Archive for February 19th, 2010

The cap-and-trade scheme under consideration in Waxman-Markey relies heavily on carbon emission offsets, whereby developed countries buy the right to emit more by offsetting emissions elsewhere. Offsets carry a number of issues, which I’ve begun to discuss in the context of cap-and-trade here and here. Three aspects I’d like to talk a little more about are the effects of offsets in the “elsewhere” countries, the uncertainty abou their valuation, and implementation issues

I was first drawn to a recent article published by Ben Block of Worthwatch Institute about the prospects of REDD, which is the mechanism aimed to reduce emissions from deforestation and will play . The Copenhagen Accord offered support for this mechanism, and on the surface, it seems like a good way for less developed countries to be rewarded for their preservation of otherwise endangered lands.

While support for the policy has grown, considerable progress is still necessary before multinational organizations, national governments, and local authorities are ready to administer REDD programs, analysts said. Without proper reforms, the program threatens to increase human rights violations, land conflicts, and forest-sector corruption, and REDD’s ability to reduce emissions would be in doubt.

“If significant payments were to flow today, REDD programs would be challenged to meet the tests of effectiveness in reducing emissions, efficiency in channeling funds, and equity in distribution,” said Frances Seymour, director general of the Indonesia-based Centre for International Forestry Research.

Land is certainly the key issue, as land rights are generally poorly defined in less developed countries, and land reform is often a contentious part of domestic politics. Under REDD, payments flow to the owners of the land. However,

Governments continue to claim ownership of most forestland – some 75 percent worldwide, according to a report released last month by the Rights and Resources Initiative. In many cases, however, farming communities and indigenous groups have resided on much of the land for generations…

In areas where land rights remain unclear, governments or private industry may displace forest communities from their homes to gain access to forest carbon, human rights campaigners warn. Where indigenous groups or communities clearly own the forests, environmental and human rights groups are reporting instances of REDD project developers offering contracts without fully explaining the deals’ consequences.

Land ownership conflicts are not merely hypothetical. Indigenous peoples’ rights have become a large enough issue that the African Commission on Human and Peoples’ Rights recently handed down a landmark ruling on a Kenyan eviction case from 1973. The linked column notes,

By taking into account rights flowing from an indigenous community’s deep cultural and historical connection to the land, the commission’s ruling sets an important precedent for respecting the claims of traditional herders and forest peoples…

However, while Kenya has never been better positioned to rise to the challenge, political will to convert legislation into real change on the ground cannot be taken for granted.  Successful implementation of the ruling on the Endorois will require vital monitoring support from the commission itself.

The stakes on land issues are undoubtedly going to increase with REDD, and it’s unclear if African governance is adequately prepared to handle it. By embracing offsets, and REDD with them, the developed world could be unwittingly open up a destabilizing can of worms.

The other issue I want to raise is environmental valuation. I think this valuation can be a good thing. For instance, an eye-popping report was just released that said the world’s largest corporations caused $2.2 trillion of environmental damage in 2008, half of which was from CO2 emissions, in total equivalent to 1/3 of these company’s profits. Making the public aware of these huge damages is critical. However, the tricky thing with environmental valuation is that even if high totals like this one are reached, they may still be underestimates.

Ed Fullbrook at RWER points to two Guardian articles, one that favors valuing the environment, and one that raises valid concerns. In the first article, Pavan Sukhdev says that,

We cannot manage what we do not measure and we are not measuring either the value of nature’s benefits or the costs of their loss. We seem to be navigating the new and unfamiliar waters of ecological scarcities and climate risks with faulty instruments…

Holistic economics – or economics that recognise the value of nature’s services and the costs of their loss – is needed to set the stage for a new “green economy”.

Contra Sukhdev, Andrew Simms writes,

 there is a point when it becomes meaningless to treat the ecosystems upon which we depend as mere commodities with a price for trading. For example, what price would you put on the additional tonne of carbon which, when burned, triggers irreversible, catastrophic climate change? Who would have the right to even consider selling off the climate upon which civilisation depends? The avoidance of such damage is literally priceless.

Fullbrook notes that,

Simms sees this new enthusiasm as an economist’s fool’s-gold, but one that potentially is infinitely more damaging…

This dilemma between wanting to make polluters pay and avoiding the ultimate category mistake urgently needs to be discussed. We must also learn not to tie ourselves in nonsensical knots when using side-by-side the terms “value”, “price” and “measurement”.

The concern of underestimation, perhaps even exaggerated by Simms, is a valid one. However, economists feel the need to place a value on everything. Offsets essentially are founded on the ability to value certain environmental activities and abstentions. If they miss the mark (and my guess is they will skew to underestimation), the environment and our economy’s future capability will suffer.

Finally, even if offsets can be correctly valued and land issues reconciled, will they actually, err, offset any emissions? Stacy Feldman at SolveClimate has an investigative piece on some of the issues with offset schemes.

“It’s essentially the wild, wild west,” said Andrea Johnson, the forest campaigns director for the non-governmental Environmental Investigation Agency. “Everybody is kind of auditing themselves to a large extent. There is no one system.”

Because these projects can be in far off lands that are tough to track, it can be hard to know what’s real and what’s hype, other than trusting what the company says, said Jutta Kill, head of the climate and forests campaign for UK-based FERN.

Further, projects are being outsourced to the private sector, and companies involved may not be able to follow through. Eco2, which is running a tree-planting in Sumatra, is one example:

In an updated financial disclosure document filed in December, the company said its operations are dependent upon its ability to raise “significant amounts of capital,” but “there is no assurance that such capital can be raised…” […]

In its quarterly report to the SEC in September, Eco2 was more direct: “The company’s cash and available credit are not sufficient to support its operations for the next year.” […]

The Eco2 advantage, says the firm, is its fast-growing strain of Kiri tree.

“Seven years is incredibly quick,” said FERN’s Jutta Kill, who said she had never heard of the Kiri tree.

If Eco2 claims to generate carbon credits that quickly, it means one thing: They’re growing tree plantations of non-native trees “rather than a forest,” said Kill…

Fred Stolle, a program manager for WRI’s Forest Landscape Objective, said a fast-growing species is not a strong selling point for carbon reduction.

“Every pulp and paper company in the world has fast-growing timber species,” Stolle said. Even if “it might be some super-duper tree that has more carbon in it, if you cut it down and use it for paper and pulping, then you still get some emissions of carbon.”

“And if you use it for firewood, of course you burn the whole thing. I don’t see any reason why that form of business should get carbon credits,” he said….

The other major key to Eco2’s model is selling carbon credits before the trees exist, a common practice…But according to Kill, forward selling is risky for investors and local communities.

These problems exist with offsets as a relatively small sector. However,

If the U.S. adopts a cap-and-trade system, it “would then retroactively let a lot of those voluntary offsets into the new system, and the price would just skyrocket — triple or quadruple overnight,” he said. “That’s why there are so many carbon cowboys trying to get in early. They are not really concerned with the quality of their product; they are more concerned that they get in.”

Global carbon trading has become the classic speculative market, said Kill, where people trade only for the purpose of profiting…

The system is helped by the fact that there is little time and money for quality control.

I apologize for the length of this post, but I think the issues associated with offsets are critical for understanding the shape of climate legislation. This fight may be in vain, as REDD seems even more firmly seated in conventional wisdom than cap-and-trade itself. Nevertheless, policy makers need to think long and hard about the human and environmental consequences of adopting this flawed mechanism.

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Friday Links

Here are some links for your Friday enjoyment. I have a post in the pipeline about carbon offsets, so keep an eye out for it if this topic interests you.

Serious Links

Self-referential/promotional PM Update: Aforementioned post on offsets

There are renewed calls for a tax on livestock emissions from FAO – Financial Times

Is Google commodifying our privacy? – Newsweek

Political rhetoric in graph formAndrew Sullivan

Has SCOTUS become corporate, and how should we fight back? – Common Dreams

A study examining the role of rainful in Africa’s economic growth – MIT

Arnold Kling thinks models suck – Econolog

(An oldie but goodie on my mind today): The Cult of Statistical Significance – McCloskey & Ziliak

Matias Vernengo reminds us that Argentina once fired its central banker – MRZine



An excellent profile of Roger Ebert’s battle with cancer- Esquire

Money is nothing more than a shared illusion (although MMT says we need it to pay taxes) – The Onion

Nate Silver provides running medal count projections for the Olympics – Fivethirtyeight

Why Jeff Ely blogs.

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