater in the Amazon when forest degradation is included (Asner et al., 2005). Carbon loss within forests could in fact exceed the conversion of forest to nonforest. It is therefore imperative that carbon loss caused by degradation within forests is accounted for as well as that from the conversion of forests. Published data for the non-intact class of forests is unavailable, yet carbon stocks need to be estimated before the start of the accounting period.

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An operational method to deal with forest degradation is proposed by Mollicone et al. (2007). The distinction is made between intact and non-intact forests, thus avoiding the introduction of a definition of forest degradation that has not been achieved. Using remote sensing, intact forest is discriminated from non-intact forest by the presence of human interference such as roads and fragmentation. Forest conversion is defined as: 1. 2. 3.

from intact forest to other land use; non-intact forest to other land use; intact forest to non-intact forests.

The Mollicone et al. (2007) proposal defines avoided deforestation as the difference between the sum of the preserved forest carbon stocks arising from the three processes above and the agreed national or global baseline. Once the areas of three categories have been determined, their carbon stocks are determined by reference to the literature for the particular forest type, for example humid tropical, dry tropical, and so on. In the absence of data for non-intact forests the carbon stock of non-intact forests is set at half that of intact forests. 8.1.2

Development of Methodologies for Measuring Deforestation and Degradation

At its third workshop (UNFCCC, 2008a) the SBSTA reached general agreement that robust and cost-effective methodologies, designed and implemented at the national level, are required to estimate and monitor the following: ● ● ●

changes in forest cover, associated carbon stocks and emissions; incremental changes due to sustainable management of forest; reduction of emissions from deforestation and forest degradation.

To achieve this, a coupling of remote-sensing and ground-based assessment is a suitable approach. Measuring emissions from forest degradation is more difficult than from deforestation and there is a need for methodological development in this area. While the IPCC guidelines and good practice guidance provide methodologies that can form a basis for estimating and monitoring emissions reduction and forest degradation, there is an essential need to increase the technical capacities of developed countries to do so. Policy development and institutions also need strengthening.

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It is unlikely that there is sufficient time to gather a great deal more field inventory data before the Kyoto first commitment period expires in 2012. Therefore it is imperative that the most is made of existing data available (Gibbs et al., 2007; Olander et al., 2008); see Chapter 5. Chapter 5 concluded that grant programs will be crucial to assist developing countries in using a combination of data and technology in developing comprehensive ‘wall to wall’ information on carbon in forest strata and rates of deforestation. Unless such credible scenarios can be developed for tropical deforesting countries, REDD will not become a reality.

8.2

PERMANENCE

The question of the permanence of carbon sequestered in forests was one of the reasons the Marrakesh Accords exclude deforestation under the CDM; how the problem might be addressed is considered in this section. There is no essential difference between a stock of carbon that has been accumulated by removal of CO2 by afforestation/deforestation and the stock of carbon whose release to the atmosphere has been avoided by REDD. While it can be argued that the carbon in plantations may decline with age while the carbon in mature rainforest is in equilibrium, both types of carbon sinks are nevertheless subject to similar risks from clearing, fire, insect attack or climate change. In the Clean Development Mechanism (CDM), the developing country that hosts the afforestation/reforestation (A/R) project is not liable for any re-emission, given that it does not have a national cap on its emissions. Non-permanence in A/R CDM projects has been addressed by means of making CERs temporary, the investor being liable to replace the carbon that has been credited. The temporary CERs simply provide a bridge over time and not a reduction per se, as illustrated in Chapter 2. The Mollicone et al. (2007) approach to REDD adopts temporary CERs where the buyer of the REDD credits must renew them on a regular basis. If the forest is depleted, the liability falls back on the buyer who must purchase carbon elsewhere to make up for the shortfall. Skutsch et al. (2007) agree that temporary crediting schemes may prove to be indispensible again, having been essential to reach consensus within the UNFCCC in the past with respect to forestry activities in the CDM. One important feature distinguishes REDD credits from CDM credits and that is that the former will be accounted for in a tropical country national inventory rather than a project inventory, as in the latter. The issue of temporary CERs may therefore be avoided by the national government issuing a guarantee through its pooling of protected forests,

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keeping part of the pool as a buffer against non-permanent REDD. In the case of compensation proposals, as epitomized by Santilli et al. (2005), the host country must assume full liability for its carbon stocks, not only for the commitment period during which credits were issued but also for all future commitment periods. The initial decision to participate is voluntary but the subsequent liabilities would need to be made mandatory (Schlamadinger et al., 2005).

8.3

LEAKAGE

One of the biggest challenges in developing a credible system for compensating for REDD in developing countries is that of reducing the risks of leakage. Where REDD is effected in one location there may be a stimulus to greater deforestation in another location. This is a high risk with project-based REDD schemes that have difficulty taking account of trends outside the immediate project area. This issue of indirect effects of REDD was one of the reasons for the exclusion of deforestation in the Marrakesh Accords. The participants at the second UNFCCC (2007) workshop, as well as Mollicone et al. (2007) and Santilli et al. (2005), preferred the adoption of national accounting, rather than project accounting. Any leakage from one area to another would be accounted for in the process of drawing up national accounts for emissions from deforestation. The problem of international leakage remains, however. Multinational logging and oil palm companies, for example, might respond to constraints on their activities in developing countries that have voluntarily opted for REDD targets by increasing their activities in countries that have not adopted targets. Such a scenario emphasizes the importance of including a large proportion of forested developing countries in a postKyoto REDD scheme. In general an understanding of the proximate and indirect causes of deforestation and forest degradation in any particular situation will enable leakage problems to be anticipated and perhaps countered. As Ebeling and Yasué (2008) point out, low-cost measures are available such as governments enforcing existing land regulations and conservation regulations, extending indigenous territories and removing subsidies for land clearing. A question arises though whether a REDD scheme would have much impact where profitable logging is followed by conversion to profitable cropping, given that investors and participating countries will be looking to identify projects where emissions reductions can be had at low cost. Where compensation is relatively expensive but there are imperatives for conservation of forests on biodiversity grounds, such as in Borneo

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and Kalimantan, a combination of REDD and conservation funds could raise the level of compensation sufficiently to make the avoidance of deforestation an attractive alternative to logging and conversion.

8.4

MARKET AND NON-MARKET FUNDING MECHANISMS

Many funding proposals suggest the use of voluntary contributions to provide the financial resources for a REDD fund. Such funding sources identified in the second UNFCCC workshop (UNFCCC, 2007) include: ● ● ● ● ●

●

overseas development assistance; voluntary contributions from NGOs and governments; private sector sponsorships and donations; new and additional sources under the UNFCCC; funds created under the UNFCCC and the Kyoto Protocol (for example the Special Climate Change Fund, the Adaptation Fund) and the Trust fund of the Global Environment Facility; taxes on carbon-intensive commodities and services.

The advantages of non-market funds are that they: ● ● ● ● ●

do not devalue the price of existing tradable carbon; do not divert financial resources from the control of major sources of GHG emissions; do not threaten to reopen the difficult and drawn out discussions of the Marrakesh Accords; reduce the need for Annex I parties to use offsets against their emissions targets; provide for an early start on REDD given that REDD will not operate under the Kyoto Protocol in the first commitment period 2008–12 (UNFCCC, 2007).

The basis of market approaches is the generation of credits from REDD in developing countries that can be used by countries with capped emissions for meeting their commitments. The broader the scheme in its coverage of sources and sinks of carbon, such as forests, the lower the costs of compliance. An increase in demand for credits would be generated by deeper reduction commitments by countries post-2012. The following advantages of market-based instruments were advanced at the second workshop (UNFCCC, 2007: 15).

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●

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Provide incentives for the engagement of the private sector in project-based regional and national approaches and augment the volume of non-market funds which has been inadequate. Units of trade must all equal one tonne of emissions reduced or avoided and market systems require robust carbon accounting systems which increase the credibility and value of ensuing credits.

Several commentators suggest that market-based mechanisms that allow Annex I countries to offset their emissions against REDD have the potential to provide the necessary continuity and volume of funds (see for example Karousakis and Corfee-Morlot, 2007 and Skutsch et al., 2007). A question that needs to be resolved is the desirability for a limitation on the number of credits that could be generated by REDD, similar to the limitation on CERs generated by the CDM in the first commitment period. The work of Jung (2005) was reviewed in Chapter 3 and this tended to confirm fears that the inclusion of REDD in the first commitment period would have diluted the market and lowered the price of carbon credits, thus relieving the need for Annex I countries to make reductions in emissions in their energy sectors. One way of limiting the need for a cap on REDD credits would be for the overall emission target of Annex I countries to be negotiated, while at the same time taking account of the level of REDD credits that could be forthcoming (Skutsch et al., 2007). The proposals of Mollicone et al. (2007) and Santilli et al. (2005) assume that credits would only be sold after they had been verified as having been achieved, as with certified emission reductions of afforestation and deforestation under the CDM. (This is in contrast to forestry offsets in the voluntary market that are invariably sold ex ante, that is before they have yielded verified sequestered carbon: see Chapter 3.) For the initiation of projects, financing would be needed against future carbon credits. As Schlamadinger et al. (2005) note, there is no reason why national governments could not sell options to REDD credits before a program is in place. Such up-front financing would facilitate the initiation of projects by developing countries themselves. The governments or companies could then elect to buy the actual credits when the program is completed. To reduce the risk of selling options that do not materialize, only a proportion of the credits expected could be pre-sold, or insurance could be taken out against program failure. Such pre-financing could be done through the World Bank, as in the case of CDM projects or by the host country selling carbon credit options, the revenue being directed at REDD programs. Once the program yields credits, the investors could then decide to buy the credits.

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8.5

REALITY CHECK (POLITICAL, ECONOMIC AND FINANCIAL) ON REDD

This section attempts to confront the political, social and economic realities that face efforts to reduce deforestation and forest degradation. Policy failure is the inevitable outcome of ignoring these realities. Williams (2003: 495) reminds us of the pressures from population growth, especially in tropical countries: World population will continue to rise. . .stabilizing at between 9 and 10 billion by 2100. The bulk of the 3 to 4 billion extra people will be in the developing world and primarily in the tropical forest zone. [A]s cultivation has always been the prime devourer of forests, many millions of hectares will be destroyed. Similarly the demand for fuel wood will remain immense for the poor of the world.

Williams (2003: 498) goes on to say how the past has shed some light on present processes: [T]ime and again we have seen that it is the underlying social, economic and political makeup of society at any given time – ‘its cultural climate’, no less – that causes deforestation. We know far less about what brings deforestation under control, except that experience suggest the need for strong government institutions to implement stated policies and resist elite groups who have traditionally pursued the exploitation of the forest.

The prospects for meeting the condition of strong institutions seem bleak in many key tropical countries, as highlighted in the next section. 8.5.1

Governance, Failed States and Corruption

The level of deforestation is much higher in least-developed countries than in developing countries as a whole, as illustrated in Figure 8.6. These countries are likely to have a lower level of resources available to tackle deforestation. There are also impediments of poor governance. Tacconi (2007a) matched the level of deforestation with governance conditions in the top ten countries for deforestation. All of the top ten have a high corruption index and five are failed states (see Table 8.1). Failed states are characterized by severe security problems, making it difficult if not impossible to initiate successful deforestation avoidance programs. Barbier et al. (2005) estimated that corruption explained between 11 and 30 percent of deforestation in tropical developing countries. The kind of debilitating impact that corruption could have on the potential of tree planting in developing countries to tackle climate change

Policies for reducing emissions from deforestation N2O F-gases 2% 6%

LUCF 0%

CH4 11%

N2O F-gases 0% 10%

CH4 16% Fossil fuels 81%

Developed

Fossil fuels 41%

N2O 12%

Fossil F-gases fuels 0% 5%

CH4 21% LUCF 62%

LUCF 33%

Developing

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Least developeda

Notes: a ‘Least Developed’ is a subset of ‘Developing’. F-gases 5 fluorinated gases. LUCF5 land-use change and forestry. Source:

Beaumont et al. (2005).

Figure 8.6

Greenhouse gas emissions of developed and developing countries, 2000

is illustrated by a study of the geographical distribution of carbon sequestration costs by Benitez et al. (2007). The authors recognized that country risk is bound to be a major concern of investors in forestry offsets in developing countries. These risk factors were translated by Benitez et al. (2007) into discount rates for various countries on investment in, and supply of, sequestered carbon. At a carbon price of US$50 per tonne of carbon, or US$13 per tonne of CO2e, the base estimate of sequestration globally over 20 years was 25 Gt of CO2e, or an average of some 1.3 Gt per year. After application of the discount factors reflecting risk, the estimate fell by 59 percent to 10 Gt CO2e over 20 years, or some 0.5 Gt per year. 8.5.2

Lessons from Illegal Logging

Illegal logging is pervasive and needs to be tackled in a comprehensive approach to REDD. In the Brazilian Amazon roughly 80 percent of all timber cutting is illegal, with no effective control over harvest operations or payment of government royalties (Laurance, 1998). The task of controlling illegal logging is complex: Ibama, Brazil’s environment agency, has a small number of officials to police a vast region. Last year it collected just 6 percent of the fines it levied. . .But a

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Table 8.1

Governance in the top ten countries for deforestation Deforestation Annual Contribution Corruption Failed Indexa 2000–2005 deforestation to global state sq km (%) deforestation (%)

Brazil Indonesia Sudan Myanmar Zambia Tanzania Nigeria Democratic Republic of Congo Zimbabwe Venezuala

155,150 93,570 29,450 23,320 22,240 20,610 20,480 15,970

0.6 1.9 0.8 1.3 1.0 1.1 3.1 0.2

24.1 14.5 4.6 3.6 3.4 3.2 3.2 2.5

3.60 2.25 1.75 1.40 2.60 3.15 2.25 1.95

No No Yes Yes No No Yes Yes

15,560 14,380

1.6 0.6

2.4 2.2

2.10 2.00

Yes No

Note: a The lower the Corruption Index (with a range of 1 to 10), the higher the corruption level. For example Australia, which had a high rate of deforestation in 2000– 2005, and qualified 16th with almost 10 000 sq km of deforestation, had a corruption rating of 8.55. Source:

Tacconi (2007a: Table 1).

visit to a town such as Paragominas suggests that effective enforcement would take a lot more than hiring extra inspectors. The atmosphere is that of a frontier region where no one quite knows who owns the land and property disputes are often settled by violence. Everyone milks the forest for what they can get. (The Economist, 1998: 3)

In Indonesia, logging might be illegal under the central government but because of the fragmented nature of district governments under the policy of regional autonomy, collusive corruption is more pervasive in the post-Suharto era, enabling illegal logging to flourish. Local business elites are influential in the decentralized administrations that take formal decisions favoring the interest of the elites and those of their business partners outside the region (Curran et al., 2004; McCarthy, 2007). The failure of enforcement of protected areas is a key reason for the loss of orangutan habitat (Rijksen and Meijaard, 1999). In Kalimantan illegal extraction and processing of timber is an extensive and deeply entrenched system and the clearing for agriculture is pervasive with some 50 percent of the protected forest in the Indonesian

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part of Kalimantan being deforested between 1985 and 2001 (Casson and Obidinski, 2007; Curran et al., 2004). The International Tropical Timber Organization committed to implementing sustainable forest management by the year 2000. But only about 7 percent of natural forest in the permanent estate of member countries was managed sustainably as of 2005 (ITTO, 2006). The lack of commitment to sustainable forest management by governments is because it yields lower economic benefits than the conversion of forest to other uses (NortonGriffiths and Southey, 1995). The World Bank’s definition of illegality is a broad one, including timber theft, evasion of taxes and fees, to non-compliance with labor and environmental laws. In 17 countries surveyed, two-thirds had illegal logging rates of at least 50 percent. The annual losses in global market value from illegal cutting of forests was estimated at over $10 billion and annual losses in government revenues about $5 billion (World Bank, 2007). The Bank emphasizes the need to control indirect drivers of illegal logging such as the failure of law and of law enforcement. The politically well-connected interest groups tend to benefit from the status quo and will actively resist change. At the same time law enforcement must ensure that the forest-dependent poor are not unfairly punished. The section now turns to consider socioeconomic aspects of REDD that may not have achieved the prominence that they deserve. There is a consideration of the comprehensiveness of the information that led Stern (2006) to suggest that curbing deforestation would be cheap. 8.5.3

The Socioeconomics of REDD and the Costs of Avoiding Deforestation

A key parameter in the models of forestry supply responses to prices for sequestered carbon in developing countries is the level of income that will be forgone by landowners in switching to forest conservation. The supply of land for forestry will depend on the costs and benefits of conserving forest as opposed to clearing it for agriculture. A payment to the government for REDD credits needs to be translated to payments to the communities that are using the land. Funds may be redirected at programs to improve the productivity of agricultural land so that deforestation is suppressed by addressing its underlying causes (Schlamadinger et al., 2005). The full opportunity costs are not always included in modeling the potential for forests as carbon sinks, the costs including only those of maintaining the forested area or in the case of afforestation/reforestation, of planting and maintaining forest. In a large analysis of land-use change studies, van Kooten et al. (2004) found that where opportunity costs were

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taken into account costs rose three to five times compared with studies that did not. Moreover, studies that did include opportunity costs in estimating supply of carbon sequestration included average costs rather than marginal costs. As more forest is conserved the marginal opportunity cost rises, perhaps well above average costs. The cost of conserving forest or planting forest at the margin may well be the indicative costs as far as landowners are concerned (van Kooten et al., 2004). In estimating the opportunity costs of forest conservation, Grieg-Gran (2006) focused on eight countries with large areas of tropical forest: Bolivia, Brazil, Cameroon, Democratic Republic of Congo, Ghana, Indonesia, Malaysia and Papua New Guinea. Annual net forest loss in these countries averaged 6.2 million hectares over the period 2000–2005, amounting to just under half of FAO’s estimate of total global deforestation. Applying the estimates of Kinderman et al. (2008) of the carbon emissions avoided per hectare in the tropical forests of Central and South America, Africa and South-east Asia to the Grieg-Gran (2006) data enables the calculation of the cost per tonne of emissions avoided: an average cost of US$3.8 per tonne of carbon dioxide equivalent (CO2e).30 The results of the Grieg-Gran (2006) study led Stern (2006) to assert that large quantities of CO2e abatement was available in tropical countries at a low cost. Grieg-Gran (2006) estimated the total cost of compensation of $6.5 million for 6.2 million hectares would need to be paid in each year, and administration costs for this scenario by year 10 were reckoned to range between $250 million to just under $1 billion, but the total cost suggested is still a very small price to pay for the 2.6 Gt of CO2e emission avoided. To gain an appreciation of the amount of compensation that might be required for agriculture it is, however, necessary to look beyond matching the crop returns at the smallholder or estate level. By some industry estimates, Indonesian and Malaysian palm oil exporters took in about $20 billion in 2007 from global sales (Wright, 2008). But palm oil is not only profitable for private investors, growers, processors and exporters; it also contributes to public revenues and employment. In 2007, palm oil export revenues in Malaysia and Indonesia amounted to $14 billion and $5.5.billion respectively (AFP, 2008; Wright, 2008). Government coffers also benefit by taxing producers on land and the palm oil processors. In addition, the generation of employment by the industry, both direct and indirect, is also impressive in each of these countries (Nantha and Tisdell, 2009). It cannot be expected that the large international corporations that grow and process oil palm and the governments of Malaysia and Indonesia will quietly accept the return per hectare quoted by Grieg-Gran (2006: 11) of $1700 per hectare, per year, as adequate compensation.

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Taking such factors into account suggests that the scale and complexity of the compensation packages that would be needed to avert the expansion of oil palm is far greater than has been suggested by the Grieg-Gran (2006) study. This estimate of opportunity costs of tropical agriculture is also highly dependent on the assumption that there will be zero displacement of deforestation to other areas. In the face of increasing needs for local food supplies and increasing global demands for their products, as manifest in increasing product prices, the notion that the availability of compensation will bring to an end the need for rural communities in developing tropical countries to cease clearing, also needs to be seriously challenged. Any reduction in the production of export crops could tend to increase global food prices. The returns to agriculture have recently been influenced by a rising demand for palm oil linked to the demand for biofuels. Tacconi (2007a) commented that the returns to palm oil in Indonesia, accounting for some 30 percent of deforestation, were double those in the Grieg-Gran study. The case of the rise in biofuels and the effects on international food prices provide an example in Chapter 6 of the negative social impacts of reducing the amount of arable land available for food crops. To the extent that leakage takes place in the form of increasing deforestation in the country concerned or elsewhere in the tropics, the effective level of carbon protection is lowered and the real price per tonne of emissions abated is increased. 8.5.4

Compensation for Not Clearing is Only Part of the Answer

The economic implications of avoiding deforestation are much broader than indicated by the simple calculation of the direct opportunity costs in terms of the value of agricultural production foregone, which is the methodology employed in most studies of the costs of deforestation avoided. The income generated by development that involves the extraction of timber followed by the building and operating of palm oil mills and operating oil palm estates has a multiplier effect. A proportion of income generated locally is spent locally. There are leakages in saving and spending outside the locality, but the income generated locally would still have a multiplier effect of two or three times. Likewise jobs are created locally which might not be available otherwise. Programs of compensation need not only to include a large number of economic entities, but also to provide production alternatives. The monitoring of these large numbers of agents to ensure that they honor their contracts will incur large transaction costs. As Karsenty et al. (2008) point out, even if there are incentives in the

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shape of carbon credits for the conservation of forests, there are still many external factors such as interest rates, currency exchange rates, relative agricultural prices, agricultural policies, and world demands for food and biofuels that will continue to influence forest cover. Moreover there will be political costs borne by governments in adopting conservation policies that create winners and losers (see Box 8.1). According to Butler and Laurance (2008) the main culprits in tropical forest destruction are now likely to be major corporations engaged in logging, farming, exotic tree plantations and oil and gas development, rather than rural farmers. If this is so, then opportunities as well as serious challenges for conservation interests open up; the targeting of trade groups and corporations that are sensitive to public opinion could be influential in determining the fate of tropical forests. 8.5.5

Impacts of Avoiding Deforestation on Local Communities

In the Grieg-Gran (2006) study of the cost of half tropical deforestation much of the agricultural activity to be compensated was the growing of food crops. Food crops tend to generate less income than oil palm and therefore require less compensation per hectare, making projects in foodcrop growing areas more attractive to the purchasers of forestry offsets. The reduction in the ability of communities to grow food crops may well have undesirable social consequences. Such a program needs to be evaluated from an ethical point of view since it could condemn poor communities to continued poverty and leave them vulnerable to food insecurity. Also noted by Karsenty et al. (2008) is the criticism of REDD by the NGO community that the state will increase its control over forests and may exclude community forestry in its bid to gain credits from the reduction in deforestation or forest degradation. 8.5.6

Secondary Benefits of Avoiding Deforestation

In the studies of carbon price and the carbon sequestration potential reviewed above, there was no estimate of the secondary benefits of avoiding deforestation or reforestation and afforestation, yet these are often substantial. Benefits are environmental, such as conservation of biodiversity and improved water quality, as well as social, such as improved fuel supplies. The estimation of the value of these non-market goods and services and their value for inclusion in market models is extremely difficult, if not impossible. This means that there is likely to be a continual underestimation of the total benefits of avoided deforestation. (The biodiversity implications of incentives for forestry are the focus of Chapter 4.)

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BOX 8.1 PAYMENTS FOR AVOIDING DEFORESTATION IN DEVELOPING COUNTRIES: THE CASE OF PAPUA NEW GUINEA Papua New Guinea (PNG), a country straddling the equator north of Australia, has massive carbon stores in its primary forests. Deforestation is at a rate of 139 000 hectares a year, mainly for smallholder subsistence crops but also for palm oil production. PNG also hosts a logging industry exploiting several large concessions. At the United Nations Framework Convention on Climate Change (UNFCCC) in Montreal in 2005, PNG, along with Costa Rica, spearheaded the reconsideration of the application of incentives to avoid deforestation in developing countries. The move was successful in that discussions have ensued in the UNFCCC on amending the Kyoto Protocol. Guaranteeing the permanent protection of primary forest in PNG will be hampered by weak governance and pervasive and strong customary land tenure. The question looms large whether the compensation to conserve carbon rather than grow crops would be equitably distributed and efficiently used. Landowners receive only a small proportion of the value of exported logs, the government retaining the larger share of the proceeds even though customary tenure of land, and by implication the ownership of the forest, is enshrined in the PNG constitution (Hunt, 2002). Investors in forestry offsets will need to be convinced that PNG is a profitable place in which to invest in carbon sequestration. Establishing project baselines for forest and carbon, and monitoring forest areas using remote sensing will be expensive. Carbon investment on any scale from the private sector seems unlikely unless the investor is also a donor, such as Australia, willing to bear the high risks. The irony is, however, that by the time any renewed Kyoto incentive scheme that compensates developing countries for avoiding deforestation becomes a reality, that is post-2012, PNG’s remaining commercially viable logging concessions are all likely to have been committed to logging. Post-2012, PNG may well have no areas of forest to bring to the table in which it can

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claim it is avoiding deforestation (Hunt, 2006). If the aim on the other hand is to reduce deforestation by smallholder cropping and oil palm estates then negative social and economic consequences could result that would need to be addressed. Unless the PNG state successfully transfers income from the sale of forestry offsets to local communities, agricultural activities and the clearing of forests are likely to continue. The case illustrates that governments of developed countries and investors need to be aware of the wider consequences of large-scale conservation of forests for their carbon value and the need to formulate integrated development proposals for the developing countries affected.

Figure 8.7

8.5.7

© 1989 Scott Willis, San Jose Mercury News

Prospects for Harnessing Private Sector Funds

While this book has supported market approaches to the inclusion of forestry in climate change policy, it has also pointed to the low level of support for forestry instruments in the global markets under the Kyoto Protocol. This section takes a closer look at whether such a market approach to REDD will attract private investment.

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To be credited, any REDD scheme must prevent deforestation or forest degradation that would have taken place without the scheme. This means that some or all of the instrumental actors – individuals, communities, commercial enterprises (both indigenous and multinational), institutions and government departments – must be persuaded with financial or other incentives to change their behavior. Under the market model the funds to compensate the actors for their loss of income, and to provide alternatives, are to come from the demand for forestry offsets from the private sector within countries with binding emission targets who wish to reduce their cost of compliance. Chapter 1 provides models of how forestry offsets in the case of reforestation and afforestation can be effective in reducing compliance costs. Implicit in most REDD schemes that have been proposed in workshops and elsewhere is the control of the processes by the developing country itself. This recognizes developing country sovereignty and is deemed essential for developing country participation. Schlamadinger et al. (2005: 56) offer specific advice on the form of credits and the responsibility for enhanced emissions. Investors cannot be held liable for the possible failure of measures introduced by governments: ‘It is a prerequisite that the host country assumes full liability for the carbon stocks, not only in the commitment period during which the credits are issued but also in future commitment periods, and for all lands that were monitored and accounted for at the outset’ (Schlamadinger et al., 2005: 56). This is already the approach used for Annex I countries under the Kyoto Protocol. Modifications could be made to accommodate countries with decentralized forest governance. The private sector, having invested in a project, will look to a return on its investment in the form of marketable credits issued by the developing country, certified by an international agency similar to the CDM Executive Board, or in the form of payments generated by the sale by governments of certified REDD credits. The developing country government would be in control of how it persuaded the actors within its borders to change their practices, soliciting international support from the private sector and funds for programs such as lifting agricultural productivity which would augment the cash incentives to agricultural producers. 8.5.7.1

Funding of REDD is indirect compared with funding for afforestation and reforestation under the CDM Unlike project development in the case of afforestation and deforestation where the investment is relatively direct, that is the process of establishing and monitoring tree plantations, the incentive packages under a REDD

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Carbon sinks and climate change

scheme would need to be multifaceted, taking account of the idiosyncratic proximate and indirect drivers of the deforestation and degradation which is to be halted. The returns from the sale of REDD credits would need not only to contribute substantially to the opportunity costs to producers, but also to the costs of government agencies to promote the scheme’s training programs for communities in alternative agricultural practices and in forest stewardship. The costs of ongoing monitoring of the forest, including the prevention of illegal logging of the forest, now forming part of the forest carbon inventory of the developed country, would also need to be covered by sales of credits. Where logging is to be terminated the incentive payments may need to be made not only to the landowner and government recipients of logging proceeds but also to the multinational logging companies whose activities and profits are reduced (Hunt, 2002). Likewise, in the prevention of deforestation by avoiding the establishment of plantations or smallholder oil palm there may be demands not only from farmers and oil palm mills for compensation but also to the myriad businesses that service the oil palm industry who also forgo income. The multiplier effect of logging and oil palm and other agricultural crops is completely ignored in most estimates of opportunity costs. Given the likely complexity of arrangements to compensate for reducing deforestation, REDD is unlikely to be cheap, or indeed quick, as claimed by Stern (2006). The returns from REDD credits would need to be sufficient to generate a margin over and above costs of compensation sufficient to make it profitable for the private sector to invest. However, the stringency of future binding targets on developed countries post-2012, which will determine the price of REDD credits, is unknown. The difficulty of linking funding with the result in terms of REDD credits generated, the issue of which is controlled by the government of the developing country, throws doubt on whether the private sector would have an incentive to invest specifically to acquire REDD credits. It is far more likely that the private sector’s role would be in the investment in projects that are tendered by governments as part of their REDD programs. As pointed out above, these will vary from the organization of simple compensation payments to landowners, to retraining activities, to preventing illegal logging. The funding of government and community efforts to clarify, assign and enforce property rights are also a precondition for effective REDD in many countries (Chomitz et al., 2007). The form of the credits generated by REDD needs to be established. Will credits generated be temporary, like those under the CDM and as advocated by Mollicone et al. (2007)? It is salutary to examine the very small contribution of A/R under the CDM, as illustrated in Chapters 2

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and 7. The small role of A/R is due partly to the absence of the US and the EU from the market for CERs and its late start, but it is also due to costs of mounting such projects, combined with the low prices for CERs forced down by their temporary nature, making investment in them unattractive to investors and leaving the World Bank as the largest investor. A developing country will be loath to invest in REDD if its returns on the sale of REDD credits are low, relative to costs, as a result of price discounting linked to their risk and temporary nature. The issues of accounting for REDD carbon, devising baselines, preventing leakage and guaranteeing permanence are all subject to work in progress. Yet these issues need to be resolved if a scheme is to be agreed upon by the countries subject to a cap plus the majority of forested developing countries. There is also a risk that, if certified REDD credits did flow in sufficient volume to make a measurable difference to the rate of deforestation and forest degradation, they would undermine the price of emissions allowances by capped countries and thus undermine the rewards of adopting other types of non-forestry carbon-saving initiatives. On the other hand, there is no guarantee that the cuts and the consequent price of offsets will be high enough to provide a stimulus to tropical developing countries and, indirectly, the private sector to invest in REDD. The price of REDD offsets will be dependent on the price of emissions allowances, and this in turn will be determined by the deepness of the cuts in emissions by capped countries, as already emphasized, but this is yet unknown. Given the multiple difficulties and risks of proceeding with a mechanism linked to demand by capped countries for REDD offsets, a conclusion is drawn that the direct funding of REDD by international agencies and governments is a much more certain route, at least in the near future. 8.5.7.2 Funding of REDD and co-benefits The World Bank’s BioCarbon Fund has pioneered afforestation and reforestation activities under the CDM of the Kyoto Protocol. The BioCarbon Fund funded the Pearl River Basin project in China, the first CDM project to be registered, and reviewed in Chapter 2. A second fund of the World Bank, the Forest Carbon Partnership Facility (FCPF), is aimed at REDD by applying value to the carbon in standing forestry. The FCPF has two parts, the Readiness Mechanism and the Carbon Finance Mechanism. The former assists 20 tropical and subtropical countries in voluntarily readying themselves for future REDD. Strategies are prepared and emissions monitored from deforestation and degradation. The Carbon Finance Mechanism will subsequently select a few countries for the pilot phase which will make incentive payments for independently verified emission reductions by REDD. A variety of approaches will

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be considered for financing and testing, for example, macro policy and legal reforms in forest conservation and management, land-use policies, payments for environmental services, establishment of parks and intensification of agriculture. The target size for the Readiness Mechanism is US$100 million and for the Carbon Finance Mechanism US$200, the sources being both private and government. It is intended that much larger financial flows will be made possible over the medium term through the knowledge and experience developed in the pilot phase (World Bank, 2008). A major problem associated with payments for sequestered carbon is that there are no matching payments available for the conservation of biodiversity or environmental services (Hunt, 2008; Miles and Kapos, 2008). Where payment for forestry offsets is stimulating afforestation and deforestation, monocultures are the likely result, as opposed to mixed species plantings that have greater ecological value. Likewise, in the case of market-based REDD, the carbon investment will be likely to be directed to projects where the cost of carbon conserved is least. This asymmetry in funding between carbon and ecosystems means that there is no guarantee that REDD will make a critical difference to the preservation of tropical forest habitat vital to threatened or endangered ecosystems or species. Under a funds-based approach an integration of carbon and ecosystem investment priorities could more easily be achieved through funds such as the FCPF and the BioCarbon Fund. Projects could be prioritized by the level of carbon preserved in tropical forests together with the level of ecosystem co-benefits that would be achieved.

8.6

CONCLUSIONS AND RECOMMENDATIONS ON REDD

In reviewing key proposals that are on the table for reducing deforestation and forest degradation (REDD) in developing countries, some issues emerged that are bound to affect the inclusion of REDD in a market mechanism. A market mechanism in this context is one where the emission-capped nations offset their emissions and thus lower their costs of compliance by purchasing REDD credits from developing countries. The underlying and most fundamental issue is whether a tonne of CO2e prevented from entering the atmosphere as a result of REDD is equivalent to a tonne of CO2e abated through other measures. Because the protection of a forest is easily reversible in the future, REDD credits may be deemed temporary. If so, then a REDD carbon credit cannot be traded in global markets on the same footing as other units such as Assigned Amount

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Units, the allocation of which reduces emissions permanently. We already see difficulties of permanence in the CDM where forestry credits are not deemed equivalent to, and are therefore discounted heavily compared with, other Kyoto units. If the price of REDD units is low then the incentive to earn them by developing countries will also be low and the potential for REDD will be stalled. Other doubts on the credibility of the quantification of emissions avoided through REDD are thrown up by the following queries: ● ●

●

whether the reduction in a developing country’s emissions by REDD would have happened anyway; whether leakage internationally is being fully accounted for given that not all nations are expected to enter a voluntary scheme for REDD; whether degradation is being fully accounted for.

Operational difficulties extend to the method of rewarding countries that have reduced their deforestation below their baseline or target. The total global reduction in emissions from REDD may be compromised by some countries failing to meet their targets. This would mean a discounted distribution of REDD credits to countries that had made progress. But the introduction of penalties for exceeding targeted levels of emissions would have the undesirable consequence of deterring countries from entering the REDD scheme. Moreover, it seems unavoidable that national targets negotiated will be based on political compromises and as such may tend to undermine the veracity of the REDD achieved and consequently the value of credits in a market. A further operational limitation that applies to a market-based mechanism, where nations subject to a cap on their emissions invest in the delivery of REDD offsets, is the indirect nature of the investments that need to be made. To make progress, policies and institutions need to change, pervasive illegal logging needs to be stopped, large multinationals need to be somehow mollified, and agricultural communities need to be convinced that abandoning agricultural development and replacing it with stewardship of the forest will benefit them socially and economically. The poor state of governance in many of the countries responsible for most of the emissions from deforestation and forest degradation increases the risk to investors who will be concerned whether the funds advanced against future REDD credits will in fact reach their targets. Guarding against risks of failure of projects is another factor that, together with its other political, economic and socioeconomic complexities, could make REDD much more expensive than has hitherto been suggested by

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prominent researchers and commentators. To tackle poor law enforcement and corruption, action will be required not just by governments initiating REDD programs but by concerted efforts by industries, the general public and forest communities within countries as well as consumer groups outside them. The funds-based approach is preferred notwithstanding the emphasis given a market approach to REDD in the Waxman-Markey Bill, H.R.: 2454: American Clean Energy and Security Act of 2009. In the near term, REDD should augment the reduction of emissions from the burning of fossil fuels, rather than offer a way of offsetting and reducing the cost of such reductions. There is urgency in the need to reduce the rate of deforestation both from a climate change and a biodiversity conservation perspective. Existing programs can be stepped up immediately, thus supplementing the development of a post-Kyoto agreement that sets global and national targets for the reduction of greenhouse gas emissions. The funds-based approach also shows promise in being able to expeditiously couple the funding of biodiversity conservation and socioeconomic goals with that of carbon sink protection. If a market-based REDD scheme does emerge, the funds-based approach will have contributed much to its development.

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regime, avoided deforestation and the evolution of public and private policies towards forest in developing countries”, Paris, 21–23 November, 2007’, International Forestry Review, 10(3), 424–8. Kinderman, A., M. Obersteiner, B. Sohngen, J. Sathaye, K. Andrasko, E. Rametsteiner, B. Schlamadinger, S. Wunder and R. Beach (2008), ‘Global cost estimates of reducing carbon emissions through avoided deforestation’, Proceedings of the National Academy of Sciences, 105, 10302–307. Lambin, E. and H. Geist (2003), ‘Regional differences in tropical deforestation’, Environment, 45, 22–36. Laurance, W. (1998), ‘A crisis in the making: responses of Amazonian forests to land use and climate change’, Trends in Ecological Evolution, 13, 411–15. McCarthy, J. (2007), ‘Turning in circles: district governance, illegal logging and environmental decline in Sumatra, Indonesia’, in L. Tacconi (ed.), Illegal Logging: Law Enforcement, Livelihoods and the Timber Trade, London and Sterling, VA: Earthscan, pp. 68–90. Miles, L. and V. Kapos (2008), ‘Reducing greenhouse gas emissions form deforestation and forest degradation: global land use implications’, Science, 320, 1454–5. Mollicone, D., F. Achard, S. Federici, D. Eva, G. Grassi, A. Belward, F. Raes, G. Seufert, H-G. Stibig, G. Matteucci and E-D. Schulz (2007), ‘An incentive mechanism for reducing emissions from conversion of intact and non-intact forests’, Climatic Change, 83, 477–93. Nantha, H. and C. Tisdell (2009), ‘The orangutan–oil palm conflict; economic constraints and opportunities for conservation’, Biodiversity and Conservation, 18(2), 487–502. Norton-Griffiths, M. and C. Southey (1995), ‘The opportunity cost of biodiversity conservation in Kenya’, Ecological Economics, 12(2), 125–39. Olander, L., H. Gibbs, M. Steininger, J. Swenson and B. Murray (2008), ‘Reference scenarios for deforestation and forest degradation in support of REDD: a review of data and methods’, Environmental Research Letters, 3(2), 2–11. Rijksen, H. and E. Meijaard (1999), Our Vanishing Relative: the Status of Wild Orangutans at the Close of the Twentieth Century, Dordrecht: Kluwer. Santilli, M., P. Moutinho, S. Schwartzman, D. Nepstad, L. Curran and C. Nobre (2005), ‘Tropical deforestation and the Kyoto Protocol’, Climatic Change, 71, 267–76. Schlamadinger, B., L. Ciccarese, M. Dutschke, P. Fearnside, S. Brown and D. Murdiyarso (2005), ‘Should we include avoidance of deforestation in the international response to climate change?’, in D. Murdiyarso and H. Herawati (eds), Carbon Forestry, Who Will Benefit?, Proceedings of the workshop on carbon sequestration and sustainable livelihoods, 16–17 February, Bogor, Indonesia: CIFOR. Skutsch, M., N. Bird, E. Trines, M. Dutschke, P. Frumhoff, B. de Jong, P. van Laake, O. Masera and D. Murdiyarso (2007), ‘Clearing the way for reducing emissions from tropical deforestation’, Environmental Science and Policy, 10, 322–34. Solomon, D., D. Qin, M. Manning, Z. Chen, M. Marqui, K. Averyt, M. Tignor and H. Miller (eds) (2007), Climate Change 2007: The Physical Science Basis, Contribution of Working Group 1 to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge, UK and New York, NY: Cambridge University Press.

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Notes 1. Nordhaus is conservative in using a 4 percent discount rate in calculating damages and suggests a tax of US$9.30 per tonne of CO2e in 2010 (Nordhaus, 2007: 62). Nordhaus criticizes the strategies for tackling climate change proposed by Stern (2006) and Gore (2007), calculating that they will require taxes in the order of US$150 to US$250 per unit of emission, a level of taxation that would, he suggests, incur large economic costs (Nordhaus, 2007: 63). 2. Kyoto units, all equal to one tonne of CO2e, include assigned amount units (AAUs) allowances issued by Annex I countries against their national registries; removal units (RMUs) derived from removals by sinks, including forestry; emission reduction units (ERUs) issued under Joint Implementation project activities and converted from AAUs or RMUs and certified emission reduction units (CERs) sequestered or abated under the Clean Development Mechanism (CDM) (UNEP Risoe, 2008). 3. To maintain consistency throughout the book definitions used to describe plantation forestry are those that were adopted by the UNFCCC at a meeting of the parties to the Protocol (UNFCCC, 2006a: 5), defining the allowable activities in the first commitment period (2008–2012) as follows: ●

●

Afforestation (A): The direct human-induced conversion of land that has not been forested for a period of at least 50 years to forested land through planting, seeding and/or the human-induced promotion of natural seed sources. Reforestation (R): The direct human-induced conversion of non-forested land to forested land through planting, seeding and/or the humaninduced promotion of natural seed sources, on land that was forested but that has been converted to non-forested land. For the first commitment period reforestation activities will be limited to reforestation occurring on those lands that did not contain forests on 31 December 1989.

4.

In the case of forest management, under Article 3.4, there is a cap of 15 percent on projected removals or 3 percent of base year emissions, whichever is less, on the amount that can be credited by a country in the first commitment period. Forest management removals are accounted for in the year that they occur rather than against a baseline of 1990. This cap and the accounting method ameliorate the problem that forests can deliver windfall gains from natural effects or actions taken before 1990 and these could enter the accounting system (Schlamadinger et al., 2007a). Forest management largely through reforesting after harvested, is expected to be a major source of carbon credits in the US. 5. As discussed in Chapter 7, A/R costs are higher in the EU than elsewhere and this would have contributed to the EU’s lack of support for the inclusion of LULUCF in the Kyoto Protocol. 218

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6. In Chapter 5 it is emphasized that estimates of CO2e removal rates by forests should be based on local data or growth models that reflect the slow growth rate of trees in the years immediately following establishment. 7. The danger of CDM projects crowding out the potential for developing countries to take initiatives themselves is highlighted by Wara (2007). 8. The questions of permanence of plantation forests, together with the difficulty of measuring the additional carbon sequestered and accounting for it, delayed the inclusion of afforestation and reforestation under the Kyoto Protocol until 2005. However, in contrast to the active voluntary market, no A/R projects had reached a stage at the end of 2008 where units of emission reductions, CERs (which are equal to 1 tonne of CO2e removed from the atmosphere), had been issued and could enter the market. The lengthy gestation of the development of the protocols for A/R, which came into force only in 2005, the complexity of methodologies and the long length of the CDM approvals pipeline, are causes. There are 10 approved A/R projects in the CDM pipeline that have the potential to generate 0.495 Mt of offsets (in the form of CERs) a year (UNEP Risoe, 2008). But this is still a small amount, compared with A/R in the voluntary market, which generated 6.5 Mt in 2007 (Hamilton et al., 2008: Table 2; Figure 12). 9. Other climate models with different profiles for the MSC of carbon to the one investigated will generate different results. Earlier studies by Fearnside et al. (2000) and Moura-Costa and Wilson (2000) accounted for CO2 removals by forestry against the fraction of CO2 emissions that remain in the atmosphere for 100 years after emission, as described by Houghton et al. (1994), where the decay pattern is a surrogate for marginal social costs inflicted by CO2 emissions. The shape of this decay curve for CO2 means that higher costs are generated in the early years than in the model of damage costs used, based on Nordhaus (1994), in which the damage costs are low initially but build over time as shown in Figure 3.5. 10. The term afforestation used by the CCX includes reforestation. 11. The global warming potential of greenhouse gases is expressed in terms of their carbon dioxide equivalent (CO2e), the commodity traded in global carbon markets (IPCC, 2007: Table 2.14). 12. The December 2007 UNFCCC Bali Climate Change Conference accepted the need for incentives for conserving tropical forests given that their destruction contributes some 17 percent of greenhouse emissions. However, a scheme that rewards avoidance of deforestation and degradation, and that would conserve both carbon sinks and biodiversity, has not yet been negotiated by parties to the Kyoto Protocol and in any case could not come into effect until 2013 after the Protocol’s first commitment period expires. 13. The Greenhouse Gas Protocol of the World Resources Institute is a scheme that includes forestry but it is confined to standards for meeting regulatory carbon targets or validating the carbon in voluntary offset schemes (World Resources Institute, 2008). 14. Catterall and Harrison (2006) provide a synopsis of reforestation activities in north Queensland. 15. Inclusion of the height of trees in allometry can improve precision. However, the measurement of height can be very time consuming and in any case it is extremely difficult, often impossible, to see the tops of trees in a rainforest. Basing equations on tree diameter alone is thus more useful (Brown, 2002).

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16. The general procedures adopted for reforestation are to kill all weeds and grass before planting and fertilizing 3250 seedlings per hectare and following up with weed maintenance over a three- or four-year period. See Hunt (2008) for more details of the practices and costs in establishment and maintenance of mixed rainforest species in the study area. 17. The price for carbon offsets in Australia has ranged between US$7.00 and US$13.00 per tonne of CO2e (Hunt, 2008). Prices by developers internationally tend to be lower, at around US$6.00 (Hamilton et al., 2008). 18. The value is ‘notional’ in that it will never be realized. While the rainforest that was measured is on private land, it is protected by a covenant and the owner could therefore not claim compensation for not clearing the land under a REDD policy. Much of the rainforest in the region is also protected under Queensland state and Australian government legislation. The clearing that does take place is of so-called regrowth that, however, can be anything up to 60 years old. 19. In the north Queensland situation it was found that it is more profitable from a carbon market perspective for private landowners to grow monocultures rather than mixed native species; and it is more profitable to grow monocultures purely for their carbon content, rather than for harvest, at current prices for timber. The biodiversity value of monocultures is much less than environmental plantings and is thus an issue in the study area where restoration of habitat is an ecological imperative (Hunt, 2008). Under Australia’s carbon pollution reduction scheme the credits for carbon dioxide removals by harvested plantations are subject to a permit limit based on the average carbon sequestered (Australian Government, 2008), rather than on an annual credit–debit basis used in this example to compare harvested and unharvested plantations. 20. Biogasoline includes bioethanol (ethanol produced from biomass and/or the biodegradable fraction of waste), biomethanol (methanol produced from biomass and/or the biodegradable fraction of waste), bioETBE (ethyl-tertiobutyl-ether produced on the basis of bioethanol; the percentage by volume of bioETBE that is calculated as biofuel is 47 percent), and bioMTBE (methyltertio-butyl-ether produced on the basis of biomethanol: the percentage by volume of bioMTBE that is calculated as biofuel is 36 percent). Biodiesels include biodiesel (a methyl-ester produced from vegetable or animal oil, of diesel quality), biodimethylether (dimethylether produced from biomass), Fischer Tropsh (Fischer Tropsh produced from biomass), cold pressed bio-oil (oil produced from oil seed through mechanical processing only) and all other liquid biofuels which are added to, blended with or used straight as transport diesel. Other liquid biofuels include liquid biofuels not reported in either biogasoline or biodiesels (Energy Information Administration, 2007). 21. The GHG saving depends largely on the fuel source of the ethanol plant (Wang et al., 2007). 22. The trade in emissions allowances and in credits generated by land-use change and forestry both internationally and within countries is in terms of tonnes of CO2 equivalent (CO2e), the main GHGs being converted to CO2e according to their global warming potential. 23. Some countries such as Australia were allowed to increase their emissions, while others such as the United Kingdom accepted caps greater than 5

Notes

24.

25. 26. 27.

28. 29.

30.

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percent, as set out in Annex B of the Kyoto Protocol (United Nations, 1998). The Western Climate Initiative is by US states California, Montana, New Mexico, Oregon, Utah and Washington and by Canadian provinces British Columbia, Manitoba, Ontario and Quebec (Western Climate Initiative, 2008). The Regional Greenhouse Gas Initiative is by the 10 US states Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont (Regional Greenhouse Gas Initiative, 2008). Here, ‘afforestation’ includes ‘reforestation’. In Australia the term ‘reforestation’ is used rather than ‘afforestation’ because most lands were forested in the recent past. In the Australian scheme RMUs will be accepted, as will non-forestry CERs, and ERUs created under JI in the first commitment period, but Australia will not host JI projects. Assigned amount units (AAUs) will not be accepted in the first commitment period nor will temporary certified reduction units (tCERs) and long-term certified reduction units (lCERs) generated by afforestation/reforestation projects under the CDM. That is, there would be no opportunity for the Australian government or entities covered by the scheme to purchase AAUs from other countries, or tCERs and lCERs, to reduce the costs of making cuts in emissions. A commitment period is the discrete accounting period for reduction in GHG emissions agreed in UNFCCC negotiations. At the second UNFCCC (2007) workshop on reducing emissions from deforestation in developing countries there was also disquiet over the inclusion of reduced emissions through afforestation and reforestation given that this is covered by the CDM. Regarding approaches of rewarding countries with lower deforestation rates than the global baseline, views were expressed that positive incentives should be confined to actual reductions in national emissions. Where CO2e is the expression of the global warming potential, in terms of CO2, of the major greenhouse gases.

Index accounting for emissions from degradation 194 additionality and establishing a baseline 128 additionality of carbon measured in forests 133 afforestation definition 104 in US cap and trade scheme 169 afforestation and biofuels in USEPA modeling 169 afforestation and deforestation New Zealand cap and trade scheme 176 afforestation defined 104 afforestation/reforestation (A/R) 69, 104, 114 bankability of credits 45 biodiversity loss 100 carbon sequestration by location 85 costs in the CDM 63 first commitment period 46 CO2e removal by 2012, potential 45 importance 45 importance in voluntary market 77 in CDM 41 in first commitment period 179 investment risk 182 proportion of projects in pipeline see CDM registration of projects under the CDM 45, 57 responses to payments 29 sale of carbon sequestered ex ante 92 social costs offset, not offset 88 Africa 25, 27, 45, 46, 50, 80, 92, 95, 97, 99, 182, 188, 190, 204 biofuels 154 agricultural commodity prices cap and trade in US 170

agricultural offsets in US cost of emission reductions 168 allometric equation carbon measurement in forests 126 Amazon 193, 194 deforestation and price of soybean 156 Amazon Basin deforestation 155 Amazonia 156 Annex B countries AAUs 166 cut in greenhouse gas emissions 33 Kyoto Protocol 33 Araucaria cunninghamii 85, 131, 136, 160 Asia 5, 25, 27, 45, 46, 73, 80, 92, 95, 97, 98, 99, 182, 188, 204 forestry offset projects 73, 75 source of biofuels 161 assigned amount units (AAUs) 12, 14, 16, 18, 34 asymmetry in funding biodiversity and carbon sequestration 212 atmosphere as unmanaged commons 33 atomic weight of carbon (C) 24 Australia avoided deforestation 114 biofuels program 158 cap and trade scheme 18, 118, 162 carbon accounting model 125 carbon capture and biodiversity 106 carbon pollution reduction scheme 112 cost of measurement of carbon in forests 136 demand for offsets 72 emission targets 175 emitter of greenhouse gases 167 forest area 96 forestry in climate change policy 61 forestry potential 167

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Carbon sinks and climate change

GHGs per person 167 government control of forests 29 government guide to forest sink planning 85 Greenhouse Challenge Program 82 Greenhouse Friendly Scheme 68, 76 importance of A/R 5 Kyoto Protocol 11, 91 Kyoto Protocol, LUCF arrangements 37 Kyoto target 37 LULUCF 35, 83 measuring the carbon in forests 122, 126 national carbon accounting toolbox 140 offset projects 73 offset providers 75, 94 offset retailers 74 reforestation 30, 45 targets and LULUCF 35 voluntary offsets market 176 avoided deforestation as a voluntary offset 81 Bali Action Plan 189 Bali climate change conference 123 avoided deforestation 92 REDD 81, 184 bankability of forestry CERs 180 baseline methodology, CDM 49 Berendt federal standards forestry 171 BioCarbon Fund 62 pioneer in A/R in CDM 211 biodiesel comparison with reduction in GHGs by plantations 161 nitrous oxide emissions 154 biodiesel feedstocks in US and Europe 145 biodiversity implications of A/R in Tanzania 111 biodiversity implications of forestry offsets in Annex I countries 104 biodiversity implications of innovative funding mechanisms for voluntary REDD schemes 115 biodiversity implications of US cap and trade scheme 169

biodiversity standards in voluntary forestry offset schemes 112 bioenergy crops, profitability 161 bioethanol 145 biofuels and land use 161 carbon debts, Brazil 156 commercialization of new technology 148 cost per tonne of CO2e emissions avoided 154 deficit, US 151 deforestation in the Amazon Basin 155 economic cost 157 food prices 151 from forest residues 158, 161 from peat lands, Indonesia and Malaysia 156 from wood 154 indirect impacts on GHGs 153 land area devoted to 152 land as limiting factor 154 life-cycle analysis of GHGs 153 limits to land 150 perverse incentives 157 plantations and competition for land 158 policy 161 prices of corn and soybean, US 155 research 150 Quebec 157 savings in GHGs, direct and indirect 153 biofuels subsidies indirect effects 155 ‘knock on’ effect 155 price of corn and soybean 155 US and EU 153 biologically diverse regions 97 Bolivia 192 tropical forest 204 Borneo 197 Boston University xi bottom-up studies of forestry potential 169 Brazil 5, 44, 96, 98, 99, 147, 201, 202 biofuel crops 156 biofuels 148 biofuels and carbon debts 156

Index costs of ethanol production 153 sugarcane for ethanol 145 sugarcane production forecast 161 source of biofuels 161 tropical forest 204 Brazilian Amazon illegal logging 201 Brazilian ethanol GHG emissions 151 Britain, biofuels 157 Bush 146, 148, 150 buyers of afforestation and reforestation projects in the CDM 46 California cap and trade 105 Climate Action Registry 79, 114 forestry protocols 18 Cameroon tropical forest 204 CAMFor (see National Carbon Accounting System) 129, 134, 174 carbon measurement in forests 127 predicting carbon sequestration 129 Canada government control of forests 29 offset projects 73 offset retailers 74 permanence of forests 41 reforestation on private land 29 Canadian provinces cap and trade 167 Cangwa County 109 cap and trade 11 pricing of GHGs 163 cap and trade in-country 18 cap and trade schemes main mechanism for emission abatement 166 New Zealand 18 Western Climate Initiative 167 caps on greenhouse emissions 12–13 global 12 carbon accounting 134 Carbon Conservation Ltd 115 carbon credits commercialization in forestry 54 Ulu Masen avoided deforestation project 115

225

carbon dioxide equivalent (CO2e) 8, 67, 204 Carbon Finance Mechanism 211, 212 Forest Carbon Partnership Facility 116 pilot phase 211 carbon in trees 124 carbon measured and conversion to CO2e 130 carbon measurement in forest 125 carbon neutrality, forestry projects 86 carbon neutrality by purchasing offsets 71 Carbon Pollution Reduction Scheme forestry buffer 174 generations of permits by forestry 175 policy on forestry CERs 174 carbon sequestered additionality in plantations of rainforest species 133 by monoculture 86 harvested and unharvested plantation 132 carbon sequestration and biodiversity mutually exclusive or complementary? 107 carbon sequestration and biodiversity Australia 107 carbon sequestration rates 124 carbon sequestration, incremental nature 85 carbon sink/biodiversity protection coupled 214 carbon sinks biodiversity benefits 116 carbon, old growth forest 130 carbon-neutrality with offsets 70 Caribbean 97, 99 catastrophic climate change 170 ‘catch-22’, offset costs and food prices 170 CBD 100, 101, 102 CCX (see Chicago Climate Exchange) 15, 68, 73, 75 and REDD 84 buffer stocks 83 CO2e reduction schedule 75 crediting of carbon sequestered 74

226

Carbon sinks and climate change

differentiation between native species and exotic monocultures 104 fungibility of forestry offsets 83 limits on offsets 77 permanence 84 sale of forestry credits 84 CDM 16, 38 and biodiversity 108 carbon measurement protocol 137 Executive Board 209 forestry case study, China 58 forestry contribution to CO2e removal 182 forestry in pipeline 76, 179 forestry policies post-Kyoto 178 future A/R arrangements 181 incentive for forestry 29 investors’ liability 198 policy analysis 180 projects financing of 179 registration of forestry projects 44 replacement of forestry CERs 51 road to 40 rules for forestry 44, 180 small-scale forestry projects 39, 58 sustainable development 39 temporary CERs 181 temporary nature of forests 178 cellulosic biomass sources in US and EU 161 cellulosic ethanol substitution for fossil fuels 145 lifecycle GHG emissions 158 cellulosic feedstock savings of GHGs 154 Central and South America 25 certainty equivalent discount rate forestry offset projects 87 certified emission reductions (CERs) Carbon Pollution Reduction Scheme 174 equal to 1 tonne CO2e 179 sale and purchase 39 sale of, Pearl River CDM project 110 sale of, Tanzanian CDM project 111 temporary under the CDM 196 Certified Emission Reductions under the CDM 47

characteristics of a federal cap and trade scheme 167 Chicago Climate Exchange (see CCX) 74 China 44, 96, 109, 184 afforestation 98 biodiversity 59 demand for forestry offsets 184 forestry, Kyoto Protocol 44 greenhouse gas emissions 169 watershed management in the Pearl River Basin 58 Clean Development Mechanism (see CDM) climate change policy New Zealand 176 Climate Change Registry forestry protocols 18 Climate Community & Biodiversity Alliance 112, 182 certification of forestry projects 92 climate policy and forestry in Australia and New Zealand 173 in the EU 171 in the US 167 Climate Wedge 75 Clinton Climate Initiative 125 Clouded Leopard 110, 115 CO2e (see carbon dioxide equivalent) equivalence of CO2e in sources 123 CO2e equivalence in REDD 212 Collins, corn-based ethanol 158 Colombia, expiry of carbon credits 41 commercialization of carbon credits in forestry 52 Commission of the European Communities avoiding deforestation 174 forestry plantations, EU 172 communities in tropical forests substitution of agriculture for biodiverse forest 100 confidence interval results of carbon measurement 126 Congress cap and trade 171 Conservation Reserve Program (CRP) 159

Index Convention on Biological Diversity 100, 116 lack of economic incentives 103 Convention on Migratory Species 101 Convention on the International Trade in Endangered Species of Flora and Fauna 101 conventional economic analysis and unpriced economic benefits 100 conversion of forests to agricultural land 97, 99 COP 9, tCERs, lCERs 41 Copenhagen climate change conference 4, 63, 161, 173, 189 corn ethanol substitution for fossil fuels 145 corn ethanol, US indirect GHG increase 156 corruption and REDD 200 cost not offset by ex ante forestry offsets 86 cost of compensation in REDD 204 cost of sequestered carbon native species versus monocultures 30 Costa Rica 193, 209 costs and funding of forestry in CDM 50 costs of carbon sequestration, US and Europe 172 costs of measurement of carbon in forests, Australia 136 cropland required for biofuels, EU 146 CRP lands, biofuels 161 DBH see diameter at breast height definitions, afforestation and reforestation 104 deforestation and demand for agricultural products 187 GHG emissions 187 incentives lack 123 incentives to reduce 189 measures to avert 161 underlying causes 190 deforestation and biofuels Amazon, Indonesia, Malaysia 156 deforestation and degradation causes 190

227

deforestation forecast under business as usual 189 deforestation in tropical developing countries, GHGs 181 DEFRA 105 Democratic Republic of Congo 98, 99, 202 tropical forest 204 density of wood, carbon in trees 124 Department of Energy, biofuels 157 Designated National Authority, CDM 49 Designated Operating Entity, CDM 49 developing countries caps on emissions 177 exempt from caps on emissions 38 developing country sovereignty and REDD 209 diameter at breast height (DBH) carbon measurement in forests 126 discount rate marginal social costs 9, 54, 55, 85 displacement of deforestation and REDD 205 drivers of biodiversity loss human population and consumption increase 101 drivers of deforestation proximate and direct 99 dry matter estimation measuring carbon in forests 124 Eastern Europe, Kyoto Protocol 44 economic growth 99 economics of ethanol from wood 160 EcoSecurities, buying CERs 46 ecosystem loss 100 ecosystems and ecosystem services 99 emission allowances and offsets 122 trade in 20 Emission Reduction Purchase Agreement, CDM 49 emission taxes 8 emissions from non-Annex I countries 178 estimation of carbon sequestered project level and in-country 124 estimation of carbon sequestered per hectare, reforestations 130

228

Carbon sinks and climate change

ethanol and biodiesel from wood GHG savings analysis 162 ethanol from logging residues 158 ethanol from wood 160 EU biofuels policy 144, 156 feedstocks for bioethanol 145 REDD policy 172 source of cellulosic biomass 161 subsidies for biofuels 148 tariffs on biofuels 149 Western Europe, JI funding 38 wood for biofuels 159 EU Emission Trading Scheme (EU ETS) 5, 61, 167 allocation of allowances 17 forestry offsets 105 forestry plantations 172 EUROPA 61, 172, 173 Europe, wood for energy 158 European Parliament biofuels from sustainable sources 157 Executive Board of CDM 46, 48, 49, 58, 67, 76, 109, 137 expansion of agriculture indirect drivers 99 extensification of agriculture 99 failed states and REDD 200 FAO 95, 96, 97, 98, 99, 102, 123, 138, 204 Fauna & Flora International 115 financial risks in CDM forest project development 55 financial viability, offset projects 109 first commitment period, 2008–2012 see Kyoto Protocol first generation biofuels 145 flexibility mechanisms, cap and trade 166 food prices biofuels 153 cap and trade 170 forecasting carbon sequestration in commercial plantations 131 forest and land ownership, developing countries 190 forest carbon 3, 4, 74, 81

Forest Carbon Partnership Facility 116, 211 funding 116 forest management carbon sequestration 168 in US cap and trade scheme 169 forest plantations effectiveness in GHG reduction, compared with biofuels 161 forest plantations global 98 harvesting forest plantation and carbon sequestration 87 forest sector emission allowances generated 167 offsets generated 167 forest sinks on private land in US and price of CO2e 169 forestry and cuts in emissions 183 in models of abatement 28, 27 limited role in mitigating climate change 31 forestry CERs intrinsic value of 180 issue of in CDM 112, 179 replacement in CDM 179 Forestry Commission Scotland 105 forestry for carbon capture and biodiversity in Australia 106 forestry in cap and trade in Australia 173 forestry in complying with targets 34 forestry in the Kyoto Protocol 33 post-Kyoto role 184 potential by 2012 44 potential role 166 forestry in US cap and trade design features 171 forestry offset projects benefits in developing countries 182 ex ante accounting 82 forestry offset schemes guarantees of permanence 82 forestry offset schemes and biodiversity in the US 104 forestry offsets 4, 15, 22, 75, 91, 93, 105 achieving cost neutrality 87 demand: design features and biodiversity 92, 104 hidden costs of 89

Index permanence 82 transparency 91 verification 182 forestry offsets and biodiversity in the UK 105 forestry offsets in global markets 22 forestry offsets in US cost of emission reductions 168 forestry offsets, issues of permanence and timing 81 forestry project cycle under the CDM 46 forestry projects in the CDM pipeline 45 forestry sinks in the Kyoto Protocol timing and impacts 177 forestry’s potential in the US 26 forests for cellulosic ethanol 161 forests in the provision of biofuels 159 France, biofuels 158 fuelwood 58 funding of REDD 209 and co-benefits 211 funds-based REDD 212, 214 future of the CDM 181 Garnaut, greenhouse policy, Australia 173 General Agreement on Tariffs and Trade 101 Germany, biofuels 157 Ghana, tropical forest 204 GHG cuts, role of forestry offsets 29 GHG emissions, biofuels 171 GHG Protocol,World Resources Institute 138 GHG savings by displacement of petroleum fuels by biofuels 160 global financial crisis 26, 171 global markets for carbon and the Kyoto Protocol 38 global models, indirect effects on landuse change 171 global scenarios in biofuels production 161 globalization and deforestation 190 globalization, biofuels and GHGs 154 Gold Standard 79 governance and deforestation 202 governance and REDD 200

229

governance, failed states and corruption 200 Government of Aceh Ulu Masen avoided deforestation project 115 Great Britain 12 greenhouse gas abatement by biofuels 153 greenhouse gas pricing alternative energy sources 163 Greenhouse Gas Reduction Scheme of New South Wales forestry offsets 18 greenhouse gases, global warming potential 33 Grieg-Gran, costs of compensating for tropical deforestation 204 gross–net accounting 35 growing new forests for biofuels 160 Guangxi watershed reforestation 109 Guangxi Zhuang Autonomous Region 58 Höhne 40, 177 Huanjiang County 109 hybrid poplar for biofuels 161 illegal logging 201 impacts of avoiding deforestation on local communities 206 incentives, lack of for forest conservation 100 incremental annual value of carbon, plantations 130 India 96, 184 demand for forestry offsets 184 indirect effects of US cap and trade scheme 170 indirect GHG impacts of biofuels policies 156 Indonesia 96, 98, 99, 156, 190, 202, 204, 205 illegal logging 202 institutional change and REDD 213 institutional failure and loss of forests 101 international financial mechanism REDD 173 International Monetary Fund, tariffs on biofuels 163

230

Carbon sinks and climate change

International Tropical Timber Organization (ITTO) 203 International Union for the Conservation of Nature (IUCN) 98 investors in carbon sequestration 124 IPCC 25, 27, 28, 34, 40, 67, 125, 188, 195 ISO 1464, forestry offsets 84 Japan 12, 36 JI funding 38 Jensen DBH measurement in old growth tropical forest 129 identification of tree species in old growth tropical forest 129 JI (joint implementation) 38, 63 A/R projects in 181 Joint Research Centre 154, 159 Joint Research Commission biomass for biofuels 156 fossil fuels used in biomass production 156 Jung modeling the Kyoto options for forestry 41 role of LULUCF 44 Kalimantan 192, 198 illegal logging 202 Kazakhstan, Kyoto Protocol 33 Kyoto Protocol 4, 12, 16, 138, 298 adoption 33 agreement to cut emissions 166 bankability of projects 181 definition of forest 194 definitions of afforestation and reforestation 122 developed country offsets 167 estimation of emissions, sequestration 124 exclusion of deforestation in developing countries 38 forestry and first commitment period 45 forestry post-2012 166 future arrangements for forestry 61 future rules for LULUCF 62 greenhouse gases in Annex A 33

Höhne 40, 177 inclusion of sinks in 40 LULUCF 178 permanence of forestry projects 82 ratification 166 registration of forestry projects 44, 46, 58, 63, 76, 109, 211 rules for LULUCF 34 trade in AAUs 34 uncertainty at expiry, forestry CERs 57 US Congress 18 Kyoto Protocol, Annex B 8 Kyoto Units 39 landholder payments for conserving carbon 161 land-use change regulation to avert deforestation 161 land-use change in other countries US policy implications 171 land-use change, Brazil and south-east Asia biofuels policy 163 Latin America 25, 45, 46, 73, 80, 97, 99 leakage and REDD 205 leakage, forest sinks 39 Lieberman-Warner Climate Security Act of 2008, S. 2191 27, 169, 168 LINK 105 local communities economic benefits of forestry offsets 92 logging 190 long-term CERS (lCERs), in afforestation and reforestation 51, 53 with harvesting in A/R 55 loss of biodiversity and deforestation 95 LUCF, cap and trade schemes 166 LULUCF Australia and Kyoto Protocol 44 Canada and Kyoto Protocol 44 Japan and Kyoto Protocol 44 Kyoto Protocol 177 proponents historically 44 US and Kyoto Protocol 44

Index Mabi forest, Queensland, endangered ecosystem 106 Mabi forest reforestation 106 Malaysia 157, 190, 204 Malmsheimer ethanol from wood 159 managed forests Kyoto protocol 177 management and enforcement, protected forests 100 Maplpana 111 marginal opportunity costs of REDD 204 marginal social cost (MSC) CO2e emissions 9 emissions and markets 12 forestry offsets 86 market failure and biodiversity loss 100 markets for voluntary offsets 72 Marrakesh Accords 13, 15, 40, 41, 196, 197, 198 limits on CDM credits 178 McCarl, diversion of land from food crops to forestry, US cap and trade scheme 170 McKinsey forest sinks in US and the price of CO2e 168 forestry in global model of abatement 25 least-cost combination of abatement by sector 24 study of US abatement 26, 27 measurement protocols 137 measuring carbon in forests developments 124 measuring carbon in tropical forests in North Queensland 126 measuring the carbon in forest sinks 121, 123, 125, 127, 128, 130, 131, 132, 133, 134, 135, 136, 142 Merrill Lynch 115 methodologies for measuring deforestation 195 methodologies of carbon measurement 126 in the CDM 137 Millennium Ecosystem Assessment 97, 98, 99, 101

231

trade-offs, Millennium Development Goals and biodiversity loss targets 101 mixed rainforest species plantations, north Queensland 85, 126 modalities and procedures for forestry under the CDM 51 modeling of carbon sequestration rates 85 modeling the Kyoto options for forestry 41 models of carbon sequestration application in REDD 137 molecular weight of CO2 24 monitoring and reporting, standards and costs 172 monitoring of CDM projects 49 monitoring process in CDM, complexity 180 monoculture plantations, biodiversity loss 100 MSC (marginal social cost) of carbon emissions compared with C sequestration rate 86 definition of MSC 84 MSC of CO2e and market price 13 Mufindi 111 multiplier effect and palm oil 205 Mulun Reserve, China 110 Myanmar 202 Nabuurs, afforestation in the US 172 National Carbon Accounting System 125, 127 National Carbon Accounting Toolbox 129, 174 national carbon accounts 13 need for measurement of carbon in forests 122 Neeff, financial risks in forestry project development 55 net–net accounting 35, 191 Netherlands, biofuels 157 New South Wales clearing of native vegetation 37 Greenhouse Gas Reduction Scheme 11, 68, 78, 106, 136 New York Times 77, 157

232

Carbon sinks and climate change

New Zealand cap and trade 19, 167, 176 forestry in climate change policy 61 New Zealand Emissions Biodiversity Exchange 107 New Zealand’s ETS and biodiversity 106 non-Annex I tropical developing countries deforestation in 187 non-government organizations forestry offset policy, US 117 forestry policy in US cap and trade schemes 105 Nordhaus, price of carbon 27 North America, forestry offset projects 73, 75 Northern Ireland 12 Obama (see President Obama) 74, 169, 170 Oceania 97 OECD 161 agricultural commodity prices 161 offset claims 80 offset potential by forestry, top-down models 25 offsets, market sources 73 oil palm and deforestation 190, 192 old growth rainforest carbon measurement 126 variation in size of trees 129 opportunity cost conversion of land to forestry in US 168 REDD 203, 210 opportunity costs of afforestation/ reforestation 29 Orangutan 115 Oregon, forestry carbon offsets 105 palm oil and EU biofuels policy 156 palm oil exports, Indonesia and Malaysia 204 palm oil production for biofuels 156 OECD forecast 161 Panama afforestation versus cattle 29

Papua New Guinea 207, 208 logging concessions 207 REDD 187, 207 tropical forest 204 Paragominas 202 payments for carbon and ecosystem services 210 payments for CO2e removals 134 PDD (project design document, CDM) 47, 48, 49 Pearl River Basin, China CDM forestry project 58, 211 Perlack biofuels feedstock, US 146 ethanol production 158 feedstocks for biofuels, US 151 permanence of forests 82, 173 permanence of sequestered carbon 196 Peru 192 perverse incentives biodiversity loss 101 biofuels 157 photosynthesis, removal of atmospheric CO2 24 policies for biofuels, US and EU 161 policy for forestry offsets in voluntary markets 182 post-Kyoto agreement and REDD 214 post-Kyoto policies and rules for forestry in developed countries 176 post-Kyoto Protocol recommendation on forestry in CDM 184 REDD 181 Poznań climate change conference 172 pre-compliance market CDM 76 President Obama biofuels 157 cuts in greenhouse gases by 2050 167 price of dry biomass for biofuels 161 price of carbon in averting deforestation 161 price on emission allowances, cap and trade schemes 166 private sector and REDD 199, 208, 210 property rights and deforestation 190 proposals for REDD accounting 191 pyrolysis, biofuels 150

Index Queensland, clearing of native vegetation 37, 114 Wet Tropics Region of Queensland, Mabi forest 106 rainforest habitat 103 rainforests, species richness 98 Ramsar Convention on Wetlands 101 randomized plots, carbon measurement in forests 127 rate of forest loss 97, 98 Readiness Mechanism 211, 212 Forest Carbon Partnership Facility 116 REDD (reduction in deforestation and forest degradation) advantage over A/R 92 costs and benefits of conserving forests 203 credits 196 effectiveness in reducing emissions 189 emission cuts 211 equivalence with Kyoto units 213 Europe 173 financing 199 funds-based approach 183 inclusion in CDM 63 independent verification 211 international financial mechanism 173 leakage 197 market-based approaches 183, 198, 212 market impacts 172 marketable credits 64 national inventories 196 non-market funds 198 payments for, combined with conservation funding 198 payments to communities 203 physical measurement of carbon in tropical forests 138 pilot projects 92 price of credits 211 Readiness Mechanism 211 returns from the sale of credits 211 Stern, cost CO2e abatement, tropical countries 204

233

supplementary benefits 183 tackling poor governance and corruption 214 UNFCCC workshops 188 value in market 213 REDD and remote sensing 139 reducing deforestation in the tropical developing countries 184 reforestation 11, 16, 26, 29, 127 defined 104 subsidization, Australia 107 Regional Greenhouse Gas Initiative (RGGI) 17, 105, 168 allocation of allowances 17 forestry 18 registration under the CDM 76 removal of CO2e potential by forestry 2012 44 research on indirect impacts of LUC 183 root biomass 124 Russia, Kyoto Protocol 44 sampling error, carbon measurement in forests 126 Sathaye, afforestation in the US 172 Schlamadinger 34, 203, 209 School for Field Studies xi Scottish National Forest Estate 105 second generation biofuels advantages 145 biodiversity 161 cellulosic ethanol 149 commercialization and timing 160 costs 148 cut in emissions 154 land availability 161 production 159 supply of feedstock 148 secondary benefits of avoiding deforestation 206 sequestration of carbon over time 85 small-scale projects, CDM 58 Snowdon, allometry 126 social and economic consequences of REDD 208 social costs of carbon released to the atmosphere 84 social costs of increases in biofuel production 151

234

Carbon sinks and climate change

socioeconomics of REDD and the costs of avoiding deforestation 203 Sohngen, afforestation in Europe 172 South America 75, 92, 95, 182, 190 forestry offset projects 75 south-east Asia, biofuels and deforestation 156 soybean demand 99 species extinction 97 standards for offsets 91 stratification of reforestation plantations sampling procedure 126 Subsidiary Body for Scientific and Technological Advice 188 subsidies for biofuels IMF 163 social and climate impacts 171 US and EU 149 subsidies for emission reductions 10, 11 Sulawesi 192 Sumatra 192 Ulu Masen avoided deforestation project 115 Sumatran Elephant 115 Sumatran Tiger 115 switchgrass for biofuels 161 Switzerland, biofuels 157 Tanzania 109, 111, 202 tariffs on biofuels, US and EU 148, 153 temporary CERs (tCERs), in afforestation and reforestation 51, 52, 53 The Economist 78, 79 threatened and endangered species 92, 98 Tisdell viii–xi tonnes of carbon sequestered per hectare plantations and old growth plots 129 reforestation of mixed rainforest species 128 top-down models of forestry potential 169 trade in emission allowances cap and trade schemes 18 cost of compliance with emission cuts 167

transport biofuels 157 fuels from wood 158 lack of alternative fuels 163 limit to fuel efficiency gains 163 tree plantations for cellulose GHGs compared with crops 161 TreeFarms AS, Norway 111 Trees for the Evelyn and Atherton Tableland xi, 134 Ulu Masen forest ecosystem, Sumatra 115 UN Convention to Combat Desertification 101 UN Framework Convention on Climate Change 101 underlying factors in deforestation 190 UNEP 100, 101 UNEP Risoe 46, 47 UNEP Risoe, DOEs listed 49 UNFCCC 2, 12, 13, 15, 16, 33, 34, 40, 41, 45, 51, 58, 62, 81, 84, 104, 106, 109, 124, 125, 138, 179, 181, 188, 189, 194, 195, 197, 298, 207 see Bali climate change conference; Copenhagen climate change conference food production threats 171 REDD workshops 198 registration of forestry projects 109 United Kingdom demand for offsets 91 offset retailers 74 United Nations 2, 8, 12, 16, 33, 34, 35, 39, 94, 101, 104, 121, 124, 207 United Nations Framework Convention on Climate Change (see UNFCCC) United States Society for Ecological Economics xii University of Georgia 150 University of Massachusetts 150 US (United States of America) abatement opportunities study 26 abatement proposals to Congress 27 biofuels and rural communities 148 biofuels policy 144 biofuels production target 146 biomass from forests 159

Index cap and trade schemes 17, 166, 167 Chicago Climate Exchange see CCX contribution to mitigation by forestry 29 corn for ethanol 145 demand for credits from forestry projects in developing countries 63 emission caps 70 energy from biomass 158 Energy Independence and Security Act 146 Environmental Defense 113 forest potential 168 forestry in climate change policy 61 forestry offset demand 91 forestry offset schemes and biodiversity 117 forestry offsets 73 forestry potential 5 gasoline taxes 9 GHG savings, ethanol 153 government control of forests 29 greenhouse gas emissions 167 Kyoto Protocol 33, 44, 166 Kyoto Protocol modeling 42 land for wood 159 Lieberman-Warner Bill S. 2191 27 non-government organizations and biodiversity 105 not-for-profit tree planting organization 80 offset retailers 74 population and economic growth 26, 167 reducing US greenhouse gas emissions 31 RGGI see Regional Greenhouse Gas Initiative rise in greenhouse gas emissions 170 role of forests in abatement 27 subsidies for biofuels 148 target for biofuels 151 the cost of US-based carbon sequestration 94 timber plantations 85 US Agriculture Secretary, biofuels 157 US and EU targets for biofuels 146 US Congress, Kyoto Protocol 167

235

US Department of Agriculture National Agricultural Statistical Service 155 US Department of Energy 152 biofuels feedstocks 146 US Environmental Protection Agency (USEPA) 27, 160, 169, 170 forestry’s role in cap and trade 168 GHG savings of fuels 158 international action 170 modeling forestry 168 value of carbon in measured reforestations and old growth 130 Vatican, carbon neutrality 77 Verifiable Carbon Units (VCUs) 83 verification Australian forestry offset projects 83 carbon by measurement 134 CDM projects, DOE 49 verified emission reductions (VERs) 68, 76 voluntary carbon offsets market 183 Voluntary Carbon Standard (VCS) 79, 91, 112, 137, 138 carbon measurement protocol 137 CDM projects 83 CDM rules 181 measurement, additionality, buffer stock 83 REDD and buffer stocks 84 temporal mismatch of emissions 84 voluntary forestry offsets 182 buffer stocks 82 carbon neutrality 86 cost neutrality 87 ex ante accounting 82 future of 90 incremental crediting and debiting 89 MSC not offset 86 policy 88 prices 73 recommendations 89 registration 83 size of projects 77 social costs, ex ante accounting 89 temporal mismatch with emissions 84

236

Carbon sinks and climate change

voluntary market contribution to REDD 184 Waxman-Markey Bill H.R. 2454 214 weaknesses of the Kyoto Protocol in relation to forestry 35 wild populations loss 100 wildlife corridors 92 Pearl River Basin CDM project 110 Tanzanian CDM project 111 Williams on deforestation 200 willow for biofuels 161 wood biofuels, EU 159 pellets for biofuel 150 source of liquid fuels 150

World Bank 46, 50, 62, 64, 75, 92, 115, 116, 117, 144, 147, 149, 152, 183, 199, 203, 211, 212 buyer of forestry projects 46, 62, 75, 115, 181 CDM forestry project, China 59 funding of CDM forestry projects 181 pilot programs for REDD 214 purchase price CERS 50 subsidies for biofuels 157 World Business Council for Sustainable Development 75 World Resources Institute 75, 178, 186 carbon measurement protocol 137 World Trade Organization 101 world’s population 2050 99