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CLIMATE CHANGE: Carbon Market Heads to the Forests

Marwaan Macan-Markar* - Tierramérica

NUSA DUA, Bali, Indonesia, Dec 20 2007 (IPS) - The new asset of the century is carbon, to be traded between the developed and developing world in the carbon markets of the future.

Carbon, or rather carbon dioxide, is the principal substance contributing to climate change, among the various gases that accumulate in the atmosphere and cause the greenhouse effect.

The world’s largest conference on climate change provided fertile ground for an emerging and potentially lucrative market to spread its roots to the forestry sector.

The voices in favour of this new market were out in force at the 13th Conference of Parties to the United Nations Framework Convention on Climate Change, which took place on this resort island Dec. 3-14. Among the pro-market forces was the World Bank.

In the final week of this gathering that attracted more than 10,000 participants from some 180 countries, the World Bank launched an initiative to rope in the tropical forests in the developing world to be traded on the carbon markets.

The Bank’s Forest Carbon Partnership Facility (FCPF), originally proposed in 2006 and presented this month in Bali, aims to protect the tropical forests from deforestation and degradation by channelling money from the industrialised world.

The Fund would enable the “buyers” from the developed nations who have to reduce their carbon dioxide emissions to do so by funding programs that will stop the destruction of forest, which contributes nearly 20 percent of greenhouse gases emitted into the atmosphere.

The World Bank plans capitalisation of 300 million dollars for the Fund, which will be launched with a base of 10 million. It would function an estimated 10 years.

Such a venture for the world’s major producers of greenhouse gases to earn carbon credits is only the latest in a growing list of options for such deals encouraged by the 1997 Kyoto Protocol, in force since 2005.

By 2006, the global volume of the carbon market was estimated at 30 billion dollars, according to the World Bank, a multi-fold increase from one billion dollars in 2004.

“The biggest source of credits earned in the market has been investments to stop a chemical called HFC (hydrofluorocarbon), which is created in various manufacturing processes in chemical-based industries, like paint,” said Ben Vitale, senior director for ecosystem markets and business development at Conservation International.

“China has benefited most from the investments for these environmentally-friendly projects that enable a company or a government (from the developed world) to earn carbon credits,” he added.

Yet not everyone at the Bali climate conference was convinced about the growing call to offer the tropical forests in the developing world to be protected through a free-market mechanism, consequently helping governments and companies in the developed world to earn carbon credits.

Carbon credits are permits to continue producing greenhouse gases. Those who buy the credits obtain an offset, so they don’t have to reduce their emissions, thus paying for others to produce cleanly.

“We are concerned about the excessive abuse of the market mechanism,” said Brazilian Foreign Minister Celso Amorim. “I am not sure if the market mechanism alone will help to reduce emissions.”

It is a concern shared by many environmental organisations.

They argue that greater emphasis on the carbon market to enable the developed world to meet their obligations under the Kyoto Protocol will shift the emphasis away from the primary expectation of that treaty: for industrialised countries to reduce greenhouse gas emissions from their own economies.

“Without changing their energy matrix or, say, their transport systems that pollute the environment, the developed world will start to buy cheap forest carbon credits from the developing world,” Marcelo Furtado, campaign director for Greenpeace-Brazil, told Tierramérica.

“So the industrialised countries may be doing the world a great favour by protecting the tropical forests, but in a larger sense the environment does not benefit because they have not reduced their emissions,” he added.

Groups like Friends of the Earth and the Indonesian Forum for the Environment have other worries about the new role of tropical forests, as they made clear during a protest here to oppose the Bank’s forest-carbon initiative.

Indigenous communities and people who have depended on these forests for their livelihoods will be cut away from a traditional economic and cultural bond that they have enjoyed for decades, if not centuries, they charged.

This division of views comes as the clock ticks towards the beginning of 2008, when the commitments made by all the industrialised countries, with the exception of the United States, under the Kyoto Protocol become active.

The wealthy nations are under obligation to reduce greenhouse gas emissions by an average of 5.2 percent from their 1990 levels during a five-year period ending in 2012.

The New Year will also open the doors for the companies and countries in the developed world that have accumulated carbon credits to start trading them in a carbon market.

The Kyoto Protocol, which was added to the UNFCCC, has a Clean Development Mechanism (CDM) that enables the polluters of the industrial North to invest in green-friendly initiatives to earn carbon credits. These acquired carbon assets can then be used by countries to meet shortfalls in their respective emissions reduction targets.

But as they await this new economic turn of events, officials from the developing world are asking aloud if they may be cheated in the calculations of the financial value of a tonne of carbon.

An Indonesian delegate at the Bali conference told ‘The Jakarta Post’ newspaper that “carbon credits were currently valued as low as three U.S. dollars per tonne in developing countries; in contrast to roughly 25 U.S. dollars in European countries.”

In the Canadian province of Alberta, meanwhile, the provincial government has fixed the value at 15 Canadian dollars per tonne of carbon in its emerging carbon market, part of efforts to “require reductions from private sector emitters,” said a government official from a region that has the second largest oil reserves in the world.

“If this carbon market mechanism is abused, it would be unfair to blame the Kyoto Protocol, because we agree that there is some value in the market-based approach to respond to climate change,” says Brazilian Foreign Minister Furtado. “It will say more about the abuser failing to meet the cuts in emission of greenhouse gases.”