REDD and Carbon Trading

Thu 11th June 2009

A school of thought has developed in the deforestation (REDD) sector that portrays the reduction of deforestation as somehow unwholesome. A good example can be found in the blogs located in REDD Monitor.

The language in some of these blogs appears to signal an opposition to carbon trading as a matter of principle. This has the implication that those that trade carbon and those that are involved in the quality assurance aspects of carbon finance are (in principle) unwholesome in some way. I do not share this view, and I do consider carbon finance as a valuable tool in the financing tool box for rainforest protection in developing countries. Here's why:

Carbon Trading

One blog comment in REDD Monitor (March 20th) concerns the limits that offsets could have in actually reducing global carbon emissions. Chris Lang say's "As soon as the carbon stored in forests is traded, the benefits for the climate are at best zero." I see it in a different way: the buyers of voluntary carbon units from REDD projects are commonly those who are voluntarily undertaking a carbon emissions reduction program and then voluntarily buying carbon units to offset the emissions they were unable to eliminate in-house.  So, they are voluntarily reducing their own emissions (good for the climate system), and they are then financing voluntary emissions reductions or sink removals elsewhere (good for the climate system). They finance emissions reductions or sink removals elsewhere by purchasing voluntary carbon units. If the carbon units did not pass an additionality test then there would be no benefit to the climate system arising from the transaction. If they do pass an additionality test then this tells us that the emission reduction they are financing would not have occurred without their financial support.

Furthermore, carbon neutrality buyers in the voluntary market are buying and then retiring their units (rather than on-selling the carbon commodity). In other words they are buying a climate friendly outcome that we would not have without that transaction (i.e. it had to pass an additionality test to be legitimate). For this reason I am not convinced by the statement that "As soon as the carbon stored in forests is traded, the benefits for the climate are at best zero."

Furthermore, in a compliance cap-and-trade instrument (which may include REDD in the Post-2012 situation at the UNFCCC) the end game is meeting the quantitative target of the cap (an emission reduction target that is below business-as-usual emissions for the management period). This is where there is a benefit for the climate system even when carbon trading is in the mix. The trading of carbon units (some of them are offsets - others are allocations) is simply an instrument to enable the community (who have a collective binding target) to meet that target at least cost to the economy.

The key in compliance trading is to ensure that there is a robust cap. If the cap is not very different from business-as-usual then there is little or no benefit to the climate system, and the carbon price will be so low that points of obligation will have more incentive to simply buy units rather than undertake emission reductions in-house.  It is therefore, very important to advocate strongly for a robust cap to be taken on by UNFCCC negotiators at Copenhagen in December 2009.

Without a robust cap (compliance) and without a strong community driver for responsible corporate citizenship (voluntary) then carbon trading has little or no direct benefit to the atmosphere (apart from the price of carbon influencing some investment decisions). But with both of these (robust cap and robust community demand for climate responsibility) we do get gains for the climate system.

For more easy to understand information on how emissions trading works you can consult a guidebook that I co-authored with Murray Ward called "Leader's Guide to Emissions Trading and Carbon Markets".

Burning Forests

Some argue that if climate change continues, the forests will die off or burn down anyway, in which case the carbon stored will be released. Recent studies show that between 20-40% of the Amazon rainforest would die off even with a 2°C rise in global temperatures.

I agree that if climate change continues without constraint many forests will probably burn down. This is one of the big reasons to try as best we can to constrain climate change by using every tool in the tool box. One of those tools is to slow down (constrain) the rate of deforestation emissions which account for about 20% of the emissions problem. Protecting forests not only protects large carbon reservoirs, but also protects a wide range of climate-related ecosystem services provided by forests , one of which is to alter latent heat flux in a way that cools the land surface. Our choice is either:

a.       to contribute to unconstrained climate change by abandoning forests to a possible climate change fate by allowing them to be logged and burnt in the near term because we are ideologically opposed to forest conservation as a climate change mitigation exercise or we are ideologically opposed to market instruments designed to keep them standing up.

or

b.      we contribute to constraining climate change by working as hard as we can to protect what is left of world forests as a biogenic carbon reservoir (that sometimes also acts as a carbon sink) and that also helps to keep the land surface cool, not to mention the many other ecosystem services that they provide for human well-being as described in the Millennium Ecosystem Assessment.

If we choose the latter path we need to make sure that this does not happen at the expense of local people in forest regions, and this is why we need to build and refine methodologies that are capable of providing for the development goals of indigenous peoples (as they define them) in such a way that we also keep these forests standing. In my experience, if one works with such people and asks them what they want in terms of development and property rights, you will often find that you can develop a forest protection solution that meets their needs.

So, in my view yes - some rainforests may burn down, but we will increase the chances of them burning down if we fail to use the opportunities that we currently have to keep them standing up. If we let them be logged and burned we are willfully turning our forest policies into a positive feedback in the climate system (escalating the problem). If on the other hand we put significant efforts into protecting them, then our forest policies become a negative feedback in the climate system (reducing the problem).

 

Cheat Neutral - A Disservice to Climate Change Mitigation Efforts

Tue 17th February 2009

By Sean Weaver

Cheat Neutral is a publicity campaign developed in the UK to challenge the integrity of carbon neutrality as a goal in climate change mitigation. The Cheat Neutral story has also developed into a short film and is a successful example of popular climate policy analysis. The trouble with Cheat Neutral is that its policy analysis is based on an incorrect understanding of carbon neutrality and the role of voluntary carbon markets in helping to bring about real reductions in greenhouse gas emissions. This blog looks into the Cheat Neutral storyline and explains why it is doing more damage than good in the effort to reduce emissions.

Cheat Neutral is an allegory of carbon neutrality based on a metaphor of fidelity. The idea goes like this:

A person wants to become faithful by behaving in a faithful way some of the time but when they are unfaithful they purchase fidelity credits off others. Then they can offset their unfaithful behaviour and remain Cheat Neutral. This is presented as a metaphor of how carbon neutrality works, and is thereby encourages people to see carbon neutrality as something of a scam that lacks environmental integrity.

Let's have a look at how the Cheat Neutral storyline is not an accurate portrayal of carbon neutrality and carbon markets.

Greenhouse gas emissions are unavoidable - we all produce GHG emissions and these emissions are not evil in themselves. The problem comes when our collective rate of emissions is higher than the capacity of the earth system to reabsorb (sequester) them. When this happens the mass balance shifts to a net increase in GHG concentrations in the atmosphere, and this causes global warming.

This is rather different to fidelity, because we are not all unfaithful by varying degrees - fidelity is something we either are or are not. It is binary. GHG emissions are not binary. Also, infidelity is not a phenomenon that exists in a mass balance situation where it becomes problematic only when infidelity rates outstrip some phenomenon that reabsorbs infidelity. For a start there is no phenomenon that sequesters unfaithful behaviour but there are phenomena that sequester greenhouse gases.

The differences here are fundamental to the inaccuracy of the Cheat Neutral model. Now let's have a look at how carbon neutrality actually works and see if it is a scam.

Carbon Neutrality In Practice

Carbon neutrality is an aspiration by an individual or group to voluntarily lower their carbon footprint to a point where they are not contributing to a net increase in greenhouse gases in the atmosphere. Of course carbon neutrality is not the end of the story because we can also organise our endeavours to be carbon negative - where our management of resources leads to a net lowering of atmospheric greenhouse gases.

The normal procedure for carbon neutrality is as follows:

1. Define the project boundary for your carbon neutrality aspiration
2. Measure your annual carbon dioxide emissions
3. Establish a programme to drive these emissions down as low as possible (e.g. through behaviour change, installing clean technologies)
4. Even with a lot of effort and expense we usually find that some emissions are very difficult and/or prohibitively expensive to eliminate from within our project boundary. We call these residual emissions. We measure these residual emissions.
5. The final step is to pay someone else to reduce their emissions (when they otherwise could not afford to do this) e.g. through paying for the installation of clean technologies that lower emissions there. This needs to pass an "additionality" test - in other words, these emissions outside your project boundary would not have happened without the finance that you provided by purchasing carbon units from this other person or organisation. In short, you buy carbon units and retire them in a carbon market registry. Retiring carbon units means that they are removed from the carbon market once purchased, cannot be on-sold and therefore can be used only once.
6. You then have to re-measure your residual carbon footprint every year and buy carbon units each year to maintain your carbon neutrality.

Step 5 is usually organised through a carbon market complete with quality assurance standards and procedures to ensure that the carbon units (emissions reductions) generated would not have happened anyway (i.e. without the sale of carbon units), and to maintain the environmental integrity of the carbon units.

The point here is that the whole endeavour is driven by a desire to help the atmosphere in a voluntary capacity.

The Role of the Voluntary Carbon Market

The next thing is to see how the voluntary carbon market can facilitate the scaling up of voluntary behaviour change in a community. What the voluntary carbon market does is establish the conditions to enable people and organisations to facilitate large scale emission reductions in a community through aggregation. One of the barriers to lots of small steps to reduce emissions in a community is the cost of undertaking those steps. This cost might be the cost to an individual to purchase and install a form of clean technology. There is also the "can't be bothered" barrier among the majority of the population for whom climate change is not something to get too fussed about.

These barriers can be overcome when people get involved in aggregating a big collection of behaviour change activities. This helps bring economies of scale to the exercise which can involve lowering the unit cost of purchasing and installing clean technologies (e.g. a large order from a supplier or installer can command a significant discount).

Now the aggregator wants to gain some form of financial support for their activities which involve administration, negotiations with suppliers, contacting and gaining agreement from people who will gain these discounted services etc. One way of covering these costs is for someone to provide a grant - e.g. government funding. If grants are in short supply for this kind of project - which is true in many parts of the world, then another option is to get the funding from the voluntary carbon market. This funding can be gained in the following way:

1. The aggregator agency calculates the aggregated emissions reductions generated by this initiative using an approved methodology that ensures the environmental integrity of the calculation
2. The aggregator then applies to a voluntary carbon market standard (a quality assurance standard)  to certify this volume of emission reductions in tonnes CO2e per annum for a defined period
3. A third party auditor verifies the volume of emission reductions and the quality of the methodology used
4. The carbon market standard then issues the appropriate number of carbon units to the aggregator who sells them in the voluntary carbon market at the going rate of carbon of this vintage and type (e.g. energy efficiency 2010 units branded by a particular standard such as the Voluntary Carbon Standard)
5. The money gained from selling these units each year amounts to a subsidy to enable the aggregator to cover their costs and to lower the cost of purchasing and installing the clean technologies. This subsidy does not rely on government funding, but instead comes from the private sector.

The next question is "how does the demand side work?" Demand for these carbon units comes from individuals and organisations with aspirations for carbon neutrality. These are the ones who need to pay someone else to voluntarily reduce emissions, as a means of offsetting the residual emissions that were too difficult or too costly to eliminate from within their own project boundary.

The Value of Carbon Neutrality as a Goal

In this way the desire of the carbon neutrality seeker not only drives in-house emissions reductions in their own operation, but also generates demand for additional emissions reductions to occur elsewhere in the community - and all at no cost to the tax payer. The cost is borne by

1. those who voluntarily absorb the full cost of a carbon neutrality program (e.g. individuals and households) and
2. businesses who seek a greater market share or brand value by providing carbon neutral goods or services, and
3. those consumers who are willing to pay a premium for carbon neutral goods or service and who trust the environmental integrity of the carbon neutral program that certified the carbon neutral product.

In New Zealand one such program is the carboNZero program run by Landcare Research.

Another valuable dimension of carbon markets is that it provides a mechanism to transform self interest into activities that help to combat climate change. In other words, carbon markets can harness the energy of self interest (which is not in short supply) as a climate change mitigation resource.

Conclusion

So, the question of whether carbon neutrality is fundamentally a scam I think can be answered "no". Clearly, if carbon neutrality claims lack environmental integrity by avoiding robust quality assurance procedures then it may be a scam and consumers need to beware. But this is also true for claims of "organic" produce or "welfare friendly eggs." It comes down to whether or not consumers and consumer watchdogs (like the people behind Cheat Neutral) trust the independent quality assurance process and associated brand (such as Biogrow for organic food or SPCA for eggs in New Zealand).

The next question is can carbon neutrality be accurately (and fairly) lampooned by the metaphor used by Cheat Neutral? I am not so sure.

My experience as a climate change mitigation advocate has convinced me that there is significant value in both carbon neutrality goals and carbon markets as a means of up-scaling emission reductions. Market mechanisms are not the only  tool in the climate policy tool box, but can work well in partnership with strong and ambitious regulations.

So, by popularising the view that carbon neutrality is fundamentally a scam, and using a metaphor that does not match, Cheat Neutral, in my view, are doing a disservice to climate change mitigation efforts.

 

You can find an educational booklet on emissions trading and a more detailed analysis of voluntary carbon markets in the publications section (policy) here.