Country Name: Indonesia
Author: Charlotte Streck

Should trees in Indonesia be given more economic value than trees in Brazil simply because they happen to be located in a nation that has been chopping down its forests willy-nilly? Biologist and former World Bank attorney Charlotte Streck doesn't think so, but the main stream of climate change negotiations is certainly flowing that way. Here she makes her case for abandoning national baselines when dealing with avoided deforestation.



29 January 2008 | After having been neglected in the framework of the Kyoto Protocol, avoided deforestation found itself back on the negotiation table at the close of the 13th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP 13) in Bali, Indonesia. This raises both the hope that deforestation in tropical countries, which is responsible for about 20 percent of the world's carbon dioxide (CO2) emissions, will finally be acknowledged in a post-Kyoto climate treaty – and the fear that the methods implemented for combating it will create more problems than they solve.

If we are to proceed in a way that will truly combat the problem, and not simply create another paper tiger, then certain realities need to be acknowledged and dealt with in the emerging international framework.

How We Got Here

The accounting for deforestation in developing countries was pushed out of the Kyoto Protocol's framework and does not qualify for carbon credits under the Clean Development Mechanism (CDM). Because the Kyoto Protocol does not address forest conservation or the prevention of deforestation, there is no incentive for developing countries to reduce emissions from tropical deforestation under the existing treaties.

This is not an oversight, but the result of a well-intentioned, conscious decision taken in Kyoto at COP 3. Many NGOs and negotiators, among them the European Union, felt that any incentive mechanism for reducing emissions from deforestation would divert attention from the established objective of the Protocol: reducing emissions from fossil fuels and moving industrialized and emerging economies towards a low carbon path. Later projects dealing with avoided deforestation were excluded from the CDM because problems associated with leakage and permanence seemed to be unsolvable.

But things began to change after Costa Rica and Papa New Guinea signaled willingness two years ago, at COP 11, to discuss the issue and consider action under an adequate incentive framework. Since then, the topic has been on the agenda at countless workshops and meetings, and it has become obvious that the science has become more robust since the Kyoto meetings. NGOs and the EU are ready to acknowledge the problem and its place in climate talks.

But How To Do It...

The challenge is now to design a mechanism that is environmentally credible while providing a framework for real action on the ground. Views differ, however, on what such a mechanism should look like. The favored solution of many negotiators is tackling the problem on a national scale. The proposed mechanism would reward developing countries with tradable carbon credits when they show that they have reduced their national deforestation rate compared to a reference scenario within a set crediting period
(For a summary of the debate over national baselining, see Carbon and Avoided Deforestation: The Road to Bali). Countries would receive the credits based on the success of their efforts and, provided they find a buyer, trade them on international carbon markets.

Great In Theory, But...

This approach sounds convincing, as it seems to present a solution for problems like leakage or (to a lesser extent) permanence. It is also convenient, as it calms the minds of some negotiators and NGOs. For many, approaches that link national systems with the international carbon market have become the silver bullet that deals with all those pesky issues that made discussions so complicated in Kyoto. The EU, for its part, has made it clear that it won't even consider any solutions outside of a nation-based system.

If you account for emissions on a national level, the theory goes, leakage won't happen because the country as a whole has to meet certain standards before rewards come in. Leakage at the project level can thus be ignored, since it gets absorbed in the national accounting, while the issuance of carbon credits depends on the country's ability to reduce the rate of deforestation below the negotiated reference levels.

Not Realistic

Like all good snake oil, this approach is appealing – and deceptive. A closer look reveals a large basket of unaddressed issues which cast serious doubts on both the environmental credibility and the financial viability of the proposed approach.

The proposed rewarding of credits based on national efforts assumes the existence of strong national institutions that can provide an accurate accounting for emissions, but does anyone really believe that is a valid assumption? It is true that increased emissions from industrial sectors correspond to an increased level of development, often accompanied by a strengthening of capacities and institutions. But emissions from deforestation are highest in countries that lack strong governance systems, and the challenges that these countries face make it difficult to implement strong, effective national action to reduce deforestation, to say the least.

The World Bank, for example, estimates that the tropical countries have missed out on US$15 billion per year in macroeconomic growth over the past decade – or US$150 billion total – because they failed to enforce existing forest law and collect timber extraction fees and taxes. In light of that, doesn't it seem naïve to believe that we will suddenly overcome these governance challenges by simply swapping one potential income stream (taxes and fees from timber extraction) for another (sale of carbon credits for forest protection)?

What Are We Measuring?

Then you have the giant pink elephant in everyone's corner: availability and accuracy of data. No one really knows exactly how much forest countries lose every year and historical data are still scarce – Brazil and India being notable exceptions, although even in these countries there are wide levels of uncertainty surrounding their emission rates. Under these circumstances, a system that relies on national assignment of credits (measured in tones of CO2) becomes a big and risky experiment that carries the risk that there will be a disconnect between any actual emission reduction gains and the number of credits that may (or may not) be recognized.

Discouraging Investments?

At the same time, a national approach discourages projects because smaller-scale, sub-national activities run the very real risk of not receiving any reward for their success if overall deforestation remain high – even if leakage is monitored at the project level and discounted in a conservative manner from any potential credits being issued. This is no different from not rewarding the emission reductions from a wind park for a country's expansion in coal fired capacity.

National credit approaches are a challenge with no precedent under the current Kyoto system. Today we see either an allocation of credits under a cap-and-trade system such as in the case of assigned amounts of Annex I, or the rewarding of credits on a small scale with defined project boundaries under project-based mechanisms like the CDM.

It is an irony of history that those that think the accounting risks for project-based mechanisms are too high and that the CDM was essentially a failure are now advocating a CDM at the national scale. By moving the mechanism a level up, we exponentially increase systemic risk, but seem to feel much more comfortable.

Sectoral Boondogle

Sectoral targets are being discussed as a possibility of involving developing countries in a post-Kyoto framework. Taking into account the data challenges associated with such a framework, experts look preferably at sectors with a limited number of installations run by sophisticated commercial actors and relatively easy approaches to accounting for emissions. Researchers have developed models for applying such targets to energy-intensive sectors such as cement or aluminum – but that does not mean we can immediately apply this approach to avoided deforestation

To begin with, extensive data are available in the two sectors cited above, and many operators in developing countries have gathered experience in implementing CDM projects. This process of learning is only now helping to shape sectoral systems and incentives frameworks – after years of trial and error. Yet many negotiators believe we should go online and test national approaches in deforestation – a sector that is characterized by far greater uncertainties, more complex realities, and countless, often unsophisticated, actors – and had no benefit of a learning period! Not a very comforting thought.

But still, my fears seemed not to be shared when I attended the beach parties in Bali. Indonesia is losing thousands of hectares of forest every year, despite an elaborate set of environmental laws and a government that supports efforts to reduce the emissions from deforestation. Can it be that the continued high deforestation rates have less to do with a country's unwillingness to reduce deforestation, and more to do with the challenge presented by enforcing its intentions? Leaving such countries and governments, which are dependent on support for all sectors of the economy, to halt deforestation on their own and reward efforts only on the basis of a country's performance seems to be a questionable road to success.

And the Challenges?

But what about leakage? Isn't the national framework finally doing away with the problem of leakage? Wouldn't it be nice to put the problem into a national drawer and forget about it? While domestic leakage disappears beautifully behind the curtain of a national accounting framework, the problem does not go away for national governments who may want to work out how much to reward individual projects or provinces that reduce their emissions. We pass the buck off to national governments in favor of enormous insecurities in the issuance of credits for national achievements.

The Full Toolbox of Mechanisms

We need to design smart systems that deal with leakage at all levels and help countries address the drivers of deforestation. Such systems need to take into account country-specific circumstances and apply a full took box of instruments ranging from institutional strengthening, law enforcement, land tenure, zoning and planning. Tackling poverty and providing local communities with alternative sources of income and indigenous communities' access to forests are key factors for any success.

Countries should be free to choose the appropriate way to address the problem of deforestation and should be able to define the most appropriate and reliable accounting framework. While we need to strengthen a country's capacity and improve data availability, we should encourage action at local levels and reward public or private entities with the opportunity to receive carbon credits for their efforts (independent of the national or governmental performance). Mechanisms to address leakage and permanence on the project level have been proposed and promise less risk than national approaches.

We cannot afford failure in designing a framework that deals with reducing emissions from deforestation. The problem is too important, and there is momentum and energy to address it now. When we loose forests, we loose biodiversity, water, and soil quality, as well as the livelihood of millions of people. We need a solution that empowers local as well as national actors and rewards local successes, independently from the readiness of a country. Governments need support to develop and strengthen their capacity in accounting for emissions and enforcing forestry laws. Allow us to learn, to experiment, and start now with realistic expectations before we press countries into an accounting framework which may stifle any immediate results and result in significant uncertainty of any gains that may be made. A national failure will cost us more and risk creating tons of paper tons, which is much more frightening prospect than the risk of some unaccounted project leakage.





Dr. Charlotte Streck is a former Senior Counsel with the World Bank, where she was responsible for project design and legal structuring of World Bank carbon transactions in Africa, Eastern Europe, Latin America and the Caribbean, as well as all forestry related legal issues. She is currently director of Climate Focus, a consultancy specialized on climate change law and policy and the global carbon market based in Rotterdam. She can be reached at c.streck@climatefocus.com.

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