Doubts Persist About Australia’s Climate Policy Shift Ahead Of First Emissions Reduction Auction

Australia drew the ire of the environmental community when it backed away from its carbon pricing program last year and established a nearly AU$2.6 billion Emissions Reduction Fund in its place. With the first auction coming up this week, critical issues still need to be resolved, including whether the funding will be sufficient to incentivize new emissions reduction projects.

14 April, 2015 – To many environmental and business leaders, Australia had a solid climate policy in place, centered around the country’s carbon tax and a planned emissions trading system (ETS). But in scrapping the country’s carbon tax last year, these leaders now believe the government reversed the progress the country was making in contributing to an international solution to the climate challenge.

“It’s certainly been disappointing to see it unfold that way,” Simon Bradshaw, Climate Change Advocacy Coordinator for Oxfam Australia, said of the government’s abandonment of its carbon pricing program.

The Liberal Party of Australia, led by Prime Minister Tony Abbott, replaced the carbon tax with an Emissions Reduction Fund (ERF), which maintains the objective of helping achieve Australia’s emissions reduction target of 5% below 2000 levels by 2020. The government has provided nearly AU$2.6 billion to establish the ERF and plans to buy offsets from competing sellers in a reverse auction.

“Australia is firmly committed to our 2020 emissions reduction target,” a spokesperson for the Department of the Environment said. “It is ambitious and comparable to other developed countries’ targets.”

But officials from energy-intensive industries, local government, carbon offset project developers and other stakeholders believe that emissions reduction target is not strong enough as it stands, according to a poll conducted by the Carbon Market Institute (CMI), which assists Australian businesses in managing risks and opportunities in national and international carbon markets, in Australia in September 2014. Seventy-six percent of respondents supported Australia adopting a stronger 2020 emissions reduction target.

“The government really doesn’t care about climate change,” said Martijn Wilder, an Australia-based Partner with law firm Baker & McKenzie. “The government came up with this stupid Emissions Reduction Fund policy at a time when it was under a bit of pressure. It’s just an alternative to an emissions trading scheme and now they are sort of stuck with a bad policy.”

The first test of this new policy comes on Wednesday at 9:00 am Australian Eastern Standard Time when the first ERF auction – scheduled to last for two days – is set to begin.

An Invisible Price

The real uncertainty relates to the offset price the government will accept under the ERF. The regulator will apply a benchmark price – the maximum amount it will pay for emissions reductions – for each auction and only bids below the benchmark will be considered. Indeed, the lowest-cost projects will be selected at auction and proponents will not be able to see what others are bidding.

The AU$23 carbon tax incentivized significant pre-compliance offset purchases in 2012 – five million tonnes of carbon dioxide equivalent (MtCO2e) developed for the CFI, according to Ecosystem Marketplace’s State of the Voluntary Carbon Markets 2013 report. The AU$23 carbon tax meant that offsets priced at the regional average of $8.8 per tonne reported that year or $14.2 per tonne last year were a cost-effective compliance option. Now, without a set emissions cap and carbon price, the price could plummet.

If the bidding price of offsets sold at auction remains high, however, the AU$2.6 billion funding for the ERF could quickly be exhausted, given the volume of existing projects expected to bid in. The Clean Energy Regulator says additional funding will be considered in future budgets, but environmental experts such as Bradshaw are not optimistic that the fund will be replenished. They see the new policy as expensive compared to the cost-effective market solutions that would have been implemented under the previous policy.

Legacy Offsets

Even prior to the legislated policy shift from carbon pricing to the ERF, Australia implemented changes impacting carbon offset projects. The country included improved forest management (IFM) within the national accounting submitted to the United Nations Framework Convention on Climate Change (UNFCCC). That meant that any offsets issued to voluntary IFM projects, such as the Tasmania forestry project developed under the Verified Carbon Standard (VCS) would, from January 1, 2013 and beyond, be double counted and so are no longer eligible to generate voluntary offsets, observed Jerry Seager, Chief Program Officer for the VCS.

Existing projects initially developed under the Carbon Farming Initiative – a legislated offsets scheme adopted in 2011 to allow farmers and land managers to earn carbon offsets by storing carbon or reducing greenhouse gas emissions on forest or agricultural land – were automatically registered under the ERF. Under the new ERF policy, the federal government will purchase Australian carbon credit units (ACCUs) from legacy CFI projects, which will allow existing participants to secure a return from eligible projects – if the offsets are competitive at auction.

The fund will build on the CFI by offering emissions reduction opportunities to a range of sources beyond the land sector, including energy efficiency improvements in the commercial building sector, according to the Clean Energy Regulator.

“The legislation around the offsetting hasn’t really changed other than expanded to include more projects,” Wilder said. “That’s a positive sign.”

This raises the question of whether the fund will only support existing projects or drive investment in new projects. Only 21% of the 245 individuals surveyed by CMI believed the ERF would provide opportunities to fund their emissions abatement projects, with 50% disagreeing or strongly disagreeing with the notion. The survey, completed before the ERF legislation was officially passed, found that 40% of respondents believed the ERF should not be implemented at all while another 39% advocated for implementation with more funding, according to CMI.

“The way Australia has implemented the Emissions Reduction Fund is not using markets so much as just using government money, which can provide support to some projects, but is not fully harnessing the market and directing private capital into markets,” Seager said. “Certainly, there may be opportunities for the fund to support some projects, but it’s not going to be a fully scaled-up solution that is fully harnessing the power of private capital. That’s the challenge.”

Keeping Emission Reductions Safe

The ERF will come equipped with a safeguard mechanism aimed at ensuring emissions reductions paid for by the ERF will not be offset by significant increases in emissions elsewhere in the economy. It will encourage large emitters not to exceed historical emissions levels, with the baselines set using data already reported under the National Greenhouse and Energy Reporting Scheme (NGER). The safeguard mechanism is scheduled to start on July 1, 2016, and will apply to roughly 140 entities that emit more than 100,000 tonnes of carbon dioxide each year – roughly half of the country’s emissions.

The safeguard mechanism has yet to be designed, with the government planning to release rules for the mechanism in October. But the new approach means that industry has no obligation to reduce its emissions, and it’s uncertain that the ERF can have a positive impact on reducing emissions without a cap.

Australia Versus the World

Australia has been on the wrong end of climate initiatives, observers say, aside from its AU$200 million over four years pledge to the Green Climate Fund (GCF), made during the UNFCCC negotiations in Lima, Peru in December. But there is concern that the GCF pledge will be Australia’s only contribution to the $100 billion per year promised by developed countries to the developing world by 2020.

“I think (the GCF pledge) was a sign they were feeling pressure from the international community and Australian civil society,” Bradshaw said. The GCF pledge was a welcome sign, but “I think the risk is that it’s seen as Australia’s overall commitment to climate finance.”

The Australian government committed to a review of its emissions reduction targets this year as part of its preparations for the UNFCCC negotiations in Paris at the end of 2015, with plans to publish its proposed climate plan, known as its Intended Nationally Determined Contribution (INDC), mid-year. A taskforce has been established to advise the government on the INDC. Setting a post-2020 emissions reduction target will be the focus of that process.

Oxfam has calculated a fair contribution for Australia would include a cut in domestic emissions by at least 40% by 2025 and at least 60% by 2030. The fair contribution refers to the country’s share of the global ‘carbon budget’ – a total tolerable amount of global carbon pollution, beyond which the risks for people and planet are unacceptable, according to Oxfam.

The CMI respondents highlighted the importance of China, the United States and the European Union, with about 80% saying Australia should look to the targets and actions of each of these nations or blocs in calibrating its post-2020 target.

“The Australian government knows that other countries are doing things, but it will do what it thinks is best for Australia,” Wilder said. “And we have a really, really hard right-wing, anti-climate government.”

Australia became the first country in the world to repeal its carbon price just as other countries such as China and South Korea have implemented or are moving toward national ETS programs. And, regardless of what other countries are doing, the government has no plans to revisit the possibility of a carbon pricing mechanism — a mechanism that created a market worth $6.6 billion in its first year of operation, according to CMI’s State of the Australian Carbon Market 2013 report.

“The Australian Government is determined to reduce emissions, but without a carbon tax,” the spokesperson said.

Bradshaw observed that the government has been “fairly defiant” about repealing the carbon price.

“Australia, for reasons we may never understand, is swimming against international trends,” he said. “They really did paint themselves into a corner with this and they may regret that” as the need to reduce emissions becomes clear. “It’s hard to see how that’s not going to involve carbon pricing.”

 

This Week In V-Carbon News…

This article was originally posted in the V-Carbon newsletter. Click here to read the original.

 

25 July 2014 | Is New Zealand next? Australia disappointed carbon market advocates last week when its national legislature voted to scrap the country’s carbon tax and planned emissions trading system (ETS). The AU$23 carbon tax incentivized significant pre-compliance offset purchases in 2012. Ecosystem Marketplace’s State of the Voluntary Carbon Markets 2013 report accounted for five million tonnes of carbon dioxide equivalent (MtCO2e) in offset transactions that did not see a repeat in this year’s report. Australia’s offset market will likely be replaced with an “Emissions Reduction Fund,” which would serve as a reverse auction for the government to buy from competing sellers.

Having already opted out of the Kyoto Protocol’s second phase, New Zealand is contemplating going the way of its Oceania neighbor and abolishing its ETS. The future of the NZ market rests with a general election in September. If the ruling National Party retains the power to form a government, then no change to the system is expected. The speculation has pressured prices on the NZ ETS over the last month.

However, there is life after Kyoto as Japan’s J-Credit System shows. The system combines the two prior offset standards: the Japan Domestic Clean Development Mechanism program that offered local certification of businesses’ emissions reductions, and Japan’s Verified Emissions Reduction System, which verified domestic project offsets. Ecosystem Marketplace’s Kelley Hamrick spoke with Noriko Hase from the Overseas Environmental Cooperation Center about the improvements made by streamlining the two programs into one all-inclusive standard in 2013 and the potential effect on demand for voluntary offsets in the country.

These and other stories from the voluntary carbon marketplace are summarized below, so keep reading!

For the fifth year running, Forest Trends’ Ecosystem Marketplace is collecting data about forest carbon projects around the world to include in our State of the Forest Carbon Markets 2014 report. This is the only market-wide, freely available research tracking performance-based payments for emissions reductions in forests, and we rely on a global survey to ensure that our data is representative.

Help us spread the word!

Our survey for forest carbon project developers is available in English HERE and in Spanish HERE.

Every year, Ecosystem Marketplace relies wholly on offset market participants to financially support the State of research. In return, sponsors ($7.5k+) and supporters ($3k) benefit from the report’s growing exposure, early insight into our findings, and opportunities to engage directly with Ecosystem Marketplace in report-related outreach and events. Interested organizations should contact Molly Peters-Stanley.

The Editors

For comments or questions, please email: vcarbonnews@ecosystemmarketplace.com


V-Carbon News

Voluntary Carbon

Offsets for everyone
The United Nations (UN) Climate Change Secretariat recently launched a campaign to allow everyone to purchase certified emission reductions (CERs) to increase demand for Clean Development Mechanism (CDM) offsets. The secretariat’s staff and their families are the first eligible to offset their personal greenhouse gas emissions with CERs, via a fund that provides dedicated financing to projects building climate resilience in 40 countries. Local governments and other individuals will be allowed to participate in the future. CERs are produced by projects in developing countries registered under the UN’s CDM offset program, which has struggled with declining demand and low pricing in recent years. Read more here

 

Like a rock
Chevrolet will purchase 100,000 tonnes of carbon offsets generated by voluntarily implementing nitrous oxide abatement technologies at a CF Industries Holdings nitrogen manufacturing facility in Mississippi. The Terra Yazoo City #9 project is listed with the Climate Action Reserve under its Nitric Acid Production Project Protocol and the deal was brokered by ClimeCo. Chevrolet will retire the offsets as part of its Carbon Reduction Initiative, which features a goal of reducing eight million tCO2e. CF Industries will donate the net proceeds of $600,000 to the National FFA Foundation to support excellence in farmer education and fertilizer best management practices. Read more here

 

Bambi would be proud
The Walt Disney Company struck a deal with the Bethlehem Authority to buy forest carbon offsets from a nearly 20,000-acre project in Pennsylvania. The 4-year deal will bring in $140,000 to $170,000 annually, which the Bethlehem Authority will use to improve its aging water system and protect the forested watershed of Pennsylvania’s Pocono Mountains. The project is developed by Blue Source under a Verified Carbon Standard methodology and registered with Markit. It will generate just under 25,000 tCO2e in annual estimated emission reductions. Disney is one of the largest purchasers of offsets in the voluntary carbon markets, retiring 457,882 tCO2e in 2013 and 433,677 tCO2e in 2012, according to company data.
 Read more here

 

Dialing down emissions
The Mobile World Congress 2014 has been certified carbon neutral by the Spanish Association for Standardisation and Certification, AENOR. The annual conference in Barcelona, Spain offset approximately 165,000 tCO2e with the assistance of project developer Factor CO2. Conference organizer GSMA purchased CDM offsets from the Dongliuxi Erji Hydropower project in the Hubei province of China, bundled wind power projects in the Indian state of Rajasthan, and the Olkaria II Geothermal Expansion Project in Kenya. Read the press release
More from AENOR

 

The final score
Sixteen companies donated 545,500 CERs in response to Brazil’s “Low Carbon World Cup Initiative”. The Brazilian government offered publicity in official documents in exchange for CERs based in Brazil. The program’s goal was to offset the 1.4 million tCO2e associated with the event’s stadium construction, local transportation, and fossil fuel electricity consumption. The top donor was Tractebel Energia a division of French utility GDF Suez with 105,000 CERs, followed by chemical manufacturer Solvay Rhodia with 100,000 CERs. Read more here

 

Scaling the mountains
The Appalachian Mountain Club has sold over 100,000 offsets from its Katahdin Iron Works conservation property in Maine to The Climate Trust, which is using the offsets to fulfill its obligations under an initiative to address carbon emissions from fossil fuel plants in Massachusetts. The offsets were verified under the Climate Action Reserves Forest Project Protocol. Proceeds from the sale will benefit projects such as the Maine Woods Initiative, a strategy for land conservation in the 100-Mile Wilderness region. The strategy addresses regional ecological and economic needs through outdoor recreation, resource protection, sustainable forestry, and community partnerships. Read the press release

 

Compliance Carbon

Going above and beyond
The Norwegian Carbon Procurement Facility (NorCaP) has closed its first call for proposals and is expected to purchase 21 million CERs at an above-market average value of nearly $3.1 each. The principal objective of NorCaP is to prevent the reversal of emission reduction activities by obtaining offsets from projects whose survival or continued emission reductions depend on a higher carbon price than achievable under current market conditions. The offsets will be purchased from 13 different projects and used to help meet the country’s obligations under the Kyoto Protocol. A second call for proposals is anticipated in September 2014. Read more here

 

Out of Africa
Vitol, Bunge and Shell Trading have purchased over 3.5 million CERs from African carbon offsets developer Ecosur Afrique. The companies will buy around 510,000 CERs annually for at least the next seven years, with closing prices determined at the time of delivery to the final customers. The offsets will be sourced from five clean energy projects: four in Burundi and one in Uganda. Read more here

 

Backed by the Crown
The British High Commission in South Africa awarded Johannesburg-based Promethium Carbon a grant to help prepare local companies for the country’s forthcoming carbon tax, which is expected to start at $11.2/tCO2e in 2016. The program includes the option to utilize offsets for compliance with the tax and Promethium will use the grant to start a pilot trading market for carbon offsets on the Johannesburg Stock Exchange next year. Promethium estimates the initial prices for South African offsets in the range of $7.5-$9.4 per tonne. The value of the grant was not disclosed. Read more here

 

Give me just a little more time
South Korean Ministries will move to delay the country’s ETS scheduled to start in January 2015. Officials will take an unspecified time to recalculate the “business as usual levels to ease pressure on industry. The ETS has been opposed by business groups such as the Federation of Korean Industries. The matter now goes before the National Assembly where the likelihood of passing revised legislation is uncertain. Read more here

 

Science & Technology

Don’t let the carbon escape
Construction has started on the first commercial-scale post-combustion carbon capture and storage (CCS) project in the United States. The Petra Nova CCS and enhanced oil recovery project is being developed via a partnership between NRG Energy, JX Nippon and the Department of Energy, which contributed $167 million. The project is located at a NRG Energy coal-fired power plant in Texas and aims to capture 1.4 million metric tons of carbon dioxide (CO2) annually. The CO2 will be pumped through an 80-mile pipeline to the West Ranch Oil Field and injected into the ground to boost oil production and store the power plant’s carbon. Read more here

Featured Jobs

Climate Policy Associate – The Climate Reality Project
Based in Washington, DC, the Climate Policy Associate will be responsible for tracking, analyzing and evaluating international and US climate policy and politics for the Science and Solutions Team. Ideal candidates will have a master’s degree plus two to three years of work experience in climate policy, with a particular emphasis on international climate policy and familiarity with the United Nations Framework Convention on Climate Change process. Read more here

 

Climate and Air Legislative Affairs Manager – Environmental Defense Fund (EDF)
Based in Washington, DC, the Climate and Air Legislative Affairs Manager will serve as point person in identifying, developing, and overseeing execution of legislative strategies to advance EDF’s climate and air priorities. Successful candidates should have an advanced degree and at least seven years of policy experience, including experience working with senior Congressional and Administration officials, and coalitions of national-level interest groups and associations. Read more here

 

REDD+ Team Leader – Österreichische Bundesforste
Based in Pakse, Laos, the REDD+ Team Leader will be responsible for implementation of a REDD+ project in Xe Pian National Protected Area and its buffer zone. Preferred candidates will have an advanced degree in forestry with a minimum of five years of relevant work experience. Ideal language skills include English, German and Lao.Read more here

 

Practice Area Team Leader, Climate Change Adaptation – Engility
Based in Alexandria, Virginia, the Climate Change Adaptation Team Leader will head the organization’s business development and ongoing US Agency for International Development (USAID) programs in climate change adaptation, resilience, urban infrastructure, and environmental services. Ideal candidates will have a master’s degree in an area relating to climate change, urban development, or environmental issues with 10 years of relevant experience. Previous USAID experience is required.Read more here

 

Senior Advisor Climate Adaptation & Disaster Risk Reduction – Deltares
Based in Delft, Netherlands, the Senior Advisor will conduct international research studies and implement projects on the adaptation of water management to climate change, flood risk management and disaster risk reduction. Successful candidates will have an advanced degree in hydrology, civil engineering, physical geography, or similar field of study with 10 years of international experience in water management. Fluency in English is required and knowledge of French, Spanish or Portuguese is preferred.Read more here

ABOUT THE ECOSYSTEM MARKETPLACEEcosystem Marketplace is a project of Forest Trends, a tax-exempt corporation under Section 501(c)3. This newsletter and other dimensions of our voluntary carbon markets program are funded by a series of international development agencies, philanthropic foundations, and private sector organizations. For more information on donating to Ecosystem Marketplace, please contact info@ecosystemmarketplace.com.

 


Carbon Partnership: Breaking New Ground

 

June 9  2014 | Consultancy Carbon Partnership has finished designing and developing a new methodology for New Zealand forests – specifically, for its Rarakau project. While this first project covers only 1,000 hectares, it is part of a larger program that applies to indigenous forests nationally. Since these forests existed before 1990, they didn’t qualify for New Zealand’s compliance markets. Instead, Director Sean Weaver created his own methodology for the voluntary carbon markets.

However, the voluntary market presents its own challenges: buyers usually prefer the Verified Carbon Standard (VCS) for forestry projects. While elements of the methodology were created with VCS, the overall project has been verified under the lesser-known ISO14064-2 carbon standard – principally because Carbon Partnership and its funders could not afford the transaction costs of the VCS path. But both standards present complications and New Zealand project developers face other larger risks in developing current projects, Weaver explained.

Despite these hurdles, he hopes that the project’s strong biodiversity and conservation co-benefits will interest buyers – and he’s not afraid to look outside of the voluntary carbon markets to find them. Ecosystem Marketplace’s just released State of the Voluntary Carbon Markets 2014 executive summary highlights the growing trend (in New Zealand and elsewhere) of companies preferring and paying above-average prices for projects with strong co-benefits.

Kelley Hamrick: What stage are you at right now?

We’re just at the stage of commercializing the project. That’s also including a plan to try and find buyers who aren’t interested in carbon but are more interested in saving rainforests; for which, the bigger story is: what kind of forests are you protecting? Because, of course, there are buyers, even in the voluntary carbon market, who are more interested in a corporate social responsibility (CSR) claim than they are in offsetting carbon. It’s those kinds of people we need to try and connect with, for this particular project and program in New Zealand.

To read the rest of this Q&A, please visit the  Forest Carbon Portal  for free.

 

This Week in Biodiversity: Australia’s Got Some Good News, and Some Bad News…

This article was originally published in the Mitigation Mail newsletter. Click here to read the original.

21 August 2013  |    Greetings!  This month’s MitMail brings you a quartet of stories on the Gulf,  where big things are happening. We cover a  pathbreaking new lawsuit  against oil and gas over wetland impacts in the region, a  new wetlands carbon pilot,  and a  power company that, in the aftermath of Katrina, saw the climate writing on the wall  and is pushing ahead adaptation efforts.

 

Biodiversity offsets are pushing new frontiers  too – in  Colombia  and  Peru,  and in tandem with Obama’s drive for renewable energy development in the US  (where, we write, the system for mitigating renewables impacts could use a little work).

 

We also have some good news, and some bad news, from  Australia. New South Wales recently  reformed  its biodiversity offsets framework, establishing a fund to channel money from the mining industry and other developers into the “bio-banking” system and making the offsetting methodology more transparent. On the other hand, the federal government’s announcement that it’ll introduce carbon emissions trading ahead of schedule has had the  side effect of defunding the national Biodiversity Fund  by AUD$231 million – or by about one-fifth.


We’re hiring!  Our sister site Valorando Naturaleza is searching for a program assistant. Take a look at the job description in the newsletter below or  click here.


Finally, if you enjoy your monthly MitMail, consider making a small donation.  As a not-for-profit organization, it’s our mission to provide top-notch, freely available information on environmental markets and conservation finance, and we rely on our supporters to be able to do so. Just $150 gets you a place of honor on our sidebar, and helps us keep the lights on.  Click here to donate.

—The Ecosystem Marketplace Team

If you have comments or would like to submit news stories, write to us atmitmail@ecosystemmarketplace.com.

EM Exclusives

A Six-Step Approach To Determining What Can And Cannot Be Offset

Little guidance is provided on the complex issue of biodiversity offsetting and considering which impacts are offsetable. That is why a group of thought leaders from the biodiversity space have outlined an offsetability evaluation process that determines the success and appropriateness of specific offsets. The process was recently presented in a webinarhosted by Forest Trends’ collaborative initiative on biodiversity offsets and conservation banking systems, the  Business and Biodiversity Offsets Programme  (BBOP). 

–  Keep reading.

Clearer Rules On Mitigation Needed To Boost Renewable Energy Projects

US President Barack Obama’s recent  climate change plan  highlights renewables with ambitious goals. These targets include doubling the amount of electricity generated by wind and solar power by 2020 and generating 3 gigawatts of renewable energy on military installations by 2025, according to the plan.

 

But these goals will only be achieved if they are in line with mitigating wildlife impacts. Several clean energy projects are currently stalled over endangered species permitting requirements and Obama’s plan doesn’t take any steps to clarify, systematize or standardize this permitting process.

 

When a landowner develops a piece of land, ecosystems that are unavoidably disrupted or ruined must be replaced through  compensatory mitigation.  But compensatory mitigation laws are complex and, as of right now, in no condition to take on the expected rise in renewable energy projects due to Obama’s recent push.

–  Get the full story here.

Building A More Resilient Gulf

Charlie Broussard, a shrimper on the docks in Cocodrie, Louisiana, has seen the wetlands he paddled through as a kid shift dramatically – literally. In fact, the Louisiana coastline is changing so quickly that fisherman and oil rig workers who have spent their lives navigating the bayou by boat sometimes get lost as familiar landmarks are drowned. In Louisiana, 1,880 square miles of land has vanished since the 1930s, and the current rate of land loss is equivalent to a football field every  38 minutes.

 

To begin to address these vulnerabilities, Louisiana’s 2012 Coastal Master Plan prioritizes 109 coastal restoration projects, at a price tag of $50 billion. But, with 85% of Louisiana’s coast controlled by private landowners, others are looking to the private sector to support wetland restoration.

 

In September 2012, the American Carbon Registry approved a wetlands methodology that will allow landowners to quantify the carbon sequestered by restoration projects and then sell verified emissions reductions (i.e. carbon offsets) to voluntary offset buyers.

 

Entergy, a utility with 2.8 million customers in the Gulf and the company that invested $150,000 to help develop the wetlands methodology, has the right of first refusal on the Luling project and is planning to purchase some of the carbon offsets produced by the restoration work. The company sees wetlands as a kind of natural insurance that will buffer their infrastructure in an  uncertain climate future.

–  Keep reading.

Ecosystem Services Front And Center As Lawsuit Seeks Restitution For Destroying Louisiana Wetlands

The coastal lands along the Gulf of Mexico have created a natural protective buffer against damaging weather events. The buffer took 6,000 years to form, but it’s at the brink of destruction, with hundreds of thousands of acres now gone because of the activities of the oil and gas industry, according to a new lawsuit. The lawsuit filed against about 100 industry players says it’s now time for these companies to pay up.

The lawsuit was filed on July 24 by the Board of Commissioners of the Southeast Louisiana Flood Protection Authority – East, a public entity that is responsible for governing the levee districts of Orleans. The authority monitors the integrity of coastal lands, considered a necessary complement to the entity’s flood protection system, but its job has become increasingly more challenging because of the deterioration and disappearance of the state’s coastal lands, according to the lawsuit.

“This is a very interesting next step in climate change asserting itself into the legal system and the political system,” says John Nevius, chair of the Environmental Law Group of Anderson Kill & Olick. “It seems like kind of a new front in the effort to focus people on this issue.” Even if the suit fails, it could push the concept of ecosystem services into the mainstream. 

–  Learn more here.

Louisiana Wetlands: Why We All Need Them, And Why Oil Companies Aren’t The Only Ones On The Hot Seat

Author John Barry is best known for his eminently readable accounts of scientific advances, while humorist Harry Shearer is best known for his improv and voice acting skills. Barry, however, is also vice president of the Southeast Louisiana Flood Protection Authority – East, (SLFPAE) which was created after Hurricane Katrina to protect the east bank of the Mississippi River in the greater New Orleans area, while Shearer also hosts the weekly radio program Le Show on National Public Radio. 


The SLFPAE is the levee authority that’s  suing Chevron, Exxon Mobil and 95 other oil and gas companies over wetland degradation  along Louisiana’s Gulf Coast.  In an interview with Shearer, Barry offers big-picture insight into the factors degrading the coast and driving the suit.


“We don’t blame the oil and gas industry for all of the land loss,” Barry says. “We do say they are responsible for some of the land loss. We’re just asking them to pay for the part that they’re responsible.”

–  Read a summary of the Shearer-Barry interview here.

Entergy Seeks To Lead On Climate Risk Mitigation

Power company Entergy got a stark wake-up call about climate risks and the need to mitigate them when Hurricanes Katrina and Rita blew through its service area in 2005, and the company lost its New Orleans headquarters for a year. That rude awakening has morphed into a wide-ranging effort to identify and address the risks that climate change present to the company’s customer base, service area, and utility infrastructure, most of which are located in the Gulf Coast region.

 

“We want to make sure we identify the risks facing us so that we don’t get caught unprepared, as I feel we were after Katrina,” says Brent Dorsey, the company’s director of corporate environmental programs.That’s spurred the company into backing wetland restoration in the Gulf, strengthening its infrastructure, and even relocating entire departments to reduce climate risk exposure.

–  Keep reading.

Colombia Takes Lead In Latin American Biodiversity Offsetting

Colombia, Períº, Ecuador and Chile are all wrestling with ways to balance economic growth with environmental protection, and representatives from all four countries last month participated in  talks hosted by Peru  to explore biodiversity offsetting mechanisms from around the world and see which, if any, could work best for them.

 

“The tremendous growth in interest worldwide over the last three years in rigorous mitigation measures, including biodiversity offsets, is now visible in Latin America,” says Kerry ten Kate, Director of Forest Trends’ Biodiversity Initiative. “As elsewhere, it’s spurred by new regulations, tighter loan conditions by financial institutions and the voluntary business case”.

 

Of the four, Colombia has most clearly embraced biodiversity offsets. Recent policy developments there require planned development projects such as mining, oil and gas infrastructure to offset residual biodiversity impacts by restoring or protecting an equivalent habitat elsewhere. Thenew regulation  is based on two key principles: no net loss and ecological equivalence. Furthermore, it establishes offset ratios that range from  1:4 to 1:10.

–  Ecosystem Marketplace has analysis.

Peruvians Aim For Regional Cohesion On Biodiversity Offsets

Late last year, Colombia enacted a “no net loss” policy on a whole range of planned development projects – meaning that any roads, mines, and pipelines that damage habitat must restore habitat of equal or higher value nearby or face penalties. It’s a clear response to the surge in construction and mining there, and a first step towards creating biodiversity offsets.

 

With gold prices hovering around $1,300 per ounce, energy demand on the rise, and infrastructure investments as high as they’ve ever been, Colombia, Peru and Chile all face growing threats to their rich natural heritage, and each is exploring ways of ensuring that any loss of habitat is offset by a gain. Last month, the Peruvian Ministry of Environment (MINAM) hosted a meeting in Lima designed to help the three compare, contrast, and perhaps even harmonize their approaches to compensatory mitigation banking. 

–  Keep reading.

Mitigation News  

NSW Takes Its Biodiversity Offsets System for a Tune-Up

Reforms to biodiversity offsets in New South Wales (NSW), Australia, promise to streamline and clarify the system. Central to changes is a new biodiversity offsets fund. Developers will now be able to pay a fee into the fund, which the state government will then direct toward conservation efforts through the  existing “bio-banking” framework.


NSW officials say that the fund will help to simplify offsetting for industry and other developers.  “The new fund will see money directed for environmental improvements where they  are most needed; while relieving developers of the responsibility to make  environmental decisions for the state,” said  NSW Environment Minister Robyn Parker.


The reforms additionally set out clear offset principles and calculation methods, and introduce a ‘tiered approach’ that lets developers fund restoration projects or wildlife recovery efforts as supplemental alternatives to land-based offsets. The new rules also suggest that  an offset ‘discount’ can be applied to projects that offer “significant social and economic benefits to NSW.”

–  Read a press release.
–  Get analysis on what the reforms mean for the mining industry.

As Carbon Goes, So Goes Australian Conservation

Australia’s federal government announced last month that it  plans to introduce carbon emissions trading in July 2014, a year ahead of schedule. That replaces the  fixed-price carbon tax with a floating carbon price. It’ll bring the price of carbon down from $25/ton to an estimated $6/ton – but it will also create a AUD $3.9 billion shortfall in government tax revenues, including support for the  Biodiversity Fund,  which is funded by the carbon tax.


The Biodiversity Fund, established in 2012 with nearly a billion dollars allotted, has already committed somewhat more than AUD $200 million to projects supporting an array of conservation issues, including endangered species recovery, wetlands protection, and improving habitat connectivity. Now, Treasurer Chris Bowen says the government has no choice but to reduce funding by AUD $231 million. A floating carbon price, with the introduction of cheaper European credits, will also likely signal the end of the  Carbon Farming Initiative,  which promotes soil carbon credits generated by Australian farmers and landowners. Ouch.

–  Read more about the government’s announcement.
–  The Guardian has analysis on impacts for biodiversity and soil carbon.

Crowdfunding Comes to the Eco-Marketplace

This week, Mission Markets announced its latest venture:  Mission Crowdfund,  a platform that lets the public buy environmental credits and fund other ventures. Offerings right now include  “adopting” a Utah prairie dog  (via habitat enhancement projects),  buying a water offset certificatefrom the Bonneville Environmental Foundation, or helping to  pay for  solar-powered vaccine refrigerators  in Kenya. The idea is to link everyday people (and their pockets) to environmental markets and other worthy causes. “Often financing solutions are limited to sophisticated investors,” said Ken Marienau, CEO of Mission Markets.

–  Read more at the Mission Markets blog.

How to Explain Conservation Banking to Your Grandmother

An opinion column in USA Today makes the case for conservation banking to the general public. The piece, penned by Wayne Walker of Oklahoma-based Common Ground Capital, sets out the basic process and principles of banking, which, Walker writes,  bring[s] together competing environmental and economic growth forces”  to protect the lesser prairie chicken and other imperiled species. “As one who has spent his career in the private energy sector and has attended numerous meetings and workshops with government, energy and environmental groups on the chicken, it is clear the one thing all sides most want is certainty,” he says.

–  Read it here.

ESR in Action: Dispatches from Brazil

Last year, the  Brazilian Business and Ecosystem Services Partnership(PESE) formed over a commitment to evaluate and manage ecosystem impacts and dependencies in Brazil. Members, including Walmart, Danone, PepsiCo, mining companies, a cosmetics firm, and agribusiness, agreed to apply the World Resource Institute’s  Corporate Ecosystem Service Review  (ESR).

 

A recent article in GreenBiz gives us an update on PESE: armed with knowledge from the ESR, Walmart is targeting its beef supply chain to acheive zero deforestation by 2015. Danone is looking at improving biodiversity and soil quality at the dairy farms from which it sources milk. Mining companies now consider ecosystem services in their impact assessments. All of these initiatives are in early stages, but the firms and their partners believe that they’re proving that “Brazil’s business sector can be both sustainable and profitable.”

–  Read the piece at GreenBiz.

Here’s a New One: Payments for Ecosystem Services…Monitoring

Yesterday, the San Miguel, Colorado county government released a report detailing recent efforts to compensate private landowners in exchange for permitting researchers to access their land for field surveys. The project, carried out with financial and technical support from Colorado State University, focused on imperiled rare plant species. Ultimately the county contracted with seven landowners, who collectively received $3,350 in payments. Two new populations of the target species were discovered. Next up: a similar project to gather data on the endangered Gunnison Sage-Grouse.

–  Learn more.

Yasuni Hail Mary Goes Nowhere

Some bad news out of Ecuador: the clock has run out on President Rafael Correa’s promise to protect biodiversity hotspot Yasuni National Park from oil exploration in exchange for international aid to the tune of $3.6 billion (roughly half of the estimated value of oil underlying Yasuni). Though some national governments and celebrities kicked in funding, the effort has gone nowhere. Last week, Correa announced that he will allow oil drilling in the park to proceed, though  he downplayed its effects, saying drilling would only  impact  0.1 percent of the Yasuni basin (where, scientists say, “any football-field-sized area of Yasuni has more species of trees than the U.S. and Canada combined”).

–  PBS has coverage.

Mitigation Roundup

Finally, in our monthly mitigation roundup:

 

EVENTS

 

6th Annual International ESP Conference 2013

Organised by the Ecosystem Services Partnership (ESP) and convened by the World Agroforestry Centre (ICRAF) and CGIAR Research Program: Forests, Trees and Agroforestry in collaboration with the Sub Global Assessment Program coordinated by UNEP’s World Conservation Monitoring Centre, the UNCCD-Global Mechanism, The Economics of Ecosystems and Biodiversity (TEEB), the International Association for Landscape Ecology (IALE), A Community on Ecosystem Services (ACES), and other ESP partners. 26-30 August 2013. Bali, Indonesia.

–  Learn more here.

Biosymposium 2013: Biodiversity Resilience

The annual Biodiversity Institute Symposium this year will tackle the subject of Biodiversity Resilience. Factors leading to the loss of resilience in social-ecological systems are the focus of many excellent on-going research programmes and symposia. However, this two-day symposium aims to highlight the other side of the resilience research agenda – namely factors that promote and lead to resilience of biodiversity. The symposium will showcase ongoing research that examines the biotic and abiotic processes and mechanisms responsible for biodiversity resilience (ranging from genomics to landscape-scale), through to policies and management that ensure resilience of biodiversity now and in the future.2-3 October 2013. Oxford, UK.

–  Learn more here.

Responsible Business Forum on Sustainable Development

The Responsible Business Forum on Sustainable Development will bring together business leaders, NGOs and policy-makers from around Southeast Asia to discuss commitments and policy recommendations to increase sustainability across seven sectors – agriculture & forestry, palm oil, consumer goods, mining, financial services, building & urban infrastructure and energy.The forum will discuss the transformational journey to the green economy and offer practical ways to accelerate business solutions and policy frameworks for a more sustainable world. 18-19 November 2013. Singapore.

–  Learn more here.

World Forum on Natural Capital

The inaugural World Forum on Natural Capital will be the first major global conference devoted exclusively to turning the debate on natural capital accounting into action. It will build on the enormous private sector interest shown at the United Nations Earth Summit in Rio in June 2012 and the many developments that have taken place since. The World Forum on Natural Capital will bring together world-class speakers, cutting edge case studies and senior decision makers from different sectors, in order to turn the debate into practical action. Lively plenaries and interactive breakout sessions in four conference streams will explore the risks and opportunities for business, allow access to the very latest developments and provide an opportunity to help shape the debate through dialogue between policymakers, business leaders and prominent experts in the field. 21-22 November 2013. Edinburgh, Scotland, UK.

–  Learn more here.

2014 National Mitigation & Ecosystem Banking Conference

The only national conference that brings together key players in this industry, and offers quality hands-on training and education sessions and important regulatory updates. Learn from & network with the 400+ attendees the conference draws, offering perspectives from bankers, regulators, and users.  Submit proposals for panels and presentations online by October 1st!  6-9 May 2014. Denver, Colorado.

–  Learn more here.

Conference on Ecological and Ecosystem Restoration

CEER is a Collaborative Effort of the leaders of the National Conference on Ecosystem Restoration (NCER) and the Society for Ecological Restoration (SER). It will bring together ecological and ecosystem restoration scientists and practitioners to address challenges and share information about restoration projects, programs, and research from across North America. Across the continent, centuries of unsustainable activities have damaged the aquatic, marine, and terrestrial environments that underpin our economies and societies and give rise to a diversity of wildlife and plants. This conference supports SER and NCER efforts to reverse environmental degradation by renewing and restoring degraded, damaged, or destroyed ecosystems and habitats for the benefit of humans and nature. CEER is an interdisciplinary conference and brings together scientists, engine

Carbon Market Sees Long Game in AU “Link and Scrap” Decision

In the long run, Australia’s move to link its ETS with the EU ETS in 2015 and scrap its price floor could usher in a liquid international carbon market. The short term is more nebulous, despite provisions to bolster demand for the domestic Carbon Farming Initiative. Can the new policy sufficiently navigate carbon price risk and political uncertainty?  

4 September 2012 | Forest sink developer Carbon Conscious announced last Tuesday that its biggest client and Australia’s largest green energy retailer – Origin Energy – has decided not to exercise its $133 million worth of 2013 planting options. The plantings would have expanded the largest carbon sequestration project on the continent to date, which generates carbon credits for Australia’s emerging compliance carbon market through the Carbon Farming Initiative.

The announcement came just before a larger one that same day, when the Australian government announced that it will link Australia’s Carbon Price Mechanism (CPM) with the European Union Emissions Trading Scheme (EU ETS) beginning July 1, 2015.

The partial link will allow energy-intensive Australian businesses to purchase carbon credits traded under the EU ETS, with plans to eventually structure a two-way link between the Australian and EU schemes to start July 1, 2018 – laying the foundation for the first full inter-continental linkage of emissions trading schemes. In conjunction, the Australian government will scrap its planned A$15/tCO2e carbon price floor.

Origin said its decision was unrelated to the linkage and price floor announcement, but The Australian Financial Review quoted  Dan Stevens, Director of Business Development at Carbon Conscious, as saying Origin’s decision was influenced by “market sentiment and uncertainty around the carbon price.”

This in turn has stoked discussion around how Origin’s decision may have been influenced by the expectation of low carbon prices post-2015 – and how the Australian government’s “link-and-scrap” policy could prove those expectations right or wrong.

Zooming Out

The new policy has broad implications for domestic project development, particularly for Australian farmers and landholders looking to generate carbon credits through the Carbon Farming Initiative (CFI) – Australia’s main outlet for domestic agriculture, forestry, and land use (AFOLU) carbon offset project development.

By linking Australian buyers to EU allowances (in addition to Kyoto units), the Australian government and the European Commission intend to mitigate EU permit oversupply and thereby drive up the price of carbon (in theory). The question remains to exactly what extent the linkage alone can buoy global carbon prices – as compared to the stimulus that could result from economic recovery in the EU or the European Commission’s proposal to remove some of the EU allowances surplus.

“The devil is in the details,” says Christopher Webb, Assistant Director of Sustainability and Climate Change at PricewaterhouseCoopers. “The announcement hasn’t really moved prices in the EU, which suggests that market participants are not expecting Australia to pick up a huge volume from the European scheme – which is what would be required to significantly increase prices.”

“But on the upside,” he continues, “this could increase the fungibility of assets across the schemes, helping to reduce the overall costs to businesses and ensure more efficient and effective functioning of the markets. The details of this though are still to be determined, and aren’t expected until 2018. So whilst it appears to be a positive step, it really is too early to tell.”

Through the inter-continental linkage, the performance of carbon prices abroad will in turn influence the price of Australian Carbon Credit Units (ACCUs) – the scheme’s domestic offsets which will no longer be able to track against the scrapped A$15/tCO2e price floor on allowances. In light of this, the government’s revisions could potentially point to more short-term price uncertainty for Australian farmers and landholders looking to generate CFI ACCUs.

CFI activities already tend to require a relatively long-term outlook before they can be scaled up. For CFI-eligible activities like environmental plantings, heavy upfront financing is required to purchase degraded land and get projects off the ground before projects reach maturity and yield credits – not exactly a walk in the park. As such, the time to recovery of the carbon price could make or break project viability.

Other AFOLU methodologies, ranging from native vegetation restoration on rangelands to camel culling, are still pending a rigorous government approval process before project developers can tap into them for compliance-eligible CFI ACCUs.

Buying Local

Leading up to the Australian government’s announcement, the Federal Opposition expressed concerns that a one-way AU-EU link would lock Australian farmers out of European carbon markets in a lopsided deal where Australia would prop up Europe at the expense of its own farmers.

James Bulinski, Director of Carbon Innovation at forest sink developer CO2 Australia, points to the safety net in place for domestic carbon farming: “We see nothing but positives here for Australian-based providers, as there are no major shifts in the ‘caps’ around international imports that have been announced. In other words, [at least] 50 percent of Australian emitters’ obligations still need to be met from domestic sources.”

“Depending on how treaty negotiations go,” Bulinski comments, “[the linkage] may allow for export of CFI credits beyond 2018 – dependent on Europeans accepting CFI credits as fungible into the EU program.”

Sara Gipton, CEO of forest sink developer Greenfleet, also observes, “Local credits should be able to compete well with EU ETS permits in the medium to long term – which is when forest projects come into their own. The $15 floor price set us a concrete hurdle to jump, so not having a fixed price is for us a little more challenging in the short term.”  
 
“But,” she counters, “against this we have greater long-term confidence.”

A New Golden Ratio?

Under Australia’s revised CPM, the limit on the use of eligible international units will stay constant at 50 percent. However, the mix of eligible international units has been broadened from Kyoto units (like CERs, ERUs and RMUs) to also include European permits and other non-Kyoto units that may be admitted in the future – like credits generated from REDD activities. These new additions can comprise all or part of the allowable “international” 50 percent.

The new window for non-Kyoto credits likewise limits the potential for low-priced CERs – now capped at 12.5 percent of Australian emitters’ total liability – to depress the price of ACCUs by flooding the Australian market. Taken in combination with the scrapping of the floor price, market observers are left to assume that ACCUs will track the EUA price instead, which should provide relatively greater price support to CFI units (CFIs) and other Australian permits.

Last Friday, the December 2012 CER contract closed at 2.80 euros, while the December 2012 EUA contract closed at 8.08 euros.

A Bridge over Opposition

Australia’s new bridge with the EU’s more seasoned system makes it difficult to unwind Australia’s carbon scheme in the event that political parties shift, says Bulinski.

Since the Australian government’s announcement, Opposition Leader Tony Abbott has repeated his vow to repeal Australia’s carbon tax if he is elected next November – though interestingly, he indicated that he is not opposed to the CFI itself.

With Australia’s CPM at the crux of establishing demand for CFI credits, however, the linkage may still offer a more stable long-term policy outlook for domestic farmers looking to tap into international carbon markets. Elsewhere on the map, the Australian government is looking into cross-border linkages with South Korea and China, and has already confirmed plans to link with New Zealand’s ETS. If executed, these new linkages could further open up the market for CFIs and other carbon offsets.

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What Australia’s Link and Scrap
Could Mean for Domestic Carbon Farming

 A group of land industry organizations are claiming the new ecosystem service based forest planning rule is in violation of several pieces of land management legislation. Because of what they believe to be a governmental overreach, they have filed a lawsuit against the US Forest Service.

29 August 2012 When the US Forest Service updated its Forest Planning Rule in March, it claimed the new rule reached ecological as well as economic sustainability through a framework based on collaboration and science.

“This new rule provides the framework we need to restore and manage our forests and watersheds while getting work done on the ground and providing jobs,” said Agriculture Secretary Tom Vilsack.

But those potential benefits were called into question this month, when organizations within the livestock industry filed a lawsuit arguing the rule is in violation of several statutes.

The rule hadn’t been updated in 30 years prior to this attempt and many conservation groups say it is desperately needed. The Nature Conservancy estimates 120 million acres of forests are in immediate need of restoration.

The rule includes requirements of restoring and maintaining forests, grasslands and watersheds and also providing habitat for species conservation. Other provisions of the plan include outreach to underrepresented communities.

Regarding the litigation, the Forest Service released a statement saying, “We listened to thousands of stakeholders in crafting the new planning rule and in reflex the full spectrum of voices and perspectives of those who value our national forests and grasslands. We are confident in the rule as it is the result of an unprecedented collaborative process.”
The livestock industry’s lawsuit is led by the Public Land Council and the National Cattlemen’s Beef Association but includes several other organizations. They argue the new rule violates the National Forest Management Act, (NFMA) the Multiple-Use, Sustained Yield Act, (MUSYA) and the Administrative Procedures Act.

“What we focus on in the lawsuit is the emphasis on preservation and ecosystem services and sustainability over what is required by statute,” says Executive Director of the PLC and Director of Land of Federal Lands at the NCBA, Dustin Van Liew. Van Liew says the law requires the planning rule to focus on managing for multiple use purposes such as range, timber and mineral development. Wildlife preservation is one part of the rule and not the central component.

Besides that, the industry doesn’t like the idea of grouping productive functions of national forests that provide for local economies with recreational forest uses under the term, ‘ecosystem services.’

A term like, “viable population,” which requires the USFS to maintain a viable population of species of concern within an area in the revised planning rule, forces standards that were previously guidelines to be mandatory. The laws mentioned above provide that individual forests simply follow the direction set by the planning rule.

Ranchers and farmers say they operate under the multiple use management approaches in cooperation with Congress working to maintain wildlife habitat while also providing the foundation of the US west’s rural economy.

The US Department of Agriculture Forest Service says the new planning rule does support these rural economies while enhancing protection for forests, water and wildlife.

“We are ready to start a new era of planning that takes less time, costs less money, and provides stronger protections for our lands and water”, said U.S. Forest Service Chief Tom Tidwell.

As mentioned earlier, the revisions are heavily focused on ecosystem services and new forest plans will be required to use scientific data as well as public involvement when developing individual plans.

 

What Australia’s Link and Scrap Could Mean for Domestic Carbon Farming

 A group of land industry organizations are claiming the new ecosystem service based forest planning rule is in violation of several pieces of land management legislation. Because of what they believe to be a governmental overreach, they have filed a lawsuit against the US Forest Service.

29 August 2012 When the US Forest Service updated its Forest Planning Rule in March, it claimed the new rule reached ecological as well as economic sustainability through a framework based on collaboration and science.

“This new rule provides the framework we need to restore and manage our forests and watersheds while getting work done on the ground and providing jobs,” said Agriculture Secretary Tom Vilsack.

But those potential benefits were called into question this month, when organizations within the livestock industry filed a lawsuit arguing the rule is in violation of several statutes.

The rule hadn’t been updated in 30 years prior to this attempt and many conservation groups say it is desperately needed. The Nature Conservancy estimates 120 million acres of forests are in immediate need of restoration.

The rule includes requirements of restoring and maintaining forests, grasslands and watersheds and also providing habitat for species conservation. Other provisions of the plan include outreach to underrepresented communities.

Regarding the litigation, the Forest Service released a statement saying, “We listened to thousands of stakeholders in crafting the new planning rule and in reflex the full spectrum of voices and perspectives of those who value our national forests and grasslands. We are confident in the rule as it is the result of an unprecedented collaborative process.”
The livestock industry’s lawsuit is led by the Public Land Council and the National Cattlemen’s Beef Association but includes several other organizations. They argue the new rule violates the National Forest Management Act, (NFMA) the Multiple-Use, Sustained Yield Act, (MUSYA) and the Administrative Procedures Act.

“What we focus on in the lawsuit is the emphasis on preservation and ecosystem services and sustainability over what is required by statute,” says Executive Director of the PLC and Director of Land of Federal Lands at the NCBA, Dustin Van Liew. Van Liew says the law requires the planning rule to focus on managing for multiple use purposes such as range, timber and mineral development. Wildlife preservation is one part of the rule and not the central component.

Besides that, the industry doesn’t like the idea of grouping productive functions of national forests that provide for local economies with recreational forest uses under the term, ‘ecosystem services.’

A term like, “viable population,” which requires the USFS to maintain a viable population of species of concern within an area in the revised planning rule, forces standards that were previously guidelines to be mandatory. The laws mentioned above provide that individual forests simply follow the direction set by the planning rule.

Ranchers and farmers say they operate under the multiple use management approaches in cooperation with Congress working to maintain wildlife habitat while also providing the foundation of the US west’s rural economy.

The US Department of Agriculture Forest Service says the new planning rule does support these rural economies while enhancing protection for forests, water and wildlife.

“We are ready to start a new era of planning that takes less time, costs less money, and provides stronger protections for our lands and water”, said U.S. Forest Service Chief Tom Tidwell.

As mentioned earlier, the revisions are heavily focused on ecosystem services and new forest plans will be required to use scientific data as well as public involvement when developing individual plans.

 

Suing to Stop Climate Change

Climate change is going to be expensive, and the hardest-hit will be those least responsible for causing it.   If governments fail to implement a solution, can the current legal system at least be used to make sure those who create the mess pay for dealing with it?   More and more people are exploring this fascinating question,   which was front-and-center at a recent event hosted by the Foundation for International Law and Development.

21 March 2012 | The ocean around the Kivalina peninsula is rising, and the permafrost below it is melting. Soon, the tightly-packed village of roughly 400 Native Americans and 20 or so immigrants will disappear into the Alaskan sea – an early casualty of climate change.

The people who live there have no choice but to move and, in 2008, the Village of Kivalina filed a lawsuit against major U.S. energy companies to get them to foot the bill. After all, they argue, these companies helped to cause the climatic changes that will wipe this village off the map, and they should be accountable for the harm. The judge initially dismissed the case, arguing that it was a political, rather than legal, issue. The village appealed, and a decision is expected soon.

But, the likelihood of a favorable decision for Kivalina appears small in light of the Supreme Court’s June 2011 decision in American Electric Power Co. v. Connecticut. In that case, the Court closed the door on a growing number of lawsuits alleging that climate change is a “public nuisance,” and that those harmed should be able to sue. The Court concluded that the U.S. Environmental Protection Agency has primary responsibility to deal with climate change, pointing to an earlier case, Massachusetts v. EPA, which held that the agency is legally required to regulate greenhouse gas emissions as “air pollutants” under the Clean Air Act. In the Court’s view, litigation has a more limited, secondary role to play – those harmed can potentially sue the EPA for its failure to regulate.

But, while this type of lawsuit appears to have stalled in the U.S., lawyers around the world continue to explore how companies or even governments might be held accountable for climate change harms in court. Among them are Peter Roderick, Christoph Schwarte, and Myles Allen, who participated in a panel discussion hosted by the Foundation for International Environmental Law and Development (FIELD) last month.

Watch the Video

Think Global; Act Local

“The really interesting legal cases now,” says Roderick, co-founder of the Climate Justice Programme, “are in the sphere of human rights and tort cases – civil wrongs – where people can sue for damages or sue for injunctions.” While these cases have only been attempted in United States, Roderick believes a case like Kivalina would get a hearing in the United Kingdom, and potentially elsewhere.

“The more interesting question is whether such a case would succeed, and there the argumentation is something that is being developed in the Kivalina case already,” he says. “It seems that it’s only a matter of time before these kinds of cases are brought in jurisdictions other than the United States.”

The defendants in these lawsuits would likely be fossil fuel producers, greenhouse gas emitters, and the companies that facilitate these activities. A regulatory or standards-setting body such as the United Nations Framework Convention on Climate Change might even be sued for setting too-weak limits.

The Problem of Causation

The question of whether such a case would succeed depends on a wide range of questions, not least whether the plaintiffs can prove that a particular harm was caused by defendants’ GHG emissions. Allen, a professor of international law at Oxford University and the third panel speaker, focused on the ability of climate models to establish causality between GHG emissions and specific, concrete harm.

Notably, the slow upward increase in average temperatures isn’t generally what causes the type of damages that would lead to a lawsuit. Rather, according to Allen, “harm almost invariably arises from extreme weather.” And while climate change might make extreme weather more likely, it’s incredibly hard to tell what would have happened anyway.

To illustrate the challenge, Allen points to the 2010 Russian heat wave, which caused an estimated 50,000 deaths from respiratory illness and $15 billion in economic losses. “We have papers appearing on the one hand saying that the Russian heat wave was mainly due to internal variability, but another paper also appeared last year saying within 80% probability that the heat record would not have occurred without climate warming.” It’s like spinning a roulette wheel with an extra zero – the chance of landing on zero is higher, but it’s still a small probability overall and the game retains a huge element of chance.

Fortunately, there has been tremendous progress over the past decade in understanding the impact of climate change on hydrological cycles and weather events. This progress is built on mountains of temperature and weather data. In fact, Allen says, the more unlikely the event, the more data is required.

Problematically, good weather data and well-calibrated models are not evenly distributed around the world, but tend to be concentrated in richer countries in the mid to high latitudes. As a consequence, some worry that basing liability (or things like financial assistance) on proving climate change harm will privilege developed countries, where weather extremes are more easily attributable to climate change.

Think Local; Act Global

Beyond the reach of domestic lawsuits, some are looking at how international law might play a role in spurring climate change action. Schwarte, a Senior Lawyer at FIELD, points to the “no harm rule” or “principle of prevention,” a well-accepted precept of international law, as a starting point. This rule comes from the 1941 case of a Canadian smelter that was found liable for damages to U.S. citizens and says, essentially, that no country has the right to use its territory in such a way as to cause injury in another country.

“The recognition of this principle is beyond doubt,” Schwarte says. Or, as the International Court of Justice (ICJ) declared in 1996, “the existence of the general obligation of states to ensure that activities within their jurisdiction and control respect the environment of other states or areas beyond national control is now part of the corpus of international law relating to the environment.” The principle has also been integrated into various international law and policy documents, such as the United Nations Framework Convention on the Law of the Sea and the Stockholm Declaration.

Also well-accepted is that a harm must be serious, significant, or substantial in order to violate international law. According to Schwarte, “Everything else – what are the legal consequences of the situation, for instance – is more or less contentious.” Balancing the right to exploit resources and the right to development against the no harm principle is tough and context-specific. It is also not clear how this principle can be applied to the scientifically-complex phenomenon of climate change.

To get clarity, a country harmed by climate change might want to make a claim against a major greenhouse gas emitter, alleging a violation of the no harm principle. Problematically for the country seeking legal relief, however, there is no international procedure or venue for these types of lawsuits.

If it can get the support of a majority in the UN General Assembly or other UN agency, a country can also seek a non-binding advisory opinion from the ICJ. Last year, Palau set this process in motion, asking whether “states have a legal responsibility to ensure that any activities on their territory that emit greenhouse gases do not harm other states.” While an advisory opinion from the ICJ can’t put an injunction on GHG emissions or require that damages be paid to Palau, it might help to further define principles of international law and move the debate forward.

Risky Business

As GHG emissions continue to trend upwards, melting permafrost, rising sea levels, and extreme events are causing real harm that should be recognizable under traditional legal principles. Yet, whether and how these traditional legal principles can be used to do justice in the case of climate change remains an open question on both the domestic and international levels. At the same time, it seems self-evident to many that legal liability has some role to play.

“At the end of the day,” Roderick says, “if there is any justification for law, it is that it means that when there is a dispute, we don’t kill each other. Here is a system that we have for resolving disputes, and there isn’t a bigger dispute or a dispute over a bigger issue than the question of climate change.”

Plus, legal liability could provide a real spur to climate change action by companies and countries. As Allan points out, establishing a principle of liability would introduce a risk to those embarking on a high-carbon pathway: namely, “the risk that they get clobbered for compensation claims.” As a result, the principle of climate change liability has the potential to fundamentally change the way that companies and countries think about GHG emissions and climate change.  

Slayde Hawkins is the Legal Advisor and Policy Analyst for Forest Trends and can be reached at shawkins@forest-trends.org.
Additional resources

On the Blog: Is Papua New Guinea too Risky for the Carbon Market?

12 October 2010 | On Monday, an article attributed to the Australian Associated Press (AAP) reported that Papua New Guinea Prime Minister Michael Somare has officially denounced voluntary carbon schemes as being too risky.   The article – widely replicated in blogs and news outlets – said that Somare was encouraging forest owners to wait for a formal UN REDD regime before preserving their forests to earn credits for saving rainforests.   The message, however, is not posted on Somare’s web page, and the voluntary programs he’s denouncing were never verified to any recognized standard.

It’s just the latest in a series of weird signals to come out of PNG, which is under fire on both the compliance and voluntary carbon fronts.

On the compliance front, PNG’s handling of the REDD+ Partnership drew fire at UN Climate-Change talks in Tianjin, where scores of participants accused their negotiating team of stifling efforts to bring small landowners and indigenous groups into the negotiations.

Meanwhile, Somare and his new Deputy Prime Minister, Don Polye (who was appointed to the post in July of this year) have been drawing heat for continuing to deal with an Australian company called Nupan, which claims to be developing voluntary carbon offset projects in PNG under the auspices of the Voluntary Carbon Standard (VCS) and the The Climate, Community and Biodiversity Alliance (CCBA).

The projects have become a media sensation in Australia, largely because Nupan is run by a colorful character named Kirk William Roberts.   He makes a great TV villain, and some have tried to equate him with the markets themselves, but the fact is that his company has never had a carbon credit verified or validated under any recognized crediting scheme.   He is tangential to the carbon markets, and not of the carbon markets.   That may change the day one of his projects is accredited, but that day has not come.

In fact, his projects have never gained credence in the legitimate carbon community.   The VCS, for example, didn’t even have approved methodologies suiting the type of project that Nupan was proposing (namely Improved Forest Management, or IFM, that convert logged forests to protected forests).   At the same time, allegations of intimidation on the part of Nupan would, if proven true, disqualify the company’s projects from approval under the CCB.

A similar point can be made about Theo Yasause who, as head of PNG’s Office of Climate Change Development, issued what appeared to be bogus credits on behalf of 40 projects across the country. The “credits” – really just a letter from Yasause, albeit on official letterhead and with an official stamp – fooled no one but generated a stir in the media when Reuters discovered them in June, 2009.   The credits were dismissed as bogus by anyone who saw the letter, and Yasause was dismissed for issuing the letter.  

And now, after all this, Somare is apparently telling us that voluntary carbon markets are too risky for his people?  

As has been the case with much of the weirdness swirling around PNG and its foray into the carbon markets, I have not yet been able to confirm Somare’s statement with his office.   If it ends up being true, however – and if the allegations against Nupan pan out as well – I will be forced to concede that, yes, voluntary carbon markets are risky.  

And the risk is especially great for the get-rich-quick set, and for anyone looking to steamroll indigenous groups.

Let’s work on keeping it that way.

This article originally appeared on the eko-eco blog.   It’s views are those of the author, and not of Ecosystem Marketplace or its affiliates.

On the Blog: Is Papua New Guinea too Risky for the Carbon Market?

12 October 2010 | On Monday, an article attributed to the Australian Associated Press (AAP) reported that Papua New Guinea Prime Minister Michael Somare has officially denounced voluntary carbon schemes as being too risky.   The article – widely replicated in blogs and news outlets – said that Somare was encouraging forest owners to wait for a formal UN REDD regime before preserving their forests to earn credits for saving rainforests.   The message, however, is not posted on Somare’s web page, and the voluntary programs he’s denouncing were never verified to any recognized standard.

It’s just the latest in a series of weird signals to come out of PNG, which is under fire on both the compliance and voluntary carbon fronts.

On the compliance front, PNG’s handling of the REDD+ Partnership drew fire at UN Climate-Change talks in Tianjin, where scores of participants accused their negotiating team of stifling efforts to bring small landowners and indigenous groups into the negotiations.

Meanwhile, Somare and his new Deputy Prime Minister, Don Polye (who was appointed to the post in July of this year) have been drawing heat for continuing to deal with an Australian company called Nupan, which claims to be developing voluntary carbon offset projects in PNG under the auspices of the Voluntary Carbon Standard (VCS) and the The Climate, Community and Biodiversity Alliance (CCBA).

The projects have become a media sensation in Australia, largely because Nupan is run by a colorful character named Kirk William Roberts.   He makes a great TV villain, and some have tried to equate him with the markets themselves, but the fact is that his company has never had a carbon credit verified or validated under any recognized crediting scheme.   He is tangential to the carbon markets, and not of the carbon markets.   That may change the day one of his projects is accredited, but that day has not come.

In fact, his projects have never gained credence in the legitimate carbon community.   The VCS, for example, didn’t even have approved methodologies suiting the type of project that Nupan was proposing (namely Improved Forest Management, or IFM, that convert logged forests to protected forests).   At the same time, allegations of intimidation on the part of Nupan would, if proven true, disqualify the company’s projects from approval under the CCB.

A similar point can be made about Theo Yasause who, as head of PNG’s Office of Climate Change Development, issued what appeared to be bogus credits on behalf of 40 projects across the country. The “credits” – really just a letter from Yasause, albeit on official letterhead and with an official stamp – fooled no one but generated a stir in the media when Reuters discovered them in June, 2009.   The credits were dismissed as bogus by anyone who saw the letter, and Yasause was dismissed for issuing the letter.  

And now, after all this, Somare is apparently telling us that voluntary carbon markets are too risky for his people?  

As has been the case with much of the weirdness swirling around PNG and its foray into the carbon markets, I have not yet been able to confirm Somare’s statement with his office.   If it ends up being true, however – and if the allegations against Nupan pan out as well – I will be forced to concede that, yes, voluntary carbon markets are risky.  

And the risk is especially great for the get-rich-quick set, and for anyone looking to steamroll indigenous groups.

Let’s work on keeping it that way.

This article originally appeared on the eko-eco blog.   It’s views are those of the author, and not of Ecosystem Marketplace or its affiliates.

Forest Footprint aims to Reward Companies that Save Trees

22 June 2009 | Andrew Mitchell finds inspiration in Mad Cow Disease – or, more accurately, in part of our response to it.

“We showed you could track a piece of beef from a farm in the country, through a slaughterhouse, to a butcher,” he says. “It’s not hard to do once people are properly motivated.”

Mitchell, who heads the Global Canopy Programme, also chairs the steering committee for a new endeavor called the Forest Footprint Disclosure Project (FFDP). He hopes the FFDP will make it possible to label the deforestation impact of beef that comes from tropical areas – as well as for four other “forest risk” commodities (timber, soya, palm oil and biofuels). The FFDP takes a cue from the nearly ten-year-old Carbon Disclosure Project (CDP), which has built the world’s largest database of corporate climate-change information by asking companies to come clean about their greenhouse gas emissions. The FFDP hopes to build a database of deforestation impacts by asking companies to come clean about where they get their raw materials, with the goal of identifying which companies have the most exposure to “deforestation risk” and which have the lowest.

To entice companies into participating, investors worth £1.3 trillion have signed a letter urging FTSE 100 companies to fill out the disclosure documents FFDP will be sending them between now and the middle of July. “By demonstrating their sustainable business model, the intention is that they will attract more confidence and – eventually – more investment from the financial community,” says project manager Steven Ripley.

The Benefits of Transparency

Companies will have until October to respond, and FFDP will announce the names of companies that are signed up to the project early next year. The goal is eventually to divide companies into three categories: those that are best in class, those that have adopted innovative policy and practice, and those that ignored the survey. Abyd Karmali, who is Global Head of Carbon Markets for Bank of America Merrill Lynch and a member of the FFDP steering committee, believes the mere act of doing a forest carbon inventory will motivate some companies to reduce their forest carbon footprint. “We’ve seen what sort of a transformation the CDP has been able to have on reporting of risks by listed companies,” says Abyd Karmali, who is Global Head of Carbon Markets for Bank of America Merrill Lynch and a member of the FFDP steering committee. “It’s also improved engagement with investors and raised awareness about what kind of climate risks and opportunities exist for companies going forward.” In some cases, he says, it’s resulted in emission reductions that wouldn’t have happened otherwise because companies realized they could slash emissions, win public support, and in some cases even cut costs.

Financial Instruments

Before merging with Bank of America, Merrill-Lynch was a lead global sponsor for the CDP, but it has not yet invested in the FFDP. Karmali says that’s partly because the merger has taken the bulk of their attention, but also because they’re waiting to see if the team develops number-crunching methodology that yields trustworthy numbers. “We’re at a very early stage of understanding about just what kinds of impacts participation in the forestry commodity area has on rates of deforestation,” he says. “Companies that are involved across the value chain in timber, palm oil, soya, beef, and biofuels know very little overall about the links between their activities and deforestation.” If the project brings those links into the light of day, the next step would be to create financial instruments like those based on the CDP’s Carbon Disclosure Leadership Index (CDLI) or Merrill Lynch’s Carbon Leaders Europe Index, both of which aim to channel investment funds into low-emitting companies by highlighting their carbon risk. “With the CDP, we have launched financial products that try to distinguish between companies that we expect to be winners and those we expect to be losers in terms of their differing carbon risks and responses to those carbon risks,” he says. “It’s too early to know whether we’ll be able to develop similar products for distinguishing among companies’ forestry-related risk.” Data from the FFDP would likely be a key input into such a product, but the challenge of creating reliable indexes based on forest carbon is significantly more complex than developing an index based just on carbon alone. “Activities in the forestry value chain include impacts on carbon emissions, biodiversity, indigenous peoples, and rural income,” says Karmali. “There is also the challenge of understanding the links to land use planning and the degree to which options selected now preserve or close off other choices for utilizing land.” The scheme is being funded by the UK Department for International Development, The Prince’s Rainforest Project, and other non-profit organizations. Steve Zwick is Managing Editor of Ecosystem Marketplace. He can be reached at SZwick (at) ecosystemmarketplace.com. Please see our Reprint Guidelines for details on republishing our articles.

Australia Pushes Toward Emissions Trading

18 October 2006 | Australia is known for the natural beauty of its reefs and bushland and the rugged dryness of its barren red centre. Yet despite its fragile environment and relatively miniscule population impact on the planet (just 19 million residents), Australia is the world’s largest per capita emitter of greenhouse gases and along with the U.S., the only other industrialized nation not to ratify the Kyoto Protocol. According to Prime Minister John Howard, putting a price on carbon would cripple Australia’s economy and is simply not worth the costs. Australia’s nine states and territories disagree. In a world-first move, they have teamed up to propose a National Emissions Trading Scheme (NETS) aimed at putting Australia on a path to reduce emissions by 60% by 2050. A discussion paper released by the NETS Taskforce in August outlines the scheme’s plan to introduce mandatory emission limits for stationary energy generators. The proposed scheme would set an emissions target based on either 2000 or 1997 levels to be achieved by 2030 and would begin in 2010. “The proposed scheme is well designed and takes on lessons learned in the first years of the European Union Emissions Trading Scheme,” says Martijn Wilder, a partner specializing in climate change at Baker & Mackenzie law firm. “It is likely we will have national emissions trading in the next two to three years.”

Economic Impacts

This move comes as a direct challenge to the federal government, which maintains that any actions to put a price on carbon would deliver a massive blow to the coal-intensive Australian economy. At a Committee for Economic Development of Australia lunch in July 2006, Prime Minister Howard called the European Union Emissions Trading Scheme “a failure” and restated his resistance to emissions trading. Similarly, the Australian Chamber of Commerce and Industry issued a statement the day the NETS paper was released claiming the scheme would “send Australian jobs offshore, reduce the international competitiveness of our strongest industries and potentially lose some energy intensive industries to less developed economies.” Economic modelling conducted for the NETS Taskforce indicates an average increase of about AU$1-2 in weekly electricity bills and a maximum drop in GDP of 0.6% if the scheme is introduced. In addition, the International Energy Agency (IEA), an energy policy advisor to OECD country members, states that Australia’s electricity prices are among the lowest in the OECD. Most of Australia’s electricity comes from coal-fired power plants. Yet there is still some concern at the state level about the impacts of the NETS. In particular, Western Australia and Queensland are notably less enthusiastic about promoting the scheme. “The real issue for them is that the scheme does not disadvantage the energy-intensive, trade-exposed industries in their states,” Wilder says, “and this appears to be being addressed through the free allocation of permits.” The scheme proposes to allocate a proportion of allowances to energy generators and trade-exposed industries, such as aluminum smelting, for free to compensate for profit losses. More efficient businesses will be able to sell these to other parties, while others will have to surrender them to meet targets. In the case of trade-exposed industries, the allowances will be based on electricity consumption per unit of output, rather than total emissions, in hopes of avoiding the same stumbles the EU ETS had when countries realized they had over-allocated permits – and the price of allowances was cut in half in one day. For energy generators, a one-off payment to compensate for a reduction in the value of their assets has been proposed.

Industry Looks for Direction

Brad Page, CEO of the Energy Supply Association of Australia, says that while his industry accepts that it will have to operate in a carbon-constrained future, the NETS does not fill the policy gap that will enable a smooth transition. “We’re facing a classic capital investment dilemma,” Page says regarding the challenges facing the association’s energy generation, transmission, distribution and retail members. “Companies invest in assets that will be in operation for 40 years or more. They can invest in coal, which is currently competitive in the wholesale market but exposed to a future constraint on carbon, or invest in lower emission technologies like combined cycle gas turbine,” which is in the opposite situation. Page says the NETS lacks the direction needed to make these billion-dollar investment decisions. The scheme’s proposal to set a firm cap for the first 10 years and then “gateways” (upper and lower bounds) for subsequent years is not sufficient, according to Page. “We need a concrete, long-term target, which we can then achieve through a suite of tools, not just emissions trading.” “The theory behind the gateways is that they will provide certainty 10 years into the future,” says Ashley Stafford, a senior associate at Baker & Mackenzie law firm. He suggests this is a reasonable timeframe for considering the payback period of investments, a more critical investment timeframe than the operational life of an energy plant. “We’re hearing from energy companies that will be directly regulated under the NETS that the scheme provides a better price signal than a lot of other options, particularly a carbon tax,” Stafford says, “and that’s what they’re looking for—some level of certainty.”

Winners & Losers

All emissions trading schemes become a catalyst for creating industry winners and losers in a carbon-constrained economy. Modelling conducted by The Allen Consulting Group identifies the renewable energy sector as having the highest percentage growth in output if the NETS is implemented, followed by the gas electricity and forestry sectors—the latter of which is identified as the primary sector to provide offset credits into the scheme. The coal—and hydro-based electricity sectors and electricity suppliers are expected to be most negatively impacted. Another win could come from Australia’s ability to attract new foreign investment. “An Australian CEO we work with says that when he tries to sell his products overseas, he’s always asked what he’s going to do about carbon exposures,” says Wilder. “So the business movement in Australia in the last six months has been toward implementing policies that supply certainty” on this issue. “Foreign investors have been horribly disappointed that the federal government hasn’t acted yet on emissions trading,” agrees Gary Keating, director of commercial services for Forests New South Wales. “It essentially limits the value of their assets.” Forests NSW is potentially a major winner if NETS is implemented, as credits can be generated for each tonne of carbon dioxide sequestered by its forests. The forestry company has already generated about 700,000 Greenhouse Gas Abatement Certificates under the NSW scheme, the only forestry-based carbon credits currently being traded in a regulated market. At a price of AU$12-13, regulated emissions trading has provided them with a lucrative business opportunity. “I don’t think a national scheme will revolutionize the world, and in general, what we have to offer can operate within the New South Wales scheme,” says Keating. “But we would like to see it get up, particularly if it can link to the EU system…as a way to get sequestration into the European market.”

Australia’s Paradox

The impacts of this scheme are small on a world stage: Under the most stringent target scenario, the scheme will reduce Australia’s emissions by about 115 million tonnes by 2030 compared to global emissions of 33 billion tonnes in 2000, according to the World Resources Institute’s Earthtrends report. Nonetheless, Australia is one of the largest per capita emitters of greenhouse gases. It has an economy based on coal-fired electricity and is enjoying strong economic growth by exporting coal to China. The country is also geographically removed from the hotbed of carbon trading activity centred in Europe. So if a country like Australia can get a national emissions scheme off the ground, the rest of the world may ask why other countries aren’t doing the same.

Marisa Meizlish is the manager of advisory services at New Forests Pty Limited in Sydney, Australia and regularly contributes to the Ecosystem Marketplace. She can be reached at mmeizlish@newforests.com.au. First published: October 18, 2006 Please see our Reprint Guidelines for details on republishing our articles.

Australians Think Locally, but Will They Be Allowed to Act?

Broad but not deep, Australia’s new mandatory cap-and-trade regime limits the emissions of industries responsible for 75% of all greenhouse gas emissions. Those limits, however, are weak compared to those of most developed countries, and critics say the law actually prevents voluntary offsets from being used to incentivize deeper cuts.

9 November 2009 | From deadly drought and fire seasons to red dust clouds choking their urban settlements, Australians don’t have to look beyond their national border to imagine the prospective social and environmental costs of climate change. Responding to local problems with local solutions, many Australians prefer voluntary carbon offsets sourced from – you guessed it – local projects.

The government’s proposed mandatory cap-and-trade scheme, however, leaves little room for the kinds of local projects that Australians prefer when looking to make voluntary reductions – an omission that critics say disables Australians from making an additional impact on national abatement and could lead to a backlash against carbon finance down the road.

“If no local voluntary abatement is taken into account in the scheme, we’ll see outrage from the public that their individual action at home doesn’t have an impact on national emissions,” says Peter Shuey, Director of Ark Climate Group, which includes local and international offsets among its energy services.

Mutually Exclusive Markets

Shuey’s concerns stem from the fact that Australian carbon markets are mutually exclusive by design: the government proposes that any regulated emissions sources cannot supply additional offsets to the voluntary market and vice versa.

This “wall” between the voluntary and compliance markets is common to all emissions-trading schemes, particularly those that are used to comply with international commitments.

The Australian government aspires toward 100 percent coverage of national emissions with its mandatory cap-and-trade scheme and broader Kyoto commitment. This leaves little to no room for a voluntary market based on domestic, much less local, offsets.

Some critics concede that the disappearance of the domestic voluntary market is acceptable, if government emissions targets are in line with the latest climate science, which currently calls for reductions between 25 to 40 percent below 1990 levels by 2020.

If national targets are inadequate, however, the government will have immobilized the voluntary market as an option for achieving additional abatement.

The Australian government has committed to an emissions target that is 25 percent below 2000 levels by 2020, if other nations agree to a 450 parts per million global target at the international climate negotiations at Copenhagen in December.

If negotiators fail to reach this ambitious agreement, the government will commit to reductions of between five and 15 percent below 2000 levels by 2020, falling far short of recommended reductions.

Shuey and other critics fear that that the proposed mandatory scheme limits Australians’ ability to finance domestic abatement beyond the government’s potentially weak national emissions targets.

They are also concerned that the government’s proposed alternatives to domestic offsets – including federal voluntary programs to promote emissions reductions above and beyond national targets – may lack the local flavor to sustain Aussies’ demand for voluntary action.

A Comprehensive Carbon Cap

The policies in question stem from the proposed Australian Carbon Pollution Reduction Scheme, which will go before the Senate for a second time later this month. The scheme is the government’s primary tool to meet its long-term carbon emissions targets. As written, it regulates, or “caps” around 75 percent of national greenhouse gas emissions.

The scheme covers a majority of the nation’s emissions while directly impacting only the nation’s largest polluters. Approximately 1,000 firms will participate in the compliance market, but many thousands of smaller emitters will remain exempt.

The government argues that the limited market size and focus on large “upstream” emissions sources will result in lower administrative costs, improved market transparency, and predictable environmental results.

Subsequently, it also stipulates that firms with a federal mandate to reduce their emissions cannot create offsets for use in the voluntary markets – even if they exceed their own reduction targets. Simply put, this leaves around 75 percent of emissions sources off-limits to the voluntary market for domestic offset projects.

What about Trees?

Although 25 percent of national emissions sources are not yet included in the scheme – including emissions from forestry, land-use change and agriculture – the majority of these emissions currently count toward Australia’s international Kyoto commitment.

Because the government is ultimately responsible for reductions made in these sectors, they occur as a result of a regulation and cannot also be sold as credits to the voluntary market.

Under this design, the compliance market has diminished and will continue to crowd out the domestic voluntary market. If the nation’s targets are less than ambitious, Australians will be left with few options for financing additional domestic abatement to achieve more desirable environmental outcomes.

Shuey and other players in Australia’s voluntary carbon market industry – including local governments, carbon service providers, and NGO’s – have voiced this concern to the government through written consultations.

The government’s response may not have been what the industry had in mind.

Government-Backed Voluntary Action

On May 4th, 2009, the government acknowledged many of the industry’s concerns when it announced a suite of federal programs to accommodate additional voluntary abatement.

Among these initiatives, for example, is the Australian Carbon Trust Energy Efficiency Savings Pledge Fund which makes it possible for Australians to make tax-deductible donations to the government which then pools the contributions and buys permits from the compliance scheme which are then set aside or “retired.”

Offset retailers can also independently offer permits from the compliance scheme to clients who want to voluntarily retire them.

By reducing the number of permits that are available to polluters, permit retirement pressures the nation’s dirtiest firms to reduce their carbon emissions beyond what’s required by law, but Climate Positive’s Carbon Manager Nick Witherow worries that permit retirement is not an adequate substitute for domestic offsets.

“By definition, permits are not related to a particular project and so have no real story behind them,” he explains, adding that price is also an issue, because permits generated in the compliance market “will cost more than other instruments and therefore will increase the cost of (voluntary) offsetting.” He adds, “I expect that this would reduce the number of people or businesses who actually end up offsetting.”

Offsets that comply with a proposed Australian National Carbon Offset Standard will also be eligible for purchase and retirement under the government’s Pledge Fund. The National Carbon Offset Standard will define what constitutes a legitimate voluntary offset in the context of the mandatory scheme.

The government has yet to announce any details of the standard. Offset retailers speculate, however, that the standard will only recognize high-quality international offsets, like those originating from Gold Standard offset projects, and some domestic land-use change projects. The standard is intended to restore consumer confidence in voluntary offsets, which has waned in response to public debate between the government and industry over the necessity and treatment of offsets.

“As regards the Energy Efficiency Pledge Fund, I find this an interesting move,” says Witherow. “The Government has come under a lot of vocal criticism from the voluntary carbon industry,” he adds, referring to charges that the government was disregarding the potential for voluntary domestic action. “Now they are essentially setting up a tax-deductible carbon offsetting business themselves.”

Permit retirement, through the Energy Efficiency Savings Pledge Fund or offset retailers, is the only way Australians can directly finance domestic abatement above and beyond national targets.

The government has also pledged to account for Australians’ voluntary action when setting future emissions targets, using indicators like demand for home energy efficiency improvements and appliances, vehicle fuel efficiency, and public transport. It has yet to release details on how or the degree to which voluntary action will impact cap-setting.

The Forest for the Trees

Long before permit retirement and the Pledge Fund became tools of the trade, the Australian voluntary carbon markets industry turned to another mechanism for local emissions reductions – forest carbon projects.

Witherow says that tree-planting projects have been a popular way for Australians to maximize the benefits of voluntary action. “Australians know the country was over-cleared and want to do something about it,” he explains, “so it makes sense for them to ‘kill two birds with one stone’, re-vegetate the country and offset their emissions.”

Forest carbon contributes to the 25 percent of uncovered emissions, which also includes emissions from agriculture and land use/land-use change and forestry.

The proposed scheme allows eligible forest land owners to voluntarily “opt into” the scheme and receive one scheme permit for every net-ton increase in carbon sequestered through reforestation after 1 July 2010. The government will announce in 2013 whether the scheme will also include agricultural emissions, which constitute 16 percent of national emissions.

Uncovered emissions sources cannot necessarily create additional offsets for the voluntary market. Instead, most of these emissions count toward Australia’s Kyoto commitment and therefore can’t create domestic voluntary offsets – this prevents companies from taking credit for the same reduction twice, or “double-counting”.

Retailers point out that, despite concerns about double-counting and offset integrity, Australians will continue to demand offsets sourced from small-scale, community-based projects with a local story.

“Australians like the story of trees and they like to make a difference at home. They understand that trees uptake carbon and that their car emits carbon,” he explains.

Echoing Witherow’s observations, Shuey adds that “companies opt for local projects even knowing that they’re not additional.”

The European Example

Shuey, who is also Director of Australia’s Voluntary Carbon Market Association, predicts that some voluntary market participants will remain more interested in offsets with stories and local impacts than in those with credibility, including international offsets like those certified to the Gold Standard and Voluntary Carbon Standard.

This wasn’t the case for European buyers who embraced international offsets to meet domestic voluntary demand.

Ecosystem Marketplace’s Fortifying the Foundation: State of the Voluntary Carbon Markets 2009 report found that over half of all volumes traded in the world’s voluntary markets were purchased in the European Union, home to the world’s largest domestic cap-and-trade scheme.

According to Tim Hanlin, Managing Director of the Australian Climate Exchange, Australians will similarly turn to international offsets to go above and beyond national efforts. “If we look at the stunning growth in the post-compliance voluntary market in Europe as an example, a robust and liquid voluntary market will develop in Australia,” he states.

Witherow is also optimistic about the industry’s international options: “I think that the market generally likes a story with their offsets and for that reason, project-based international offsets will remain popular.”

Shuey, however, argues that Australian and European demand drivers are fundamentally different.

“I guess it is a part of Australia’s attitude of having to look after yourself – and your mates – and lack of dependence or trust in remote authority and institutions that make us more inclined to want to make a difference within our own backyard,” he says. “The EU has accepted that if you want additional voluntary action, you have to fund projects in developing countries. For us to have a healthy market here, it’s going to have to be based on local abatement.”

Beyond Comprehensive

The prospect of 100 percent coverage without accommodation for additional voluntary abatement is disconcerting to Schuey.

“The government has made it clear that once a project is big enough to be measured, it’s going to come under the covered sectors,” Shuey says, “but we’re pushing to change that attitude. There should be the ability to count voluntary action, even when it’s under the covered sectors.”

The Voluntary Carbon Markets Association proposes a separate “Voluntary Domestic Abatement Scheme” for monitoring and recognizing voluntary local abatement as additional, including voluntary abatement within the covered sectors.

Hanlin recommends a similar voluntary scheme that “links to a Carbon Pollution Reduction Scheme by reducing allocation of permits as voluntary instruments from local projects are surrendered to meet voluntary targets.”

Proponents of a parallel voluntary scheme believe it would enable additional domestic voluntary abatement to influence national targets by retiring scheme permits in equal measure to voluntary action – a private sector version of the Energy Efficiency Savings Pledge Fund.

It might also foster public buy-in to the government’s efforts by recognizing that additional local abatement projects satisfy a national desire to feel control over escalating ecological changes.

“As we experience increased storm damage, increasingly horrendous fire seasons, prolonged drought and irreversible damage to the Great Barrier Reef and other iconic ecosystems,” says Witherow, “people are going to want to do more and demand the politicians do more.”

If the Australian scheme passes as written, with no additional accommodation for domestic voluntary abatement, companies like Witherow’s Climate Positive will work with what’s available – project-based international offsets and scheme permits.

Shuey describes what he believes will be the industry’s response to the government’s scheme: “It depends on the player. Some have already nailed their colors to the mast and are pushing [international offsets] from non-capped countries.”

His own organization – Ark Climate Group – will “be pushing for recognition of local projects, but as we already have a pretty well-established local consulting business in energy efficiency, having no offsets to sell won’t cause us too much heartburn.”

He concludes on a sobering note, “Others will simply find a new career.”

Molly Peters-Stanley analyzed voluntary carbon markets as a climate policy officer in South Australia’s Department of Premier and Cabinet. She graduated from Carnegie Mellon University’s Heinz College with a Master of Science in Public Policy and Management, and can be reached at molly.petersstanley@gmail.com.

Please see our Reprint Guidelines for details on republishing our articles.

 
Additional resources

Methodologies Tame Forest Carbon Jungle

As forests convert carbon dioxide in the air to carbon stored in woods, leaves and roots, a range of organizations are, in turn, working to convert forests into carbon offsets. The ‘exchange rate’ of this conversion is determined by specific standards’ methodologies — technical, but critical, tools shaping the rules of the game.

18 August 2009 | Richard Wineberg is rhapsodizing about trees. His firm, Terra Firma Carbon, owns several hundred acres of timberland in Indiana and North Carolina in hopes of managing it as a healthy forest. Browsing the bookshelf in his Chicago office, crammed with classics on silviculture, Wineberg describes teaching himself forestry over the last few decades.

“It’s more art than science,” he says. “Forestry comes from looking over your woods very carefully. You can see the forces at work in the woods when you look at it.”

Keeping Track

It can be daunting keeping up with all the latest developments in carbon methodologies and standards – forest-based or otherwise. That’s why Ecosystem Marketplace’s Forest Carbon Portal has launched the Methodology Watch and Standards Update to help you keep score.

 

Yet Wineberg’s world is getting a hefty dose of science – and rules. Forest carbon methodologies – sets of guidelines governing how projects are designed, managed and monitored – are emerging to catalyze demand for offsets generated by growing trees and crops.

From reforestation and afforestation (A/R) to reduced emissions from deforestation and degradation (REDD), more land-use methodologies have been submitted to voluntary standards in the last twelve months than were approved under the Kyoto Protocol’s Clean Development Mechanism (CDM) since the CDM Executive Board was formed in 2003, based on a review of standards’ websites. At least nine have been approved under the CDM since 2005, but more than a dozen are taking shape under voluntary standards such as the Voluntary Carbon Standard, Climate Action Reserve (CAR – formerly CCAR, the California Climate Action Registry) and others vying to become the standard for a new generation of voluntary carbon projects.

Wineberg, 57, plans to be an early adapter. After decades preaching and practicing sustainable forest management, he’s negotiating his first avoided deforestation project in Brazil. While optimistic that he can apply the new methodologies, he’s concerned forest management will not conform to rigid protocols.

“There’s no simple answer to anything in forestry,” says Wineberg who seems as likely to consult a walk in the woods as a yield table for decisions about forestry. “Every piece of land is different. You don’t want to make the perfect the enemy of the good in this business.”

Forest Carbon Methodologies

For now, business remains uncertain. The majority of forest carbon credits have been transacted in the voluntary carbon markets. As the primary source of demand for forest-related sequestration credits (and the only one for REDD), voluntary markets have had an historical affinity for charismatic projects like A/R – still the single largest category of biological carbon sequestration projects.

The market for voluntary offsets is expanding at an unprecedented rate: global voluntary markets more than tripled between 2006 and 2007 reaching a value of $331 million in 2007, according the 2008 State of the Voluntary Carbon Markets report. Yet the relative number of forest carbon credits that were traded last year declined from the year before. Representing 36% of over-the-counter transactions in 2006, forestry credits, which maintaining transaction volumes, dropped to 18% of such trades in 2007. Why? The reason may in part be due to skittishness about evolving rules of the game and long-term demand.

That may soon change. The pending US climate bill, known informally as Waxman-Markey, currently includes land based offsets. New Zealand and Australia are considering them, and even the EU has softened its stance on REDD. The worry, it seems, is that the credits must be real and fungible with the rest of the carbon market to win global acceptance.

At the same time, New project methodologies are arriving to guide the conversion of stored carbon to credits.

Standards such as the US Regional Greenhouse Gas Initiative (RGGI), the Environmental Protection Agency’s Climate Leaders, CAR, Chicago Climate Exchange (CCX), the Government of Alberta, American Carbon Registry, the Voluntary Carbon Standard, and CarbonFix, among others, have published forest-carbon methodologies (also called protocols), with revisions on the way. The number of projects is on the rise as well. Although the CDM has only registered 6 forestry projects out of 1,750 registered projects – mostly reforestation – at least 52 projects are registered or in the pipeline in the voluntary markets according to the Forest Carbon Portal.

The world, it seems, is finally awakening to Wineberg’s vision of managing forests for ecosystem services, especially the carbon in its biomass – so long as it can be measured, monitored and verified. When the UNFCC convenes it’s the next Conference of Parties in Copenhagen this December, REDD and other forms of terrestrial carbon credits will be a central element of the international climate agenda. Negotiators are set on curbing some of the 18% of the world’s greenhouse gasses (GHG) emitted by land use change and tropical deforestation each year. It is almost certain that whatever mechanism emerges, in some way it will rely on rigorous, science-based carbon methodologies to finance forest carbon credits.

What’s So Great about Methodologies?

Methodologies, like roadmaps, give project developers specific routes to achieve creditable emission reductions. Some are tied to specific scenarios such as reforestation of species in the tropical pasturelands. Almost all of them share measures to ensure the environmental integrity of emission reductions through the use of baselines, additionality, permanence, monitoring, verification and transparent accounting. These principles guide rules articulated in the methodologies’ detailed equations and procedures.

Yet methodologies do more than serve as technical blueprints. They underlie trust in markets for forest carbon offsets, says Derik Broekhoff, policy director at CAR, which is busy developing its own GHG reduction project protocols in the United States, including forestry.

“They’re important primarily because anytime you’re talking about carbon offsets, an intangible commodity, it’s really hard for buyers to know what they’re getting if you don’t have a methodology,” says Broekhoff.

Standards organizations like CAR ensure the quality of their credits, but methodologies theoretically guarantee the level of standardization so buyers and sellers know they are exchanging a real asset: additional, verifiable, and permanent GHG offsets. Without this, buyers would be forced to research the quality of every credit, and poor quality projects would blend in with credible one.

This rigor comes at a price.

A major complaint voiced by project developers is a tendency to favor perfectionism over practicality. Even authors of the methodologies agree. In the early days of the CDM, says Lucio Pedroni of Carbon Decisions, who has co-authored CDM-approved methodologies for AR projects, “a lot of effort was spent to capture minimal changes in carbon stocks, just to give the impression that we are perfect in a world that is never perfect.” This led to methodologies where, as CDM rules dictate, almost every carbon source was considered – from gasoline use to fence posts.

“Projects have to be perfect beyond what is needed for a credible market,” he argues. While this was feasible in industrial projects, this approach simply doesn’t work in forestry.

To simplify the methodologies, Pedroni has joined a recent effort to draft ‘modular methodologies’ for REDD under the VCS. If validated (posted for review here), the modules will represent a new approach: simplified, modular methodologies that can be rearranged or modified if projects differ slightly from one another. In the past, forest carbon methodologies (costing upwards of $100,000 to create) were so specific that applied to only a handful of potential projects, and developers were unable to restrict and license the use of their methodologies to recoup their investment. This hardly provided incentives for standardized and ongoing innovation.

By contrast, the REDD modules are split into the essential components of a viable forest carbon project – baseline, additionality, measuring and monitoring and other categories – that can be amended without revalidating the entire methodology.

“In the end,” claims Pedroni, “simpler methodologies are better for the climate. It’s better to have 1200 projects and ten that are not additional, than to have two that are perfectly additional.”

Financing the Future

Paying for these methodologies is still a challenge. While firms are poised to pour millions into the promise of the new market, large investors have traditionally steered away from forestry offset projects (only two of the 50 projects publically listed by EcoSecurities are in the sector). Yet a recent study by EcoSecurities found that forestry offsets purchased in the last ten years are comparable to volumes transacted in 2008 alone, and that projected demand is igniting a global search for credible projects, as well as close scrutiny of the potential of methodologies.

Eron Bloomgarden, president of environmental markets at Equator, a firm investing in timberlands and environmental assets, says the market has taken a wait-and-see approach to investing in forest carbon credits.

“The goal posts are still moving with many of the forest protocols,” he says. “It’s important these protocols need to be rigorous, yes, but they need to be workable and flexible to incentivize action.”

Bloomgarden’s reading of CAR’s recently-revised protocols highlights issues like permanence, which could extend monitoring liability for up to 100 years, as promising but potentially problematic.

“Overall, they’re pretty good protocols,” he says. “But I’m not sure how workable they are for large volumes of credits. The practicality of the protocols remains to be seen. The jury is still out.”

There will soon be no lack of choices. Various protocols address the same major issues, but in different ways, and offer project-specific frameworks. The CDM, for example, which approved its first A/R additionality and baseline methodology in 2005, now lists nine forest carbon methodologies and 13 ‘tools,’ or guidelines for specific project tasks, as well as two ‘consolidated methodologies’ combining all of it into a streamlined package.

Of the voluntary standards, RGGI has approved carbon sequestration through afforestation activities following its own “Model Rule”. The EPA’s Climate Leaders Program released its A/R methodology in 2008; the CCX has a “rulebook” governing afforestation, long-lived wood products, and sustainably managed forests; and the Voluntary Carbon Standard has at least one methodology approved, as well as eight undergoing validation, not to mention acceptance of CAR and CDM methodologies making it one of the most comprehensive sets of methodologies available.

Picking a Winner

So, how to choose? Voluntary market developers will find their choice of methodologies dictated by standards that certify certain activities. The CDM is limited to A/R in developing countries, while the VCS credits four categories – Afforestation, Reforestation and Revegetation (ARR), Agricultural Land Management (ALM), Improved Forest Management (IFM) and REDD – under its land-use methodologies. After clearing the eligibility hurdle, methodologies (and the standards that certify them) must be marketable. A 2008 survey of project developers found that public credibility and the permanence of CO2 storage were most important issues for forest carbon project, followed by the practicality of carbon accounting and transparency.

Which methodologies, and standard, will win out is not clear. Competition and market demand are driving the latest round of innovation, and project proponents are advancing new methodologies around the world. A few innovative ideas are taking root: more default values are being considered to streamline accounting; permanence measures like risk discounting and buffer pools are replacing unpopular temporary credits used by the CDM; performance standards that set a target for an industrial process are gaining favor under standards like the VCS; and the modular approach to methodologies promises to make modifications easier and less expensive. There’s even momentum toward crediting based on sectoral benchmarks or performance (CDM and VCS) under UNFCCC negotiations.

What works depends on their performance over the next few years and decades.

“We still have a lot to learn,” says Alexia Kelly in the World Resources Institute’s (WRI) Climate and Energy Program who is following the development of the US climate bill’s treatment of offsets. “In my mind, that’s the one thing that is missing: 20 years of project data to know the actual emission reductions that will occur [from methodologies]. That’s what we really need to really judge the effectiveness of a given protocol. We’re still groping in the dark.”

In the meantime, the voluntary market continues to push innovation as international negotiators advocate for methodologies to ensure the integrity of their crediting scheme. But Pedroni, who has seen this process before at the CDM, warns against sacrificing needs of the market for the comfort of strict but unworkable methodologies. Entering the UN climate negotiations in Copenhagen this December, the world has yet to make decisions about the tradeoff between certainty and pragmatism.

“What’s the right balance?” he asks. “We have not found that yet.”


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Additional resources

UN Aims to Streamline Cost of Developing Forestry Offset Projects

It’s expensive to develop carbon offset projects that reduce emissions by capturing carbon in trees, and one reason is that every project has to develop its own methodologies for measuring results. The UNFCCC is asking for help in streamlining that process.

30 July 2009 | The United Nations Framework Convention on Climate Change (UNFCCC) has released a technical paper on the cost of implementing methodologies and monitoring systems related to estimates on greenhouse gas emissions from deforestation and forest degradation – as well as the assessment of carbon stocks and greenhouse gas emissions from changes in forest cover and the enhancement of forest-carbon stocks.

The technical paper is available from the following link: UNFCCC Quick Guide to REDD.

The UNFCCC REDD Web Platform requests comments and information sharing from Parties at the country level, organizations and other stakeholders to share relevant information regarding their experiences, lessons learned, cost estimates, case studies and other resources such as step-by-step guides to establishing national monitoring systems in different developing country contexts.

The UNFCCC REDD Web Platform has created a space where this information will be posted. Please submit information to the following e-mail address: redd_webplatform@unfccc.int.

Technical Paper: The Summary

The technical paper provides the following:

• An overview of the possible steps and requirements needed to develop and implement a monitoring system for estimating emissions from deforestation and forest degradation, assessing carbon stocks and greenhouse gas (GHG) emissions from changes in forest cover, and assessing the enhancement of forest carbon stocks.

• Information on the indicative costs associated with the possible steps and requirements of a national monitoring system.

• Elements that developing countries may need to take into account when developing a national monitoring system.

• A means of facilitating the better understanding of the associated costs of the implementation of methodologies and monitoring systems related to estimates of emissions from deforestation and forest degradation, the assessment of carbon stocks and GHG emissions from changes in forest cover, and the enhancement of forest carbon stocks.
 

For further details, visit the Forest Carbon Portal‘s Methodology Watch and Standards Update.

EKO-ECO: the Ecosystem Services Blog

15 June 2009 | Ecosystem Marketplace and EKO Asset Management Partners have teamed up to launch EKO-ECO, a blog dedicated to promoting critical discussion of the emerging global ecosystem marketplace.

This project represents a logical progression of processes that began some nine years ago, when a group of people interested in the environment met under the auspices of a DC-based non-profit called Forest Trends to discuss a question that was pointedly on very few people’s minds: Should nature and the services it provides have an economic value?

That meeting took place in a town outside of Sydney, Australia called Katoomba (appropriately enough, we are told that the word in the local aboriginal dialect means “rushing water”), which is why the group began calling itself “The Katoomba Group“. The idea at the time was that one of the fundamental problems with the global economic system – one of the core reasons for our environmental problems – is that the value of nature isn’t properly being accounted for in anyone’s bottom line.

This concept wasn’t entirely new; there had already been much written in economic circles about the need for a new form of “environmental economics”, or for a “Green GDP”, and there were even estimates of the value of nature’s services that were being published by leaders in the field of environmental economics (I am, of course, thinking of the estimate by Robert Costanza that nature’s services were worth some $33 trillion on an annual basis).

What was different about this group, however, was that rather than rely on the estimates of economists, the group felt that markets were going to have to be created in order to “put a price” on nature. The sorts of markets that they had in mind were not only the “cap-and-trade” style markets like the one created to manage Sulfur dioxide (SO2) emissions in the US, but also other forms of “Payments for Ecosystem Services” such as the voluntary carbon markets that had already emerged, or government-mediated markets such as the ones that were emerging in Colombia, Costa Rica, and elsewhere.

In order to better understand how these systems might work, the group included scientists, NGOs, businesses, financiers, academics, and others. And the group was designed to be practical: to think not of what should be done to establish these payment schemes for ecosystem services, but rather what could be done and what was being done.

 

The Rise of Ecosystem Marketplace

As it turns out, all of the participants found the meeting to be hugely valuable (if nothing else because each of the participants felt a little less lonely after that meeting, knowing that there were others out there thinking about these issues) and so it became a regular event. Katoomba Meetings were held in London, Vancouver, Tokyo, Rio, Uganda, and many other cities and countries throughout the world.

At a key meeting in Switzerland, the participants realized that one of the links that was missing in the creation of these markets was information; it is no accident that markets generate information tools like the Wall Street Journal, the Financial Times, or Bloomberg.

Without information, markets cannot function. And so the group decided to create a “Bloomberg” for environmental markets in advance of the markets themselves. And that tool was called the Ecosystem Marketplace.

EM has now been operational for nearly six years, and in that time it has produced landmark studies such as the recently released “State of the Voluntary Carbon Markets” report, as well as similar reports and pieces of information on the wetland mitigation markets, species banking, and water quality trading.

But that is only the “ECO” part of this story.

 

The Alignment of Profit and Preservation

The “EKO” part reflects an explosion of private, for-profit companies created to serve and profit from these emerging markets: it’s the name of a company that some of us created two years ago because we felt there was a growing disconnect between these emerging environmental markets and large sources of capital – a disconnect that was often camouflaged by the success of the carbon markets, which are well-supplied with both capital and capitalists.

For instance, it is a little known fact that the US has had – for almost two decades – a thriving market in ecosystem restoration. The market is called “wetland mitigation banking” because it covers that particular ecosystem and arises out of language in the Clean Water Act, but it is essentially an environmental market – not unlike the EU market for carbon. This market currently transacts (according to the best estimates out there) some $3 billion a year and has led to the creation of other similar markets in species conservation, etc. But despite the fact that this is a real and (some might say) vibrant market, it is almost entirely underserved by large-scale capital providers.

That is why some of us created EKO Asset Management Partners, to serve as Green “Merchant Bankers” (or, if you prefer, a Boutique Investment Firm) created to help bring capital to bear in these new and exciting environmental markets. There are now dozens of other for-profit ventures designed to stimulate (and make money from) these markets, and that is only the beginning.

As we write this (in mid-2009), the US Congress has finished the first of what are likely to be lengthy discussions on the creation of a cap-and-trade market for carbon in the US. If and when a version of these laws finally comes to pass, it will create one of the world’s largest environmental markets. Already, the ripples are beginning to emerge: new businesses are being proposed almost daily to take advantage of these new markets.

 

Rapid Response

In other words, the pace of change is ramping up. When we created Ecosystem Marketplace (and, for that matter, EKO Asset Management Partners), it was enough to write articles every month or every couple of weeks and we were able to cover most of what was happening in this space. But today there is news daily (it sometimes seems like it comes hourly!) and our subjects are being discussed live, on air, via C-Span. For this reason, we believe it is time to create a faster, more vibrant form of discussion, news, reflection, and information on these markets; a truly interactive blog.

While we do not suggest that financial markets – heavily criticized in recent months for inflated profits, obtuse formulas, and outright fraud – are the only answer for conservation or climate stabilization, we do think that they have tremendous potential to achieve cost-efficient environmental aims, provided they are backed by sufficient government foresight and public oversight. They are a tool in our tool-belt, one we can ill afford to overlook.

Admittedly, not all conservation aims will be served by markets. As is the nature of virtually all human institutions, capital markets have proven themselves easily manipulated by human greed (in the guise of financial engineers and fancy derivatives, creating wild profits for a few at the expense of the many). However, the same forces that attracted early proponents to capitalism – namely, production cost-efficiencies and the better distribution of scarce resources – can also apply to environmental markets.

So we recognize that all is not well in the world of environmental markets. We know there are problems, we know there are issues. But we believe there can also be solutions and we hope you will join us (and our “guest columnists”) in discussing and debating these issues. Because only with such open intellectual discussion will we ever be able to solve the many environmental problems we face. We hope you’ll contribute often and let us know what you’re most curious about, what you think is most needed to make markets for ecosystem services succeed, and what you think is merely a green (or capitalist) pipe dream.

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Additional resources

Bonn Talks Open with REDD Agenda

Deforestation accounts for 20% of all greenhouse gas emissions, and the UN bodies charged with mapping out the role of forestry offsets in a post-Kyoto climate-change regime are meeting in Bonn, Germany, this week and next to continue the process of hammering out their differences. The groups will meet at least three more times before gathering in Copenhagen at the end of the year.

2 June 2009 | Delegates from 182 nations are beginning to arrive in the former German capital of Bonn to hammer their preferences into a 53-page negotiating text that will be kicked around ad nauseum between now and December, when the final version is set to be presented to high-level negotiators UN Framework Convention on Climate Change’s (UNFCCC) Conference of the Parties in Copenhagen.

On Monday, the working groups charged with hashing out sticky policy issues (see The UNFCCC Process, right) approved their agendas for the next two weeks, and not surprisingly Reducing Emissions from Deforestation and Forest Degradation (REDD) figures prominently.

Over the next few days, the various contact groups will be taking shape, and we may soon have a decision on whether or not to break REDD into a separate negotiating stream. As the negotiations develop, Ecosystem Marketplace will be keeping tabs on them for you.

For now, here is a summary of the negotiations to date (slightly adapted from Tracking Trees on the Road to Copenhagen, which ran last month):

Financing REDD

It is an axiom of life that money complicates everything, and so it is for REDD. Over the course of the last Bonn meetings, the debate continued regarding how to finance the reduction of deforestation in developing countries. Should REDD be financed in the model of traditional government-to-government development funding, or should it be linked to a market, and should it generate credits that can be used by industrialized countries to meet their emissions targets?

No consensus was reached on these questions in previous Bonn meetings, but there was a general trend in the discussions towards developing a hybrid approach combining the various funding options.

A proposal from Norway helped focus earlier discussions around the idea of a multi-phased process for REDD implementation that would be customizable, to fit the circumstances of each participating country. Correspondingly, each phase would be funded through a different finance mechanism, beginning with direct government assistance, and culminating in the generation of credits that developed countries could use to meet their emission targets. The Government of Norway released a report that elaborates this approach.

Land Use, Land-Use Change and Forestry (LULUCF)

Leaving REDD aside, carbon emissions and sequestration from changing land use are already a part of the Kyoto Protocol, where industrialized countries must account for their LULUCF emissions. During a meeting of another of the working groups referred to above, the AWG-KP, a carbon accounting option suggested by the European Union caused quite a stir. The accounting method, known as the “bar approach”, proposes that a country would have a reference level of LULUCF emissions (or reductions), based on some agreed-upon historical baseline. If the country went below that emission level, it would be credited; if it went above, it would be debited.

The influential Climate Action Network viewed this proposal with a healthy dose of skepticism, suggesting in its ECO newsletter that the method might be susceptible to ‘gaming’. Without a doubt, however, the issue will reappear at the next AG-KP meetings, set for early June in Bonn.

Indigenous Rights

The rights of Indigenous Peoples in the development and implementation of REDD also continued to be a contentious issue at previous Bonn meetings, with a number of organizations contending that little was being done to enable the participation of indigenous communities, or to protect the right to free, prior and informed consent (FPIC), as provided in the UN Declaration on the Rights of Indigenous Peoples.

UNFCCC 2009 Schedule

June 1-12, 2009
Bonn, Germany
AWG-KP, AWG-LCA, SBSTA and SBI

August 10-14, 2009
Bonn, Germany
AWG-KP and AWG-LCA

Sept. 28-Oct. 9, 2009
Bangkok, Thailand
AWG-KP and AWG-LCA

November 2-6, 2009
Location TBD
AWG-KP and AWG-LCA

December 7-18, 2009
Copenhagen, Denmark
Conference of the Parties

 

Copenhagen: The End of the Beginning for REDD?

While the addition of two new working group meetings on the UNFCCC schedule indicates a true commitment on the part of the working groups to bring substantial and specific text to Copenhagen for negotiation, it is still too early to tell how much progress can honestly be made in the next six months. Referring to the REDD negotiations, AWG-LCA chair Zammit Cutajar urged prudence from the participants. He reminded them that the famously complicated Clean Development Mechanism (CDM) is only covered in one small article in the Kyoto Protocol, and suggested that participants focus on sending the right ‘signal’ in Copenhagen, with the details being hashed out later.

Perhaps REDD will be a mere sentence in the Copenhagen document, leaving the details for yet another day?

Reporting and Summaries

At each UNFCCC meeting, organizations and institutions offer their perspective on the events, either through reporting or analysis. Here we have highlighted a few we found particularly useful.

Earth Negotiations Bulletin

For those that want to follow the events of the Bonn meeting in detail, the International Institute for Sustainable Development (IISD) reporting service provides the most consistent and impartial reportage throughout the various climate negotiations. You can download the wrap-up from the Bonn meetings, or you can view the index of their daily Bonn reporting. A word of caution: These summaries are laden with acronyms and arcane terminology.

Carbon Finance

In an insightful piece, Andrei Marcu, a senior advisor on emissions trading at the Canadian law firm Bennett Jones and negotiator for Panama, reads the tea leaves on the REDD discussions at Bonn, to try to divine what might happen in Copenhagen. He also offers insights into what it all might mean for businesses and investors.

Global Canopy Program Blog

With two bookend postings from the Bonn meetings, Charlie Parker of the Global Canopy Program provides a quick summary of what could have happened and what did happen with regards to REDD in the various policy negotiating streams, and offers a another perspective the ultimate outcome Copenhagen.

ECO Newsletter

The Climate Action Network, which we alluded to above, represents 450 non-governmental organizations (NGOs) and provides daily coverage and (often witty) commentary from the NGO perspective through its ECO Newsletter.

Statements and Outputs

To coincide with the Bonn meetings, a number of organizations and institutions released reports to inform, and in some cases influence, the discussions. Here are a few of the relevant publications.

The International Institute for Environment and Development (IIED) released two briefings by Virgilio Viana, director general of the Amazonas Sustainable Foundation which helped to pioneer a system of REDD payments in Amazonas. In the briefings, Viana makes the argument for funding approach for REDD that combines market access (carbon credits) with funding from governments.

Greenpeace released a report proposing that including forest offset credits in carbon markets would cause a 75 percent collapse in the price of carbon, triggering a subsequent reduction in clean technology investments. The report, however, highlights findings of an unconstrained scenario as opposed to the more likely one with politically constrained supply.

Additionally, the recent draft US climate bill evidences a strong US demand projection for credits and thus the likelihood of international forestry credits causing global carbon prices to crash also decreases significantly. Moreover, revenue from the strategic reserve auctions and allowance set asides in the supplemental pollution reduction program to retire forestry credits should mitigate the deflationary price pressure as well.

A number of organizations are attempting to work the issue of agriculture into the negotiations, both in terms of adaptation and mitigation. The International Food Policy Research Institute (IFPRI) released a brief summarizing the main arguments for doing so.

UNFCCC Resources

As with any major UNFCCC meeting, there are a host of official documents to sort through. These are all available at the UNFCCC website for that particular meeting. There, one can find the documents that various stakeholders and observer organizations submitted in advance of the meeting, to see where they stand on the issues.

Of unique interest is the focus document for the working group on long-term cooperative action, written by the Chair of the working group. Released in two parts (one and

Evan W. Johnson is a Forest Carbon Consultant based in the US State of California. He can be reached at evanwjohnson@hotmail.com.

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Additional resources

Payments for Ecosystem Services: Download the Primer

Payments for Ecosystem Services encourage entities that benefit from ecosystem services to pay for maintaining those ecosystems – but how? At the Biodiversity Conference (COP 9) in Bonn, Germany, Forest Trends, the Katoomba Group and the United Nations Environment Programme (UNEP) have jointly unveiled a nuts-and-bolts primer designed to answer that question.

21 May 2008 | Francis Ogwal has spent years trying to balance the opposing forces of economic development and environmental protection.   Now, as focal point for the Convention on Biological Diversity (CDB) within Uganda’s National Environment Management Authority, he believes he’s found a tool that help him do just that.

“Payments for Ecosystem Services (PES) are still relatively new in Uganda, but there is growing interest in that approach, because we have been relying mainly on the old method of provision of money for conservation from government and donors,” he said at the ninth meeting of the Conference of the Parties (COP 9) to the CBD. “But there is a lot of competition for these resources, especially in developing countries – where you want to put money into education, health, and agriculture – and conservation always ends up way down on the list.”

New Resource for Rural Poor

He was speaking at a side event introducing Payments for Ecosystem Services Getting Started: a Primer, which is now available for download.

The 70-page document was compiled by theKatoomba Group (parent of the Ecosystem Marketplace), Forest Trends, and the United Nations Environment Programme (UNEP), with contributions from the Division of Environmental Law and Conventions (DELC), and funded through UNEP by the Norwegian Government.

It is designed as a resource for people in developing countries looking to implement such schemes in a way that not only preserves and promotes ecosystem services, but does so in a way that empowers the rural poor of the developing world as stewards of an ecosystem service, for which they can be justly compensated.

Four-Step Process

The document covers the challenges of structuring programs that both deliver environmental benefits and benefit the rural poor, and its core is a four-step process for establishing PES projects. The steps include:

• Identifying Ecosystem Service Prospects and Potential Buyers
• Assessing Institutional and Technical Capacity as well as Access
• Structuring Agreements
• Implementing PES Agreements

Each of these steps is broken down into smaller steps in an effort to introduce potential sellers of ecosystem services to the details of PES deals. Throughout the document, there are numerous case studies to illustrate components of the process.

Not a Panacea

The document makes it clear that PES is not a panacea. Among the obstacles highlighted: high transaction costs, a lack of regulatory drivers, and lack of understanding among those who can benefit the most from such schemes.

“People have to understand that PES schemes won’t lead to a windfall of money, and that you can’t just go out, plant trees, and hope to get rewarded,” said Rahweza. “This is a learning process, and we are simply trying to provide a resource that will help people along that process.”

Eva Haden agrees. Water and Ecosystems Program Officer for the World Business Council for Sustainable Development, she said that industry has a long to go before funding of PES schemes takes place on a level anywhere near that of the booming carbon markets.

“At this point, there is just too much uncertainty – even about basic definitions of what constitutes payment for an ecosystem service, or what constitutes an ecosystem service,” she said. “Documents like this go a long way towards moving beyond abstract theory and providing some sort of common definition, but we have a long way to go.”

Steve Zwick is managing editor of the Ecosystem Marketplace. He can be reached at SZwick@Ecosystemmarketplace.com.

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Additional resources

The Matrix: Mapping Ecosystem Service Markets

17 June 2008 | Over the past decade, more and more businesses have come to recognize that man’s economy depends on the earth’s ecology, and that ecosystem services – from waste treatment and pollination to genetic resources – generate tangible benefits to industry.

Furthermore, because these benefits have gone unquantified, they have also gone unpaid for – and the ecosystems that provide them are in decline.

This has sparked a diverse array of efforts around the globe to value and pay for ecosystem services.

Many of these Payments for Ecosystem Services (PES) efforts – like the booming carbon markets – already channel billions of dollars into projects designed to keep the planet’s ecosystem infrastructure alive.

Others, however, are less developed.

Even in carbon – by far the most successful ecosystem market to date – the concepts are emerging, changing rapidly, and dispersed across geography and institutions.

All of which makes it difficult to get a clear sense of the big picture of these markets: What are the major markets for ecosystem services? How big are they? Who’s involved? Where are they heading?

 

Mapping the Markets

To map this PES landscape, the Ecosystem Marketplace researched the main PES schemes and each of their sub-categories (mandatory or “compliance” offsets for carbon forestry, voluntary offsets for carbon forestry, government-mediated watershed protection, and mandatory or “compliance” offsets for biodiversity, among others) and their key characteristics (size, environmental impact, community impact, market participants and shapers, and emerging trends).

To collect the information on such a broad spectrum of topics, we pulled together a team of authorities on PES, each of whom performed interviews, literature searches, and web searches to collect information for a specific category of market.

The result of this effort is a large spreadsheet showing all of the markets and their defining characteristics side by side. This poster-sized chart is a powerful tool for viewing and thinking about PES markets. We’ve dubbed it “the Matrix”.

To create a more reader-friendly format for accessing this information online, we’ve split the Matrix into ‘market profiles’ that are essentially executive summaries or narratives for each market.

 

Commodity Types

There are different ways of categorizing markets for ecosystem services. If you’re viewing them as ecological commodities, they follow the popular grouping of: carbon, water, biodiversity, and bundled services.

Carbon markets generally reward the stewardship of an ecosystem’s atmospheric regulation services – specifically, the absorption of carbon dioxide from the atmosphere.

Water markets provide payments for nature’s hydrological services – primarily the filtering of water through wetlands.

Biodiversity markets create an incentive to pay for the management and preservation biological processes as well as habitat and species.

Bundled payments secure all or a combination of carbon, water, and biodiversity services. Bundled payments also include those in which the ecosystem service payment is built into the price of the product, such as certified timber or certified produce.

 

Payment Types

If, on the other hand, you are viewing them as payment types, they fall into three categories: voluntary, compliance, or government-meditated.

Compliance markets are driven by regulation and enforcement, similar to other pollutant trading markets.

Voluntary markets are driven by ethical and/or business-case motives. In many cases, the threat of future regulation also drives these markets.

And government-mediated markets are publicly-administered programs that use public funds to pay private landowners for the stewardship of ecosystem services on their property.

 

Lay of the Land

The Matrix shows that while most PES markets are growing at approximately 10 to 20 percent a year, the carbon markets are skyrocketing at 200 to 700 percent a year.

While this is no surprise to most followers of environmental markets, carbon’s surge is a dramatic entrance for an environmental commodity onto the world markets, and perhaps indicative of the power of markets for ecosystem services.

 

Promises and Pitfalls

The participants and experts we surveyed said they believe existing markets have the potential to serve the environment – but may not be living up to their potential. This underscores that these payment systems are instruments that by themselves aren’t a solution.

PES, in other words, is not a single tool, but an entire tool box with different instruments for different circumstances.

To achieve the sustainable management of ecosystem services, PES schemes must be designed and implemented carefully, intelligently, and adaptively.

 

Spreading (and Tailoring) the Wealth

A recurring theme is the potential benefit for PES schemes in developing countries, as well as the necessity to tailor them to the specific circumstances of the region.

Many of the national compliance markets in developed countries require sophisticated regulation and enforcement to drive effective markets, such as species mitigation credits and water quality trading.

Developing countries, however, host a good number of PES schemes that are structured differently. The largest of these are the government-mediated programs in South Africa, Brazil, and China. China’s watershed protection program alone is estimated to generate $4 billion a year in payments.

 

Social Equity

Perhaps the most important example of how these markets must be crafted and managed carefully is the issue of social equity.

The majority of ecosystem services are produced in rural and natural areas where local communities depend closely on ecosystem goods and services and are the environmental stewards. It is clear from our research that an important aspect across all of these markets will be to ensure that the communities and small scale producers are able to actively participate and benefit from ecosystem service markets.

This will mean developing instruments to provide support, such as aggregation services to communities, shaping regulation to engage local small-scale providers, and clarifying tenure and user rights associated with these new opportunities.

There may be a large wave of investment opportunity in rural areas that are providers of these services. To make sure it is distributed fairly, organizations and overseas development aid groups that care about the equity dimension will have to provide a focused effort.

This is an important section of the Matrix and is reflected in the work of Forest Trends and the Ecosystem Marketplace.

 

Staying Oriented

A quick glance over the Matrix and through the pages of the market profiles will show that, indeed, there are a good number of initiatives attempting to value and pay for the services our green infrastructure provides. And with a closer look, informative patterns emerge in how PES are being applied in different circumstances.

We developed the Matrix to help members of the Katoomba Group and others working in this field to visualize and track the shifting global trends and nuances in PES – basically, to get oriented in the PES landscape.

 

Building a Database

To further this aim, we are developing an online database of the Matrix. This will provide convenient and current access to basic PES information provided in the Matrix. It will also allow for collaboration and data contribution, enabling the PES Matrix to be a living document under broad and continual update.

The Matrix products – chart, narrative, and online database – will aid in the evaluation and comparison of the different shapes and sizes of PES systems around the globe, creating a better understanding of what is being done, as well as where, by whom, and with what effect. We hope this will help refine existing PES systems and spur new and creative solutions.

Nathaniel Carroll is Biodiversity Market Adviser to the Ecosystem Marketplace and Forest Trends. He can be reached at ncarroll@ecosystemmarketplace.com.

Michael Jenkins is Publisher of the Ecosystem Marketplace and founding President of Forest Trends.

 

Additional resources

Biodiversity Banking: A Primer

Mitigation Banking makes it possible for real estate developers to turn biodiversity into an asset instead of a liability – which ultimately makes it possible to preserve that biodiversity across the United States. But how do such mechanisms work? And what challenges do they face? The Worldwatch Institute’s 2008 State of the World Report tackles these and other issues – excerpted here in Ecosystem Marketplace.

Note: This article has been adapted from Chapter 9 of the 2008 State of the World: Innovations for a Sustainable Economy. For the sake of brevity, footnotes and sidebars have been eliminated. View the article in its entirety (pdf), or visit the Worldwatch Institute’s State of the World web site.

19 February 2008 | Assuming agreement of the need to protect Earth’s biological wealth, how much would you be prepared to pay to protect an endangered fly? Would you spend $1.50, $15, $150,000, or more?

How about society as a whole: How much should society spend on the protection of this fly? Does the answer depend on the nature of the fly itself? On its role in the ecosystem?

Or is the calculus based on something else – perhaps on what you must give up to save the fly, or your standard of living, or your priorities?

The questions may seem crass and materialistic – and in some ways they are – but they are essential if the world is to conserve the species and ecosystems that sustain humankind.

The reason is simple: like many other important matters, the staggering loss of biodiversity is really a matter of values – and not just the principles that allow people to distinguish right from wrong, but also the more mundane concept of economic values.

Externalities: The Economic Blind Spot

In a way, the issue boils down to the fact that the world is losing species and ecosystems because the economic system has a blind spot. It sends the signal that cutting down a rainforest to grow soybeans or palm oil plantations makes more economic sense than leaving that forest intact. It says that building a shopping mall to sell iPods is more valuable than having a wetland that buffers coasts against storms, filters water, and provides nesting ground for birds.

It is what economists call a problem of externalities. Some values – like that of a species of woodpecker or of a particular ecosystem such as a rainforest or a wetland – do not enter into the economic system. They are external to it, and so they are not taken into account when economic decisions are made. Indeed, for eons the price of nature has been woefully close to zero. Supply outstripped demand, and priceless came to mean worthless.

But that equation is changing. Priceless nature is becoming increasingly scarce, and therefore needs to be made valuable once again. Giving some economic value to biodiversity would make it easier to protect. At the very least, standing rainforests would not compare so unfavorably when considered against soybean fields and palm oil plantations. Their value would no longer be zero.

Nature on the Block

It may sound strange, even counterintuitive, but the solution to the loss of biodiversity may actually lie in the very same markets that appear to be causing the problem. It may lie in creating payment schemes for biodiversity; mechanisms that give nature a value and that force the economy to look into its blind spots.

Luckily, a good number of countries – from Australia and Brazil to the United States – have been experimenting with such schemes, sometimes for more than 20 years, and there is much to be learned.

Countries use a variety of mechanisms for giving value to ecosystems and the services they provide. In essence, these can be summarized as follows:

  • Government sets the price: This is done either by fining those who damage the ecosystems (through endangered species laws, for instance) or by paying those who conserve it (providing tax breaks or subsidies for conservation, for example). While these systems are useful and play an important role in protecting biodiversity, they suffer from a fundamental flaw: they do not send the right signals to the economy; they do not permit society, via markets, to determine and understand the actual value (the price) of biodiversity.
  • Voluntary transactions set the price: Users of ecosystem services voluntarily agree on the value with those who provide the services. These “self-organized private deals” are sometimes mislabeled as “markets,” but true markets depend on multiple buyers and multiple sellers meeting regularly to exchange goods and services. In contrast, in most cases these are one-time-only deals. They may also take the form of “voluntary biodiversity offsets,” in which an individual or company that damages biodiversity pays to “protect, enhance, or restore” an equivalent amount of biodiversity somewhere else.
  • A hybrid system sets the price: In this case, scarcity of a traditionally “public” good is established through government regulation, which then forces buyers and sellers to negotiate in order to set a price for the good or service in question. Examples of this include various “cap-and-trade” schemes in the United States for sulfur dioxide and in Europe for greenhouse gases. These schemes create true markets because they generate demand for services from multiple buyers and therefore lead to the provision of services from multiple sellers.

While government payment schemes and voluntary biodiversity offsets are extremely useful and are likely to account for the majority of global payment schemes for biodiversity in the near future, they tell more about where we are now than where we might be in the future. The new and emerging regulated markets for biodiversity offsets hold the key to that future.

Therefore, we are focused here mainly on the third of these mechanisms: regulatory cap-and-trade systems.

Before delving too deeply into these issues, however, a story:

There is a small town nestled in the sand dunes east of Los Angeles – Colton, California – that provides some idea of the new world that may be emerging as a result of regulated markets for biodiversity off-sets.

Colton is smack in the economic center of San Bernadino County, one of the fastest-growing counties in the United States. But there is a fly in Colton’s ointment of future economic growth.

A Fly in the Ointment

The city is currently involved in a series of legal battles over how much it should be prepared to pay to save an endangered fly: the Delhi Sands Flower-loving Fly, a rather pretty insect that, like a butterfly, hovers and sips nectar from local flowers. This tiny creature has the distinction of being the first fly—and only the seventeenth insect—to be declared an endangered species in the United States.

According to the U.S. Endangered Species Act (ESA), no individual or entity, public or private, can harm an endangered species – not even a fly – without a permit from the government. Thus, shortly after this fly was listed as an endangered species, construction of a hospital in San Bernadino county ground to a halt.

The hospital had planned to pave over seven acres of occupied fly habitat, but that all of sudden became illegal. The hospital then had to spend $4 million redrawing its plans, moving its parking lot 250 feet, and making a few other minor changes. All so it wouldn’t harm a fly.

The $150,000 Fly

How much is a fly worth? Do you judge by what the fly does? With this fly, scientists do not know the answer to that question.

They know that pollinators, such as this fly, tend to have important and symbiotic relationships with the plants they feed on. In some cases, without the pollinator the plant cannot reproduce. Perhaps the flower-loving fly plays that role. Or it could be a cornerstone species, without which an entire ecosystem could collapse. Or maybe protecting this fly will protect dozens of other species, some of which may not even have been discovered yet.

Or maybe not.

E. O. Wilson has written: “I will argue that every scrap of biological diversity is priceless, to be learned and cherished, and never to be surrendered without a struggle.”

The state of California, in contrast, has a more moderated view. Having determined that the fly should be protected, it decided to let the market decide what it costs to conserve it. And the market determined that the going rate in California for Delhi-sands fly habitat is currently somewhere between $100,000 and $150,000 an acre.

This story is interesting not so much because it is hard to believe that people are buying fly habitat – let alone paying $150,000 for it – but rather because it forces society to answer that crass and materialistic question: How much is nature really worth?

Some would argue that the question should not even be asked. And yet society answers this question “by default” every day. Every time people buy soybeans, for example, they are putting a value on the Amazonian rainforests that were cleared to grow them.

At least in the case of the fly, the price tag is clear, evident, and visible. If a developer wants to pave over fly habitat, it will cost the company (in today’s market) as much as $150,000 an acre. If that were all there was to this story, the concept of putting a price on endangered species would be quite troubling. It implies that someone could pay the price set by the marketplace and then go ahead and destroy the last surviving population of a species.

Bug Offsets

But that is not what is happening. The $150,000 paid to pave over the fly’s habitat is actually being used to protect or create habitat for that same fly somewhere else. It is, in other words, an “offset” – not unlike the carbon offsets people are buying to counteract their greenhouse gas emissions.

As the money goes into legally and financially protecting the flies forever (at least in theory), in a way it is a market, or at least a market-like mechanism. It puts a value on endangered species and habitat, turning them into marketable assets. It puts a cost on the fly for those who would harm it, and at the same time it creates a value for those who would conserve it.

It is this marvelous alchemy – turning cost into value, liability into asset – that may ultimately allow society to preserve biodiversity. But does it work? And, if so, how does it work?

Wetland Mitigation Banking

Since the mid-1980s, the United States has had a series of functioning biodiversity markets worth more than $3 billion a year. This system is currently the largest and most well-established experiment on Earth on creating biodiversity markets. Although these are markets involving the private sector, it is government that makes these markets possible.

The system that makes the flower-loving fly worth real cold, hard cash begins with government regulation. Indeed, it has its roots in two very important U.S. laws: the Clean Water Act (CWA) and the Endangered Species Act, both passed in the 1970s.

Although the CWA is basically designed to prevent the dumping of chemicals into the nation’s rivers, it is also in some respects a rather innovative biodiversity law – thanks to section 404, which attempts to prevent the placement of dredged and filling materials into the “waters of the US.”

Anyone wishing to dredge or fill a wetland considered of national importance in the United States must first obtain a permit through a program administered by the U.S. Army Corps of Engineers and the U.S. Environmental Protection Agency (EPA).

In considering whether to award this permit, EPA and the Corps are supposed to follow a process known as “sequencing,” in which the first step is to determine if the damage to the wetlands can be avoided. If it cannot, the next step is to minimize the damage.

Finally, the developer is supposed to offset, mitigate, or compensate for any damage that cannot be minimized.

This hierarchy should be considered in all forms of offsets, but it is not usually codified into law. Section 404 of the CWA is an exception. The law is also quite clear on what is considered appropriate compensation for the damage to wetlands: developers must “create, enhance, or restore” an amount equal to or greater than the amount being damaged in a wetland of “similar function and values” in the same watershed. In some special cases, protecting a similar wetland is considered suitable compensation, though this is rare. The law recognizes that not all wetlands are equal: Someone cannot damage a wetland in California and protect one in New Jersey.

The compensation for any development projects that harm wetlands – whether done by private developers or the government – can be undertaken by the developers themselves or by third parties. And the Army Corps of Engineers and EPA are charged with overseeing this process and making sure the compensation happens.

One of the most interesting repercussions of this law is that there are now private, for-profit, wetland mitigation bankers who make money by creating, enhancing, and restoring wetlands and then selling the resulting “wetland credits” to needy developers.

They buy wetland areas in parts of the United States that are likely to experience economic growth; they work with the Corps and EPA to get “credits” for their “creation, enhancement, and restoration” of wetlands (hence creating a “wetland bank”); and then they sell these wetland credits to developers who find themselves in need of compensation.

Government Guides the Invisible Hand

In other words, wetland mitigation banking is possible because the government is restricting supply and allowing the market to set a price – a value – on this particular aspect of biodiversity.

In a way, it amounts to governments tinkering with the economic infrastructure in order to protect those aspects of biodiversity that should be valued, the externalities. And it is no small matter: Although there are no reliable figures on the size and value of wetland banking, the best guess is that there are more than 400 wetland banks throughout the United States, that the market for wetland mitigation is worth more than $3 billion a year, and that entrepreneurial wetland mitigation bankers account for about one third of that business.

The rest is composed of people doing their own wetland mitigation in order to obtain permits or paying the government or nonprofit groups a fee instead of compensation.

Although wetland mitigation banking has proved to be a rather innovative concept – fueling the growth of a new “nature management industry” – it is important to point out that it is by no means perfect. Like all innovations, it has come in for some serious criticism. Some of these critiques are really about a reticence to assign a dollar value to biodiversity, reflecting an inherent dislike for the use of markets and capitalist tools to protect nature.

The critics often argue that the only way to protect nature is for government to restrict its use and strongly enforce this restriction. Although there is clearly a place for this type of protection, there are other powerful tools that should be used as well.

Besides, without wetland banking, U.S. wetlands would be worth little or nothing, and they would continue to disappear under strip malls, airports, and highways. With banking, their loss has at least a very real monetary cost and can generate funds that may actually lead to the creation of new, very similar wetlands.

More important, this cost sends a signal: developers who want to develop a site that has wetlands will spend considerably more per acre, so they had better be absolutely sure they must have that particular site.

The Shortcomings

Two other criticisms do merit concern, however. The first has to do with the fact that it is notoriously difficult to “create, enhance, or restore” wetlands, so the wetland acre used as compensation may be inherently “less valuable” in terms of biodiversity than the acre being damaged. Partly for this reason, many of the U.S. wetland banking systems require that each acre damaged be compensated with two, three, or more acres of wetland “created, enhanced, or restored.” It is a form of overcompensation or insurance and, while it alone does not resolve the matter, it does help.

So far, the studies on the quality of the wetlands created as compensation are mixed. In one study conducted in Ohio, scientists looked at the 12 oldest of the state’s 25 wetland mitigation banks. Although these had been studied and monitored by the Army Corps and EPA, the study found that many were not up to standard when checked against stringent scientific criteria. Indeed, against these measurements only three banks scored in the “successful category,” while five passed in some areas and failed in others. The remaining four failed nearly every assessment, functioning more like shallow dead pools than wetlands. More disturbing, none of the government agencies charged with oversight were taking the bank managers to task for this fact.

Overall, however, the study found that the banks were most successful when they maximized the areas defined as wetland, minimized areas of open water, and had similar plant and animal life to natural wetlands.

Ensuring Quality

Despite its implicit criticism of banking, the study’s author, wetland ecologist John Mack, remains one of the more steadfast supporters of mitigation banking. He says that the conclusion from his study should not be that banking as a concept is flawed, but rather that – when done properly – it can succeed. He argues that by using better designs, performance standards, enforcement, financing, and an appropriate watershed approach, wetland mitigation banking can produce high-quality wetlands.

The second important criticism centers on how wetland mitigation banks are monitored and implemented. How is it possible to ensure that an acre of wetland protected today will still be there tomorrow, the day after, and the day after that?

There is also a related question: Will funding be ensured to maintain the newly-created wetland?

Ensuring Longevity

To address these issues, the Corps and EPA require that wetland bankers provide both legal and financial assurances that the “created, enhanced, or restored” wetland will last (presumably) in perpetuity. The legal assurances usually take the form of conservation easements (legal restrictions on the use of land) held by third parties (usually a nonprofit or the government). The financial assurances can take a variety of forms. They are either trust funds set up to produce the interest necessary to run the bank or bonds or letters of credit that hold the bank financially liable for the protection of the wetlands.

In addition to these assurances, wetland mitigation banking requires a considerable amount of enforcement and verification. It needs the government agencies overseeing the system to continuously monitor and ensure that the promised wetland protection is delivered. Such “perpetual oversight,” however, is costly and is usually very difficult for understaffed and underfunded government agencies.

Nevertheless, as the mitigation industry grows it may generate the funds needed to monitor itself.

Despite these warranted criticisms, wetland mitigation is still probably a better system than the alternative—which, realistically, amounted to little or no real protection. Even if there were no wetland banking, roads would still be built, airports would still be constructed, and shopping malls would still go up. Wetlands, in other words, would still be damaged. History shows that society has not been very good at blanket prohibitions on the use of land.

And even if all further damage to biodiversity could realistically be prohibited, the problems of government enforcement and monitoring would still exist. It just would be spread out across tens of thousands of projects, and tens of thousands of acres of damaged wetlands, rather than across hundreds of wetland banks. In fact, numerous government officials report that the existence of wetland mitigation banking makes it easier for them to carry out their monitoring, enforcement, and protection work.

Endangered Species: From Liabilities to Assets

If endangered species are so important, so valuable, why does the economic system see them as liabilities? The perverse unintended consequence of the Endangered Species Act – forcing people to see endangered species as a liability – is nothing new. Ever since the act was passed some 30 years ago, people have been complaining that listing an endangered species places an unfair burden on the private landowners whose land harbors these species.

In such cases, they argue, the incentive is not to protect an endangered species but rather to get rid of it fast, before anyone knows it is there. This is what some have called the “Three Ss Approach to Endangered Species Management”: shoot, shovel, and shut up.

Critics of the ESA have often used this attitude to argue that the act needs to be revised or even dismantled. But rather than throw the legislative baby out with the bathwater, there are other, less drastic approaches. One of these involves a process known as conservation banking.

In the 1990s, people began looking for a better way to accomplish the ESA’s objectives – one that, instead of penalizing private landowners for harboring endangered species, would perhaps reward them. To do this, they created a system reminiscent of wetland banking. Under this system, landowners with an endangered species on their land can get a permit to harm that species (known as an “incidental take” permit in the euphemistic language of the government) if they can show they have compensated for it by creating habitat for that same species somewhere else.

Again, as with wetland banking, this has paved the way for private, for-profit, species bankers to create habitat for endangered species, get credit from the government for any new members of that species found on their land (“new” meaning above an initial baseline), and sell those credits to other developers who intend to damage that species’ habitat or harm the species somewhere else.

Not much is known about the size and breadth of species banking across the United States, though it appears that there are more than 70 species banks and that these might trade anywhere from $100 million to $370 million in species credits each year.

Whatever the size, the use of conservation banking means that species banking, also known as “conservation banking,” can turn a species liability into a species asset. This is just what one company in Colton, California, discovered.

While the municipal government there sued the federal government over the Delhi Sands Flower-loving Fly, saying the government had no place regulating where people can build their houses, a sand and gravel company called Vulcan Materials Corporation acquired 130 acres of prime fly habitat—the largest remaining contiguous area of it in the Colton dunes.

But instead of hiring lawyers and attacking the fly’s endangered species status, Vulcan decided to see if it could make the fly pay.

Working with the U.S. Fish and Wildlife Service and the Riverside Land Conservancy, Vulcan set up a conservation easement on the land, created a management plan for the fly habitat, established a baseline for flies on its land, and obtained the right to sell “fly habitat credits” above that baseline to needy developers.

The bank opened in June 2005 and by December had already sold three of its credits.

Although Vulcan will not officially release the sale prices, reliable sources estimate that at least one credit sold for $100,000, although they also say the price has now risen to $150,000 per acre, as mentioned earlier.

According to Kevin Klemm, the owner of the development company that was Vulcan’s first customer, the credits were worth it. “The Vulcan Materials people were tremendous,” he says. “They were business-like and accommodating. They didn’t waste any time. The bank is a tremendous value… I spent six years of my life trying to build 18 buildings.”

And presumably he got nowhere because the government made it illegal for him to harm the flower-loving flies. Now, with a bank from which to buy offsets, he has an option.

To people like Klemm, the rapid response mitigation solution now offered by the Vulcan bank is no doubt a blessing. And Vulcan is not alone.

There are now conservation banks in the United States that sell credits on everything from vernal pool fairy shrimp and valley elderberry longhorn beetle to tiger salamanders, Gopher Tortoises, and prairie dogs. As noted, these markets may be worth as much as $370 million a year. The conservation of endangered species has thus become a very real, and very profitable, business opportunity.

Government Programs: Benefits and Drawbacks

Outside the United States, several other countries are also experimenting with regulated biodiversity offsets. For instance, the Australian states of Victoria and New South Wales either already have or are setting up schemes similar to the U.S. system, although with a few important differences.

The BioBanking system in New South Wales has proposed a scheme whereby some areas would be deemed too sensitive for development. These would be “red-flagged” and would ideally be the sites where species banking would occur. In other words, the Australians are looking at addressing one of the main pitfalls of the U.S. system: a lack of broad-based, landscape-level planning to determine which areas are most needed for conservation. For now, it looks like the BioBanking scheme will be voluntary, but the hope is that, since compensation for damage is obligatory, BioBanking will be cheaper than the alternatives.

In the state of Victoria, the BushBroker scheme is mandatory and applies to native vegetation. The principle is simple: whoever harms native vegetation in Victoria needs to offset that damage by creating or protecting the same type of vegetation in the same bioregion.

Applying this scheme, on the other hand, is extremely complicated. There are literally dozens of vegetation systems and bioregions, which makes finding the right match a daunting task. To address this problem, the government of Victoria is building a sophisticated computer matching system that it expects will be operational any day now.

The Challenge of Governance

While cap-and-trade regulated offset schemes to protect biodiversity can indeed create real markets and can be extremely powerful when used correctly, they also require strong government oversight, effective legal systems, enforcement of rules and regulations, and robust financial institutions.

These conditions may be found in some industrial countries, but they are not the conditions of much of world – especially in those parts that hold most of the world’s biodiversity, places like parts of Central and South America, Congo, China, Indonesia, Madagascar, and Mexico.

So, what can be done in those parts of the world? Fortunately, the underlying concept behind both conservation banking and wetlands mitigation banking – that is, putting a value on biodiversity – applies in all countries, even if the exact systems for providing these payments may not. Even the U.S. government has a multimillion-dollar-a-year program to help farmers and private landowners conserve.

It comes in the form of Farm Bill payments such as the Wetlands Reserve Program, the Conservation Security Program, the Conservation Reserve Program, and the Environmental Quality Incentives Program.

In Brazil, the government requires that a minimum amount of a landowner’s territory be kept in forest cover. There is also a law on Brazil’s books that requires compensation for damage to biodiversity, although the laws to determine that compensation are not adequately established yet. Similarly, in places as far afield as South Africa, Colombia, and the European Union, laws requiring or encouraging biodiversity offsets are either being considered or already being implemented.

The Chinese government has long had a program known as Grain for Green (the official title translates as the Sloping Lands Conversion Program, or SLCP) that pays farmers to keep forest cover on hillsides. Its aim is to help conserve watersheds and prevent floods, but it also affects biodiversity conservation.

This is not a market-based system, however; it is a system of government subsidies and payments. The money comes directly from tax revenues and is redistributed based on certain established criteria. While the SLCP system does help increase the value of standing forests (and has an astounding budget of $43 billion over 10 years), it does not directly link the users of the biodiversity services with the providers of those services. Government mediates the transaction, so the users of the service are not receiving information on the cost of their use.

Mexico is introducing a similar system. It was modeled on a program for water conservation in the country known as Pago por Servicios Ambientales Hidrolí³gicos (PSAH, or Payment for Environmental Hydrological Services). The PSAH is interesting in that it collects a fixed amount of revenues from water users and then redistributes it to key targeted forested watersheds across the country.

The principle here is that by helping protect forested areas in key watersheds, the payments will help support the provision of water-related ecosystem services throughout the country. The program started in 2003 and pays between $30 and $40 a hectare for forest conservation, depending on the type of forest being protected. Currently the program is paying for the management of close to a million hectares.

Building on its success with water services, Mexico has received a grant from the Global Environment Facility to establish a similar program to make payments for biodiversity conservation. The problem with this approach is twofold. First, as in China, the money is coming from philanthropic sources or the government. Second, the payment and the payer are severed from the actual service being received. In other words, while all Mexicans contribute a bit of the money they pay for water to the PSAH, they often do not know they are making this contribution. And the money they pay is not necessarily used in the watersheds that supply those individuals with water. Again, the link between buyer and seller is not direct. This makes it difficult for users of the service to make decisions based on the economic costs of their use.

One of the most talked about payment for ecosystem services programs, as these are often called, is the Pago por Servicios Ambientales (PSA) program created by Costa Rica in 1996. Private landowners in Costa Rica who protect their forest cover receive a payment from the National Forestry Trust Fund. These payments are made at a base rate of $40 per hectare but can vary depending on type of forest cover. Most of the money for this trust fund comes from a tax added to fuel sales in Costa Rica, but this is supplemented by “environmental credits” sold to businesses and other sources of international finance.

Between 1996 and 2003, the Costa Rican PSA program had enrolled more than 314,000 hectares of forested land, transferring more than $80 million to landowners in the process.

Once again, this is a government-run program here the user and provider of the biodiversity services are not closely linked. Also, like China’s Grain for Green program and Mexico’s PSAH, the price per hectare of biodiversity is set by government, not via a direct market-based mechanism. They are in effect government monopsonies (one buyer without competition, the opposite of a monopoly) for biodiversity services, and as such they may be paying too little or (though this is less likely) too much for the conservation of biodiversity. The price is largely arbitrary and based on the government’s ability to pay rather than on supply and demand for the service.

Despite these drawbacks, the programs in China, Mexico, and Costa Rica have been extremely successful at giving added economic value to biodiversity and, some observers say, have also been successful in their overall goal of increasing forest cover.

A particularly interesting and different approach to payments for biodiversity services is found in Victoria in Australia. Through two programs there – known as BushTender and EcoTender – the state has established a reverse auction system for providing government payments to private landowners who conserve local biodiversity (among other goals).

The pilot for BushTender took place in Victoria in 2003, and according to Mark Eigenraam, one of its architects, it “used an auction system to distribute environmental funds to landholders who were interested in improving terrestrial biodiversity on their properties. The implementation of BushTender led to 5,000 hectares of native vegetation on private land being secured under management agreements. In economic terms, it created the supply side of a market for nature conservation and generated significant cost savings when compared with previous grant-based systems for distributing conservation funds to landholders.”

BushTender’s success is now being followed up with EcoTender, in which the state is inviting local landholders to submit competitive “bids” for government funding to pay for improved management of remnant vegetation and re-vegetation on their properties.

“Where BushTender focused on a single environmental outcome (increasing terrestrial biodiversity), EcoTender aims to achieve multiple environmental benefits, including improvements in saline land and aquatic function,” explains Eigenraam.

What is interesting about BushTender and EcoTender is that they use government’s monopsony buying power to invite bids that effectively serve to discover the “best” price at which biodiversity conservation will be achieved. Nevertheless, the buyer is once again the government using tax revenues, so the connection between the buyer or user of the biodiversity services and the seller is still not direct.

Voluntary Biodiversity Offsets

Beyond government regulation, numerous companies have begun to set up biodiversity offsets voluntarily in places like Qatar, Madagascar, and Ghana because they think it makes good business sense to do so. Like voluntary carbon markets, the number and investment in such offsets is presently modest. But they are likely to become much more widely used as a part of standard business practice.

Some observers believe that they could serve as the precursors to larger, more broad-based biodiversity markets in the long term. Essentially, they demonstrate that there can be a business case for investing in biodiversity conservation.

Expanding the Business of Biodiversity

To understand whether, when, how, and where voluntary biodiversity offsets should be undertaken, the Washington-based nongovernmental group Forest Trends established the Business and Biodiversity Offsets Program (BBOP). This is a partnership of over 50 companies, governments, conservation experts, and financial institutions from many different countries and led by Forest Trends and Conservation International.

The BBOP partners believe that biodiversity offsets may help achieve significantly more, better, and more cost-effective conservation outcomes than normally occur in the context of infrastructure development. The program aims to demonstrate conservation and livelihood outcomes in a portfolio of biodiversity offset pilot projects; to develop, test, and disseminate best practice on biodiversity offsets; and to contribute to policy and corporate developments on biodiversity offsets so they meet conservation and business objectives.

Companies undertake biodiversity offsets for one or more of three reasons: they are required to by national legislation (as in the United States, with wetland mitigation banking and conservation banking), they are encouraged to or facilitated by Environmental Impact Assessment legislation or other planning procedures, or they find a legitimate business case to get involved.

BBOP staff have identified numerous benefits for companies in doing this; namely, voluntary offsets can help companies:

  • ensure continued access to land and capital and to the license to operate;
  • bring competitive advantage or favored status as a partner;
  • increase investor confidence and access to capital;
  • reduce risks and liabilities;
  • ensure strong and supportive relationships with local communities, government regulators, environmental groups, and other important stakeholders;
  • influence emerging environmental regulation and policy;
  • assure “first mover” advantage for innovative companies; and
  • maximize strategic economic opportunities in emerging markets (for instance, establishing companies to implement offsets).

Currently, BBOP is working with partners on projects in a variety of countries, including Ghana, Kenya, Madagascar, Qatar, South Africa, and the United States, and is exploring projects in Argentina, China, Mexico, and New Zealand. Some of the companies the program is working with or in discussions with include Newmont Mining, Rio Tinto, Shell, and AngloAmerican.

As these experiences mount up, and as case studies become available on best-practice biodiversity offsets, it is likely that both the supply and demand for these offsets will grow. Countries that establish clear policies may improve land use planning and use market mechanisms to create aggregated offset areas that achieve significant conservation outcomes in high biodiversity-value areas.

How Much is Nature Worth?

Whether through voluntary offset mechanisms, government-mediated payment schemes, or full-fledged markets in offsets, the concept of payment for biodiversity services is beginning to take hold. More important, these approaches are beginning to subvert the current economic model that is blind to the value of biodiversity, to the services that species and ecosystems provide, and to the costs inherent in destroying the natural wealth on which human well-being depends.

The problem these systems are trying to address is self-evident: When iPods are valued over whale pods, the economic system will deliver ever more species of iPods and wipe out yet another species of whales. When wet-lands are seen as nothing more than mosquito-infested swamps, they will lose out to shopper-infested malls. And as land becomes ever more scarce, the problems will simply be aggravated.

The economic system is not broken. It is doing exactly what it was set up to do: deliver more of what people value – or at least more of what the imperfect price signals say people value – and less of what they don’t.

The solution to the problem may actually lie in using markets and the economic system to our advantage. Imagine how powerful it would be if market forces – the same market forces that have inexorably pushed for the destruction of rainforests and the extinction of countless species – could be used to protect species, to give them a real value in people’s everyday decisions of what to eat, what to wear, and what to buy.

To return to the questions at the start of this chapter: How much should society be prepared to spend to protect nature? The answer will in large measure determine whether humanity ends up living in a world of whales, wild tigers, and wetlands or a world of pavement, iPods, and pollution.

Better yet, we can hope that through a form of economic jiu-jitsu these market mechanisms will make it possible for the pavement and the iPods to co-exist comfortably with the whales and the wetlands.


Ricardo Bayon is a Partner and co-founder of EKO Asset Management Partners, a new breed of “merchant bank” seeking to influence, encourage, and profit from new and emerging markets for environmental commodities (carbon, water, and biodiversity). Formerly he helped found and was the Director of the Ecosystem Marketplace. he can be reached at rbayon@ekoamp.com.

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Painting the Town REDD: Merrill Lynch Inks Massive Voluntary Forest Deal

In a major demonstration of confidence in the viability of voluntary carbon offsets as a strategic investment, Merrill Lynch is raising equity for a 100-million-ton, for-profit avoided deforestation project in Aceh, Indonesia. Tellingly for the future of the forestry market, the decision to take the plunge had more to do with the cultural and biodiversity benefits than with the carbon itself. The Ecosystem Marketplace examines the deal and its significance.

8 February 2008 | “Pre-Bali, no one wanted to touch avoided deforestation,” says Dorjee Sun, CEO of Australian project developer Carbon Conservation. “Now people are starting to recognize AD as the next big thing, and they are looking for ways to participate with an edge.”

On Thursday, Carbon Conservation and Merrill Lynch confirmed that the investment bank will be offering its retail and commercial clients voluntary carbon credits from a massive Indonesian AD project that could yield up to 100 million metric tonnes of offsets over 30 years.

To put this number into context, Ecosystem Marketplace tracked just over 24 million tons of voluntary credits transacted in 2006.

More importantly, says Sun, the project is part of a larger scheme to build Aceh’s economy along what he calls a “Green Paradigm” incorporating not only culture and biodiversity standards attached to the carbon, but also sustainable agriculture.

Coffee and the Economic Ecosystem

The longer-term plan involves new financing mechanisms designed to jump-start the cultivation of sustainable palm oil, coffee, and cocoa, which will then be marketed under the brand name “Aceh Green.” It is this later phase, details of which are still to be announced, that convinced Merrill to take the plunge, according to Abyd Kamali, the bank’s Global Head of Carbon Emissions.

“The overall approach being proposed in Aceh is truly innovative and reflective of the need for forestry, carbon, and softs to be treated as one economic ecosystem,” he said.

Climate Community and Biodiversity

Both the future green commodity project and the current carbon project are centered on 750,000 hectares of the Ulu Masen Ecosystem. (For a detailed examination of the project and the challenges of implementing it, see It’s Not Easy Being Green in Aceh, Indonesia).

Carbon Conservation began developing the project together with Fauna & Flora International and the government of Aceh Province in February, 2007. One year later, on February 6, 2008, the project became the first forest conservation project to achieve Climate Community and Biodiversity (CCB) certification when the Rainforest Alliance SmartWood Program signed off on it.

“I can’t emphasize enough the significance of being approved by SmartWood,” says Sun. “Jeffrey Hayward raked us back and forth over the coals until he was convinced that we could implement the plan as presented, for the money budgeted, and in the time allotted.”

The Economics of Quality

Sun is banking on the idea that the extra money spent on preserving biodiversity and supporting the local economy will pay off in spades when it’s time to get the emission reductions certified – and the resulting certificates sold.

Both he and Karmali say the project wouldn’t have happened without strong local support, and they give credit for that to Aceh Governor Irwandi Yusuf, who Karmali first met in September. “Meeting the Governor of Aceh, as well as the other stakeholders involved in the project, left a strong impression about the collaborative approach that has been employed – and the strong buy-in from all stakeholders on this project,” he says.

Local buy-in, however, wasn’t a foregone conclusion, and the next five years will be critical in maintaining it. That is the time over which the first $48 million will be spent – more than half on economic development in local villages.

“Deforestation isn’t caused by big companies coming in and chopping down trees,” says David Pearse, who is overseeing the land use aspect of the project for Carbon Conservation. “It’s caused by local people having no other source of income than the forests.”

“Aceh still has standing forests because of the war between the Aceh rebels and the Indonesian government,” adds Sun. “Now that they have peace, illegal deforestation has started going rampant. The governor understood the loose structure of carbon credits, and tied it into a moratorium on logging.”

Jostling for Post-Kyoto

Sun says he expects the first tranche sold through Merrill Lynch to bring in $5 to $10 per tonne of CO2 sequestered, which is a slight premium to the price of voluntary allowances trading on the Chicago Climate Exchange.

Over time, however, he believes the social benefits of the project will boost the prices of his credits to a level more in line with those of the compliance market – especially if avoided deforestation becomes a recognized offset vehicle for carbon emissions in a post-Kyoto world.

“If we monitor our vintages right, we will be on the right track for compliance credits, and will be pushing a compliance price,” he says. “In the meantime, people will be looking at prices of carbon under the European Union Allowance (EUA) scheme, and then looking at voluntary methods, and they will realize that projects that can show additional benefits are worth paying extra for.”

The challenge now, of course, is to actually deliver. “This is only the first step,” says Governor Irwandi. “The hard work will be in financing and implementing our proposed project to help preserve the largest remaining bloc of unprotected Sumatran forests.”

Updated: February 11, 2008




Steve Zwick is managing editor of the Ecosystem Marketplace. He may be reached at steve.zwick@gmail.com.


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Analysis: Why saving the world’s rainforests is good for the climate and the US economy

The 13th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP 13) is more than a month behind us, but plenty of debate lies ahead as advocates and opponents of using forestry to combat climate change air their opinions in the lead up to COP 14 later this year in Poland and COP 15 next year in Denmark. Jeff Horowitz and Robert O’Sullivan of Avoided Deforestation Partners take stock of the Bali Roadmap and what it means for avoided deforestation.

25 January 2008 | In December, more than 10,000 politicians, scientists, NGO representatives, and academics inundated Bali, Indonesia, for two full weeks. The goal was to negotiate, lobby, and struggle through the increasingly complex web of international climate change policies. At the end of it all, an agreement was reached as part of the “Bali Action Plan” to spend two more years negotiating a future agreement that should include reducing deforestation in developing countries – something that currently accounts for a whopping 15 to 25 percent of global greenhouse gas emissions.

Critics have dismissed this round as being too technical and too soft on action, but a closer look at the Bali decisions shows that the event yielded significant decisions that will impact future US engagement in international climate policy and the future of millions of hectares of tropical forests. Surprisingly, this in turn becomes significant for US companies.

The US did not ratify the last treaty to address climate change – the 1997 Kyoto Protocol. The Clinton administration agreed to the text of the agreement in 1997, but the Bush administration pulled out before it became binding in the US, arguing that developing countries were not required to do enough to reduce their own emissions under the agreement, which meant this would hurt the US economy.

Despite the bashing it receives in some quarters in the US, the Kyoto Protocol was ratified by over 175 countries and is regarded as one of the most revolutionary and successful pieces of international environmental law ever passed. The treaty has created a multi-billion dollar market for trading emission-reduction credits and helped trigger billions of dollars of underlying investment into renewable energy and other projects in developing countries that reduce greenhouse gas emissions.

The Costs of Deforestation

The Kyoto Protocol did not, however, address the critically important issue of deforestation in developing countries, which contributes more carbon emissions than the entire world’s transportation sector. If these emissions are not reduced, then all the efforts of all those well-meaning people buying renewable power, driving a Prius, or turning down the thermostat this winter will come to naught.

And stopping deforestation is about more than just climate change. It’s about saving the homes and livelihood of indigenous people and preserving fragile swathes of biodiversity that have taken centuries to evolve. These are being permanently decimated at a rate that, if unabated, will wipe out Indonesia’s entire orangutan population in 20 years.

But the real damage is less visible. Loss of plant biodiversity, for example, disrupts the chemical composition of the atmosphere and, with it, weather patterns. There is some evidence linking reduced biodiversity and the resultant shifts in weather patterns to drought in Latin America, and we have all heard of the lost opportunities to find new medicines as valuable species perish.

The Bali Solution

The agreement on deforestation incorporated into the Bali Action Plan is remarkable as it offers hope that something will be done to stop this destruction. Equally important, the Bali outcomes contain a possible way forward to addressing concerns the US had with the Kyoto agreement.

First, a number of developing countries have stated in the Bali decisions that they may be willing to take action to reduce deforestation. Second, reducing emissions from deforestation is the most cost-effective way to reduce emissions globally. New technologies are not needed and deforestation can be reduced now.

One of the favored sources of finding the $10 billion or more per year it is estimated is required to significantly reduce deforestation is to expand the booming emissions trading market created by the Kyoto Protocol. If this increased supply is met by increased demand this expansion is good. Including deforestation in the emissions-trading market will reduce the overall costs of cutting emissions globally, making it a win-win situation for the economy and the world’s forests.

Many US companies are already faced with state-based legislation to reduce their emissions, with expectations that more federal legislation will follow. Most reductions need to happen domestically, and many cost-effective options are available. However, if US companies are able to partially use the international carbon market, they will be able to meet overall reduction targets more cost-effectively. This will help reduce the overall costs to the US economy that many fear – correctly or not – may be incurred if the US embraces emission caps.

The Bali Action Plan is significant as it opens the window to engage the US and US companies to become part of the global response to avert a climate catastrophe and save the world’s rainforests before they disappear forever.

Jeff Horowitz and Robert O’Sullivan are founding partners of Avoided Deforestation Partners (www.adpartners.org) an independent network and think tank on deforestation policy. Robert is also the Executive Director, North America for the consulting firm Climate Focus. AD Partners were intimately involved in the recent international treaty policy negotiations in Bali regarding the inclusion of provisions to use carbon trading to save tropical forests.

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Forest Sequestration enters Carbon Market Down Under

In Late 2004, Australia's CO2 Group Ltd. became the first company in the world to receive accreditation for the sale of forest-based carbon sequestration credits in a functioning GHG emissions markets. The Ecosystem Marketplace takes a look at the transaction and asks how it fits in with similar attempts to deal with the issue of forest-based sequestration worldwide. In what is being hailed as a world first, an Australian company – CO2 Group Limited- has been accredited to grow forests that will produce tradable carbon sequestration credits as part of a mandatory emission reduction scheme. The carbon credits that these forests will generate will be traded alongside other credits from emissions reduction and energy conservation in a market that has now been operating for two years in Australia's most populous State of New South Wales (NSW). This accreditation was quickly followed by a sale: within days of announcing the accreditation, the company announced a major contract for the sale of carbon credits from its newly accredited -though yet to be established- forests to one of Australia's major diversified energy companies, Origin Energy. Under the contract, Origin is to purchase the carbon credits that result from planting up to 6,500 hectares of mallee eucalypt plantations in central southern NSW. Origin refuses to provide further details on the deal, except to say the company examines all carbon abatement measures and is open to "any option that stacks up". CO2 Group Managing Director Andrew Grant, meanwhile, said through the Australian Stock Exchange that "The contract will require the establishment of the largest dedicated carbon sink project ever undertaken in Australia and sets a new benchmark on the global emissions trading market." There is currently no way to tell how many carbon credits will result from the planting of these 6,500 hectares. Following in the footsteps of CO2 Group is Forests NSW, the state forestry agency, which is said to be applying for a similar accreditation and may actually go one step further by being able to register and sell the first "sequestration" abatement certificates based on carbon fixed in existing forests. The State agency, which is seeking credits for 10,000 hectares of eligible eucalypt forests, hopes to be able to sell the certificates before the 30 April deadline when NSW power companies are required to show they have reduced or offset their 2004 emissions to a pre-determined benchmark or pay a AUS $10.50 penalty on each tonne of excess CO2 equivalent they have on their books. There is, apparently, at least one buyer in the wings for Forest NSW's abatement certificates once these receive accreditation. Another major entity is also poised to enter this suddenly booming market: Global forestry leader and carbon offset pioneer, Hancock Natural Resource Group (HNRG). According to David Brand, the Director of HNRG's Sydney-based New Forests Program, his company is likely to submit its application for accreditation sometime in early 2005. Hancock, however, has the advantage of established links to the Australian investment fund industry, and is already forest asset manager for a fund established specifically to capitalize on emerging environmental markets such as the NSW carbon market (see article at www.ecosystemmarketplace.com/news/article.feat.021.php). Although Australia is often written off internationally as a greenhouse laggard because of its government's widely criticized decision not to ratify Kyoto, there is nonetheless quite a bit happening on environmental markets down under. For instance, all of the players spoken to by Ecosystem Marketplace were adamant that there is a lot of international interest in Australia's up and running mandatory emissions trading market, even if it is so far confined to just one State, NSW. Penny Baalman, the Forests NSW Carbon Investment Analyst, told the Ecosystem Marketplace that "NSW will have the first operational mandatory GHG Scheme anywhere in the world, and one of the few that immediately includes forest sinks as an abatement sector." She adds that, "Rules under Kyoto and otherwise have to a large degree placed forest sequestration in the 'too hard basket' and there are a number of elements with regards to forest sinks that pose reasonable challenges when a Scheme and/or market wants to ensure the integrity of removal or sequestration credits. "Through my interaction with two of the major international standardization organizations -ISO and the GHG Protocol- and from tracking other early national and regional schemes, the NSW Scheme appears to now be gaining recognition for leading the pack in many ways." This Australian leadership is nothing new. Already several years ago, a team at Forests NSW -then led by David Brand- was quick to realize the long term potential for forest-based sequestration, provided that itwas based on trusted standards and credible science . This early work was then followed by several attempts to set a standard for Kyoto compatible Afforestation-Reforestation projects within Standards Australia. Baalman, who was involved from the beginning with the setting of the interim Australian standard (AS 4978 Interim 2002 – Carbon accounting for Greenhouse sinks), also helped feed the results of that work into the ongoing development of similar instruments at the international level (e.g. portions of the ISO 16040 series on measuring, monitoring and reporting emissions). These are the standards that are used to certify and accredit projects and providers within the NSW GHG emissions trading scheme. According to Baalman, one of the key issues related to forest sequestration and accreditation in any trading system is how to ensure that sequestration is considered as credible as other forms of emissions reductions. In NSW, this issue is dealt with by being extremely conservative in the amount of sequestration credits than can be claimed by any given forestry project. Specifically, the NSW scheme requires that for any accredited project there be an audited probability that the actual carbon sequestered has a 70 % statistical probability of being greater than or equal to the carbon claimed. This, say observers, is essential to make sequestration as credible as competing efficiency and demand reduction based abatement certificates. Overall, the NSW scheme works because the government requires that major power producers, energy distributors and some major industrial users reduce their emissions to a set benchmark or pay a penalty per tonne of excess emissions. To do this, they can purchase abatement certificates from accredited providers. By this means, NSW plans to reduce power related greenhouse emissions down to 7.27 tonnes per capita by 2007, and then hold the per capita emissions constant until 2012,. The NSW Government Independent Pricing and Regulatory Tribunal administers the system and registers ownership of the certificates but does not trade them. Apart from internal trading – many companies in effect need certificates and have options to create them – trading is carried out directly between parties or through brokers. Because companies can claim tax credits against the purchase of abatement certificates but not against the payment of penalties, the certificates can trade at a premium over the penalty and a broker statement perused by EM shows this is currently the case for both spot and forward prices. One of Australia's foremost Greenhouse scientists, and the newly appointed head of the Australian Conservation Foundation, Ian Lowe, believes that "these sorts of schemes, if they are handled well, can be win-win-win because they can achieve other objectives like reducing soil salinity, reducing erosion, providing shade and improving biodiversity as well as soaking up carbon – but the crucial thing is to ensure that the carbon stays locked up," he said. It is a concern echoed by NSW Total Environment Centre director Jeff Angel, who has been involved in the consultations over the NSW scheme. "There is a level of risk in forests, they can for instance burn down," he said. Angel said another concern was that forestry sinks should be biodiverse, and not monocultures. But the main issue conservationists had with sequestration was that it could "be an easy way out for business as usual". As one of the technical specialists, Baalman said she sometimes felt like "the meat in the sandwich" between environmental NGOs and industry – particularly at the international level. "I don't think it's possible to make all members of such diverse interest groups such as these 100% happy," she adds, "but I think both (the Australian and the emerging International) Standards have achieved an acceptable level of consensus." It is also a fast moving field. Work on new or extended standards continues in both Australia and internationally and all players are concerned to maintain a sufficient level of consistency to entertain national or international markets. CO2 Group's Andrew Grant believes that there are reasonable prospects that the New South Wales sequestration credits will one day be valid outside Australia "because it just doesn't make sense to exclude Australia from participation in any market." He adds that even the emergence of bilateral markets with the US -another country that refuses to ratify the Kyoto treaty- would be better than no market whatsoever. He further notes that the Premier of NSW, Bob Carr, "has stated he would like to link his scheme with other international schemes, if at all possible." In the shorter term, prospects of a wider carbon market developing within Australia continue to pick up. Earlier this month, the Premier of the country's second most populous State, Victoria, again called on the Federal government to set up an emissions trading scheme and committed his State to work with other States to set up a proxy national scheme in the absence of Federal government action. But a study conducted for the Victorian government said it would not be economic for the State to go it alone with an emissions trading scheme. The announcement made no direct mention of Victoria signing up to the NSW scheme, but both Premiers have previously expressed interest in exploring options of independently participating in international emissions trading markets. (note that the next major milestone will be an announcement from the Inter-state working group on the state-based approach early next year, which is rumoured to be announcing that the states will move into a detailed design phase for the state based emissions trading system. In the meantime, Baalman and her Australian technical colleagues monitor international developments for mutual consistency and say they would like to ensure that there are as few impediments as possible to an eventual linking of any Australian emissions trading scheme with other emissions markets at the international level. She notes, for instance, that Australian work on setting carbon accounting standards was among the source materials for California's Climate Action Registry (CAR) (see article at www.ecosystemmarketplace.com/news/article.feat.031.php) Nevertheless, she does see several key differences between these two systems, the only two that tackle the issue of forest sequestration directly:

  1. NSW allows only afforestation/reforestation projects, while California adds two conservation categories.(actually there is an 'improved forest management' category and an 'avoided deforestation' category in California.
  2. NSW requires reporting of the greenhouse gas emissions associated with the project, while the equivalent rule in California allows either entity or project based accounting.
  3. NSW uses the Kyoto definition of reforestation and the 1990 start date, while California's equivalent definition is "restoration of native trees on areas that were not treed for at least 10 years."
  4. Both schemes use different measures to account for uncertainty

Despite these differences, Baalman stresses that, in practice the California and NSW rules "are fundamentally quite similar". In other words, as rules and regulations for including forest-based sequestration in any GHG emissions trading scheme are developed independently in places like Australia, California, and Europe, there is still hope that the schemes will be sufficiently similar to one day allow for harmonization and trading across the various countries. If and when that happens, CO2 Group Ltd, Forests NSW, and Hancock Natural Resources Group, could be well placed to capitalize on emerging opportunities. Phil Dickie is an Australian freelance journalist who can be contacted through www.melaleucamedia.com.au

Cool Kyoto country generates internal heat

Australia's ruling Coalition government and their leader, Prime Minister John Howard, won a fourth straight election victory on October 9. The conventional wisdom holds this is bad news for climate change and for Australia's participation in the Kyoto Protocol. But the electoral campaign, as well as changing attitudes from businesses and farmers, have meant that the issue of climate change has remained very much at the forefront of the national political agenda. Don't be surprised if emissions trading takes root on what is seemingly infertile soil. The Ecosystem Marketplace digs a bit deeper. On October 9, 2004 Australian voters cast their ballots in a national election that was crucial to the country's ratification of the Kyoto Protocol. In the end, the ruling Coalition, lead by current Prime Minister, John Howard -considered by many the anti-Kyoto candidate- won a fourth term. Initial reactions will be that that, from the perspective of Australia ratifying Kyoto, this is bad news. But despite this outcome, there are indications that Australia may move rather quickly on issues of climate change, even moving towards a national -or at least quasi-national- greenhouse gas emissions trading scheme within the next two years. Already one of the largest and most influential states, New South Wales (NSW), has an emerging carbon market, and several other states are looking into setting up similar markets. During the election campaign, the political positions broke down along very distinct party lines: On one side of the electoral debate stood the incumbents, the conservative Coalition. They fell squarely behind the US and, some say, behind large energy and coal businesses, in repudiating the Kyoto Protocol, arguing it "wasn't in the country's national interest." On the other side stood the Australian Labor Party (ALP) which held that Australia was squandering an important opportunity by not signing up to the Kyoto Protocol, particularly now that its entry into force is imminent (it will enter into force if Russia ratifies the convention, which is expected by the end of 2004). Now that Howard has been re-elected, it is a fair bet to say that Australia will not ratify the Kyoto Protocol any time soon, despite the fact that during the Kyoto negotiations the country was given a comparatively lenient target; while other countries are forced to reduce emissions as compared to their 1990 levels, Australia was allowed to emit an extra eight per cent over and above the 1990 levels by 2008-2012. Interestingly, although the Howard government has steadfastly refused to ratify the protocol, it has nonetheless committed to meeting the country's Kyoto targets. To do this, the Coalition government relied on voluntary codes of conduct, audits and 'dialogue'. The exception to this light regulatory hand was the Mandatory Renewable Energy Target, which commits the country to a nominal 2% increase in the proportion of renewable energy between 2002 and 2012. Some argue that even this is a very low hurdle, since in real terms, a sharp rise in energy production means it now works out to far less than that. For the last decade, despite growing scientific consensus on the human-induced impacts on climate, despite the increased droughts, fires and flooding rains in this driest of inhabited lands, governments made up of both major parties have made some effort in the renewable energy and energy efficiency sector, but have otherwise indicated that high greenhouse gas pollution is the price of progress. But in the last two years the pace for climate policy change has been picking up. Led by Greg Bourne, the then regional president of BP Australasia, a group of influential businesses, including Shell, BHP, Origin Energy and Westpac Bank launched a late 2002 assault on the conservative party's "No Kyoto" policy. They attempted to do this through the influential Business Council of Australia (BCA), a group that brings together the country's largest businesses. And their goal was to push for a progressive stance on climate change, including the ratification of the Kyoto Protocol, as well as a national system for greenhouse gas emissions trading. In the end, they spent six months trying to wrest control of the agenda from the dominant Kyoto skeptics that, according to climate campaigner Anna Reynolds of Australia's Worldwide Fund For Nature (WWF), included companies such as mining giant Rio Tinto, mining and chemical giant Orica, and aluminum giant Alcoa. Stewart Murrihy, a spokesperson for Orica, denied that his company had taken a position in the policy debate surrounding climate change that took place within the BCA. "Orica," he says, "as a company, has in the past exceeded and is currently exceeding the 'Kyoto targets' and, with substantial effort and expenditure, we expect this trend to continue. Thus, we don't see greenhouse gases [GHG] as a specific issue requiring 'activism' by us because we have taken on board the need to address GHG emissions. Notwithstanding this, we support a focus on technology as a solution to GHG. In general terms, we would favor a carrot (support for technology) rather than a stick (punitive regulations) approach." Neither Rio Tinto nor Alcoa would respond to questions on the matter. Whatever happened internally, the brawl resulted in a climate neutral policy for the BCA. Katie Lahey, the head of the BCA, said that the organisation's members were "unable to reach a common position on the Kyoto Protocol", because of "a lack of definitive information about the protocol's impacts and opportunities for business, as well as divergent views among the membership." Meanwhile, the Australian government before the election was having its own problems with climate change policy. One part of government, the Australian Greenhouse Office had for some time been busily working on a carbon emissions trading model, when it narrowly survived a proposed budget slash. At the same time, a Climate Forward Action Plan was prepared, but never released. The Federal Government had also convened an Energy Taskforce round table that considered all of Australia's energy policy, including issues related to climate change. Sources within government tell the Ecosystem Marketplace the inclusion of a national carbon emissions trading scheme was put to the Prime Minister by a number of influential Ministers including Treasurer Peter Costello (who is seen as the most likely successor to Prime Minister Howard), Industry Minister Ian McFarlane, as well as the then Environment Minister, Dr David Kemp. Costello's office would neither confirm nor deny any such discussion. The same sources also say that, at around the same time, Dr Kemp put up a proposal to dramatically increase the Mandatory Renewable Energy Target. This proposal, and the proposal to prepare a national greenhouse gas emissions trading scheme were rejected. Instead, the Energy Taskforce released in July a document entitled Securing Australia's Energy Future. This was well received by the more resource- and energy-intensive sectors of the economy, but was sternly condemned by conservation groups, as well as the renewable energy and green business sectors. The document focused on coal as the long-term energy future of Australia, and encouraged geo-sequestration of carbon dioxide underground as a key strategy. Increases in renewable energy targets were rejected. In the end, although he made a valiant attempt to defend the statement, Dr Kemp ultimately resigned from Parliament shortly after the document's release, ostensibly "for family reasons". The Energy Statement itself sets no longer term national goals for reducing carbon emissions, preferring instead to focus new funding (up to AUS$500 million) to leverage private sector support for low emissions technology. For every two dollars spent by the private sector, the new program gives a dollar. This is the sort of fund that, according to Mark O'Neill, head of the Australian Coal Association, is "essential" to develop the technology. The statement also requires the top 250 emitters to report results of energy audits. Overall, it could be described as gentle encouragement for emissions reductions rather than offering any sort of systemic push for change; lots of carrots and very few sticks. In the run-up to the elections, the Opposition, the centre-right Australian Labor Party (ALP), made much of the policy difference between them and the ruling Coalition Government on climate change issues. In reality, however, the ALP faced a significant dilemma: On the one hand they promised to sign Kyoto, introduce a national greenhouse gas trading scheme, apply federal environment laws to greenhouse gas emissions, and increase the mandatory renewable energy target. On the other, they are highly supportive of the emission-intensive coal industry. Given the election results, they have three years to work through this paradox. Currently, the two major parties in Australia seem to believe that "clean coal" and geo-sequestration are the tickets out of the emission and non-renewable fuel dilemma in Australia. This, despite the fact that geo-sequestration (in this case injecting carbon dioxide into geological formations) can be highly expensive, is largely theoretical, and may not deliver positive results for up to 15 years. Although there are obvious difficulties, geosequestration and "clean coal" continue to be the solution of choice clung to by the coal industry, many businesses, and most of the influential politicians and government officials. Still, the recently re-elected Coalition Government faces a growing problem; not from left field, but rather from the fields of Australia's farmers. The junior partner in the conservative Australian Government is the National Party, whose power base lies in the large Australian farming sector and is exemplified by the National Farmers Federation (NFF). The NFF contribution to the climate change debate has, until recently, lined up with the climate change skeptics: disbelief in the science and strong resistance to significant Kyoto-friendly policy changes. But earlier this year, the NFF suddenly shifted their stance on climate change when they issued a feeler in February calling for more research into the matter. They followed this with a high profile statement, given by NFF President Peter Corish on August 4, 2004, acknowledging that Australian farmers have suffered through far too many droughts recently to continue holding out against the mounting evidence of a shifting climate. "Possibly the biggest risk facing Australian farmers in the coming century," said Corish, "is that of climate change." He added: "Climate change predictions for South-Eastern Australia forecast more frequent extreme drought events, higher temperatures, lower rainfall and possibly increased evaporation as a result. The implications of such changes for agricultural production, particularly cropping, are obvious and we must take action to manage the business risks that are posed by these changes." And, while significant political power bases like the NFF are slowly coming around to the realization that climate change is real, climate campaigners such as WWF's Reynolds have been gathering academics, scientists, and businesses in an attempt to exert pressure on federal government policy. She says that the 2002/3 machinations within the Business Council of Australia over the Kyoto policy "shocked" the participants who expected the policy to go beyond the neutral stance. "That very personal intervention" she explains "has meant that the greener businesses are now much more organised". But they aren't necessarily pushing policy through the BCA. And, she adds, the stance has gotten stronger. "Initially," she says, "the business push was led by people interested in carbon sinks and trading." Now, she notes, it is people interested in pushing for deep cuts that are taking the lead. Reynolds believes that now that there is "a stronger recognition that impacts are upon us", she believes it is the next logical step. Adding to the pro-Kyoto push, the former head of BP, Greg Bourne, one of the climate change policy leaders, retired and is now CEO of WWF Australia. Taking his place as the pro-Kyoto advocates within business are some of the large insurers. Their views are nicely summed up by Dr Ian Wood, Senior Research Analyst with AMP Capital. "In industry," he says, "competitiveness and advantage depends on projects having relatively cheap forms of energy. Our coal industry's competitive advantage may change depending on their response" to the global changes. He adds: "The financial community such as AMP Capital are starting to realize that climate change is an emerging risk issue for institutional investors because, if it affects the companies they invest in, it affects the returns." And, he concludes, the climate change problem isn't only about risks, it is also about seizing opportunities. While high emission companies pose risks for institutional investors, those companies who are prepared can take part in emissions trading schemes, and otherwise deal with new climate-related regulations more effectively. In the end, he says, a fully international greenhouse gas trading scheme is probably inevitable. Further prodding Australia's climate change envelope, in July this year WWF's Reynolds convened a Climate Action Group (CAG) made up of eminent people, including the chief risk officer of Australia's largest insurer, the Insurance Australia Group, and CSIRO's former chief atmospheric scientist, Graeme Pearman, among others. They are in favour of slashing Australia's greenhouse emissions by 60% by 2050, and have called for emissions trading by 2007. The Climate Action Group even entered the pre-election fray, issuing a joint letter signed by 41 business, academic and community leaders, including insurers, investors and renewable energy and energy efficiency companies. In that letter, they wrote: "Australians look to Federal and State Governments to work together to create an action plan that meets community expectations of the Government's role to develop a safe, secure, economically sound and competitive future that is underpinned by a healthy environment. Australia needs a long-term strategy to reduce greenhouse gas emissions by at least 60 per cent by the middle of this century. And it isn't just insurers and other businesses that are pushing the Australian government to do more. Many of the Australian States and Territories have decided to take matters into their own hands. Looking at the potential of carbon markets, an intra-state working group has been set up to put together a multi-jurisdictional model for a greenhouse gas emissions trading scheme among several of the Australian states. There is even talk of an Australian multi-state emissions trading scheme exchanging credits with the EU Emissions Trading Scheme (ETS) that is set to be launched in January of 2005. The details surrounding such a scheme are still very sketchy. A spokesperson for Queensland Energy Minister, John Mickel, would only go as far as stating, "At this stage, the type of model is still under discussion. However, issues such as consistency with the Kyoto Protocol and overseas countries would need to be considered." Once the model is agreed, they face the tough issue of targets, time frames and allocating permits. And, even if all of these are solved, without the ratification of Kyoto, there is no guarantee that the scheme would be able to trade with other countries. Meanwhile, in NSW – the first and still the only state with a greenhouse gas trading scheme (targeting electricity retailers)- a proposal for a new coal fired power station in the Hunter Valley was rejected on climate change grounds; a first for Australia. In other words, while the re-election of John Howard almost certainly means that Australia will not ratify the Kyoto Protocol anytime soon, there is movement on the issue of climate change down under. Indeed, the smart money is probably betting on some form of greenhouse gas trading at the state level sometime soon. For the time being, however, the anti-Kyoto faction still holds power, but they are fighting a losing battle, and they are going to have to fight increasingly harder as the issue -quite literally- heats up. Susan Brown is an Australian writer specialising in environment, governance and other policy issues. She can be reached via www.melaleucamedia.com.