Tag: Special Interest Science Research

Brazil is at the forefront of a debate between those advocating the use of the carbon markets to save tropical rainforests, and others insisting that national and international funds should do the work. Ecosystem Marketplace looks south to find where the two camps are finding common ground.

Second in a series leading up to the 14th Katoomba Meeting in Mato Grasso, Brazil.

25 February 2009 | When the Katoomba Group gathers in Mato Grasso, Brazil for its 14th meeting in early April, it will find itself at the crux of a vital disagreement over how best to protect existing forests.

On one hand, we have the host Brazilian state of Mato Grasso, which contains some of the most threatened rainforest in Brazil. Last November, Mato Gasso signed a historic agreement with the US state of California to jointly pursue the generation of carbon credits to fund forest protection. The two joined five other developing states as well as the US states of Wisconsin and Illinois to develop the world’s first sub-national projects designed to Reduce Emissions from Deforestation and Degradation (REDD).

On the other hand, there is the host country, Brazil, which encompasses the forests of Mato Grasso and much more. The Brazilian government has publicly opposed funding forest protection efforts through a carbon credit generating mechanism such as REDD. Instead, it has actively courted donors for the Brazil Amazon Fund, a mechanism to protect forest cover that relies on contributions from countries and organizations.

This gap between the state and the federal government hints at a long-running rift in the forest protection crowd: Should forest-rich governments depend on donations from public and philanthropic sources to support protection efforts? Or should they seek to enter financial markets and let investors subsidize their work?

For a long time, many of the world’s leading conservation organizations remained as divided over the issue as the Brazilians.

Organizations like the World Wildlife Fund opposed focusing on the carbon market.

Staffers observed the well-chronicled problems in the European carbon markets and doubted these mechanisms had the muscle to fund effective reforestation efforts.

Plus, marketing forest protection as a commodity came with its own host of well-explored challenges.

“There wasn’t a system to measure forest degradation,” says Christine Pendzich of the World Wildlife Fund’s Forest Carbon Network Initiative. “You didn’t know what your baseline was and you couldn’t measure reductions (from forests).”

Meanwhile, organizations like Environmental Defense Fund (EDF) argued that private markets couldn’t be dismissed, because public donations would never be equal to the task.

“If the only way we think we can avoid deforestation is by the US Congress allocating funds, that’s not realistic,” says EDF’s Gus Silva-Chí¡vez. “We clearly see a huge problem with non-market funding.”

Now, outside of Brazil at least, this policy divide seem to be collapsing.

By the end of this year, delegates to the 15th United Nations Climate Change Conference in Copenhagen (COP-15) plan to have made final decision about forest protection’s place in the global compliance carbon markets, and players seem to be lining up under a shared reality: both mechanisms will be necessary to save the worlds’ forests and slow climate change.

“We are going to need a lot of money,” says Pendzich of the WWF, which has abandoned its opposition to using the carbon market to help protect forests. “We’re going to need it from many sources. No one funding source is the solution.”

“The old way of market versus non-market is unrealistic,” says Silva-Chí¡vez of EDF, which has dropped its opposition to non-market funding.

Now, EDF supports the kind of spending that helps pave the way to sell emission reductions from forestry initiatives.

“What we need to do is create the right set of incentives for developing countries to start getting money to get them ready for the market,” says Silva-Chí¡vez.

And so it seems the outlines of a consensus could be emerging: use non-market funds to lay the groundwork for an eventual market-funded incentive system. Employ philanthropic dollars and government money to prepare countries around the world to sell emissions reductions from forestry.

Now, the debate has shifted to what kind of non-market spending is needed to pave the way to REDD’s entrance to the carbon market – and how it should be done.

Capacity-Building

The most common answer you’ll hear is capacity building. That means doing to the fundamental dirty work that would provide the fundamental guarantees for any carbon market. And it is not the type of expense that really interests many investors.

“You have to have regulations, property allocations. Who owns this carbon? People want to know that,” says Pendzich. “It’s a whole big rural planning exercise once you start looking at it.”

Since Bali, a number of initiatives have begun to work with developing countries on this front.

The World Bank’s Forest Carbon Partnership Facility is working with thirty developing countries on capacity building, using $169 million pledged by eleven industrial countries to support the effort.

The United Nations has an entity called the UN REDD Programme Fund that has $35 million dedicated to capacity building as well.

It is also happening country-to-county. Earlier this month, Norway and Guyana announced a partnership where Norway will fund the South American country’s efforts to fight deforestation and prepare for the REDD markets.

But the sheer number of initiatives begs the question: Is this effort being properly coordinated?

“I think that’s one of the real problems,” says Silva-Chí¡vez. “You run the real risk of throwing money without knowing where it is going.”

Demonstrating Upside

Climate Focus director Charlotte Streck sees another problem with the widespread focus on capacity-building. It misses perhaps the most important role that non-market funding can play in jump-starting the market: demonstrating to countries a sense of what they have to gain.

“In Brazil, you have the political commitment,” says Streck, “but in tropical countries you don’t have a widespread commitment.”

For Streck, that means providing money to help developing countries choose their own consultants. It means investing in studies that can speak in economic and policy terms to the impact of this revenue on their budgets.

“It’s not a problem of monitoring, it is a problem of development,” she says. “People need to understand the benefits. That is a much more ambitious undertaking, but I think it is absolutely essential.”

Funding Demonstration Activities

While most non-market funding focuses on training governments, a new effort is focusing on training carbon market actors in developing countries.

Conservation International is in the pilot testing phase of a fund (a two-page overview PDF can be accessed here) designed to support field-based carbon demonstration activities.

The fund’s focus is on supporting the local communities and developers as they attempt to make “investment-grade” carbon projects in advance of investor demand.

“If you look at the more than 100 forest carbon projects and some REDD projects, they are all underfunded because they are living hand-to-mouth,” explains Ben Vitale, Managing Director of CI’s Conservation and Community Fund. “They can’t find the money to get through PDD (Project Development Document), verification and project start-up. We see that there is a gap in funding.”

Vitale says CI has raised a “significant sum” from a range of donors to support these efforts.

Meanwhile, Back in Brazil

So what to make of the conflict in Brazil? In one sense, the disagreement is unique to the country, but in another sense it could portend the future for the rest of the world.

Brazil, after all, is one of the few places where capacity building is relatively advanced. The Brazilians have established solid baselines and monitoring efforts for their forests.

In that respect, the national government isn’t an uneducated youngster, passing the hat to get schooled in the carbon market. It’s more like a college graduate with a sophisticated critique.

“They are concerned that industrial countries will remain at the status quo while Brazil does all of the work,” says Anthony Anderson, who is stationed in World Wildlife Fund’s Brazil office.

Instead of making binding commitments to future reductions, which would be required in the carbon markets, the Brazilians would prefer to take donations to support their protection efforts. These donations have performance benchmarks for future funding (i.e. no reductions, no more money) but they won’t make Brazil legally responsible if emission reductions don’t occur for any number of reasons, from poor management to rapid deterioration of the world’s climate.

Could other countries start making the same demands once they’ve learned the carbon ropes? Or will it be Brazil that falls into the fold?

With Brazil’s own states courting the carbon market, a resolution will be necessary.

“There’s going to have to be some kind of meeting of the minds on this,” says Anderson. “The Brazilian government has been known to change its mind in the past.”

Ted Rose is the principal of Rose Carbon LLC, which consults with companies and organizations on the renewable energy and carbon markets. He is based in Boulder, Colorado, and can be reached at [email protected].

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In the classic comedy The Producers, an unscrupulous businessman sells one product to scores of investors, each of whom believes they are the sole owner. In ecosystem markets, we call that “double counting” – and it’s what registries have been set up to prevent. Ecosystem Marketplace takes stock of carbon credit registries in the voluntary markets.

24 April 2008 | Max Bialystock is the carbon sector’s worst nightmare. He’s the character who, in the Mel Brooks classic The Producers, persuades scores of investors to back a single stage play – each thinking they own the whole deal.

The scam collapses, of course, and Bialystock ends up in jail – as well he should. Investor confidence is the cornerstone of any financial market. When that conficence suffers, we all lose.

And nowhere is that more true than in the market for environmental offsets.

After all, these are units of trade that represent verified economic good, and the amount of environmental good they create depends on that verification.

Carbon credit registries that track credit ownership are a cornerstone of that verification.

Registries: Public, Private, and In-Between

Here we take a look at registries that have been set up to track offsets in the voluntary carbon markets, but registries are by no means limited to this one sector. They have also been set up for compliance markets, such as the European Union Emissions Trading Scheme (EU ETS), which was designed to meet the needs of companies seeking to comply with the Kyoto Protocol.

Kyoto’s Clean Development Mechanism (CDM) has links to its own established registries, as does Australia’s New South Wales Greenhouse Gas Abatement Scheme (NSW GGAS).

In 2007, we found that many participants were utilizing their own organization’s specific registry – some of which are public. For example, the Carbon Neutral Company created its own type of online registry, which posts detailed information on projects contracted. Dom Stichbury of the Carbon Neutral Company notes that the company does not see its private online registry as a substitute for a third-party, multi-company registry. Instead the “registry was created to be as open as possible about the projects that we’ve contracted … and to contribute to increased transparency in the voluntary markets.”

In the latter part of this article, you will find links to all of the registries covered.

Emissions Tracking versus Carbon Credit Accounting

Dozens of greenhouse gas (GHG) registries exist around the world, and most of them can be divided into two different categories: emissions tracking registries and carbon credit accounting registries.

Emissions tracking registries identify emission reductions at the source, leaving others to track the credits once they enter the market.

“We’re measuring the beans, not tracking the trades,” says Joel Levin of the California Climate Action Registry (CCAR), an emissions tracking registry.

Because these registries help companies establish baselines and account for emission reductions, they’re a critical tool for both regulated and voluntary cap-and-trade systems.

Among emissions tracking registries up and running, the World Economic Forum has launched its Global Greenhouse Gas Registry, while Canada has the Canadian Greenhouse Gas Challenge, and the United States has the Department of Energy’s 1605(b) Program and The Climate Registry.

Carbon credit accounting registries, on the other hand, are designed specifically to “track the trades” – to follow the ownership of verified emission reductions (VERs) after they start getting bought and sold. Many carbon credit accounting registries utilize serial numbers as an accounting tool, and most incorporate screening requirements such as third-party verification to a specific offset standard.

Carbon credit accounting registries include the Bank of New York’s Global Registry and Custody Service, verifier TÃœV SÃœD’s BlueRegistry, and the New Zealand-based Regi (not to be confused with the US Regional Greenhouse Gas Initiative, or RGGI, pronounced “Reggie”).

Other registries are designed to underscore an exchange, such as the Chicago Climate Exchange (CCX) Offset Registry and the Asia Carbon Registry.

Then you have registries created by suppliers, such as the Carbon Neutral Company, as well as those created by third-party standard organizations, such as the Gold Standard Voluntary Registry.

The Environmental Resources Trust’s (ERT) GHG Registry and California Climate Action Registry cover both categories, tracking corporate emission reductions and carbon credits.

Carbon-Credit Accounting Registries: The Architecture

Registries themselves face the quandary of how to make sure they can trust the information they are receiving. Some focus on transparency, while others focus on levels of legal liability. Still others look at the “ethos” behind how reporting companies are contributing to the voluntary carbon marketplace.

This has led the registries to embrace different standards.

TZ1, for example, is a carbon registry and exchange based in New Zealand. Set to launch in June, it will accept credits verified to the Voluntary Carbon Standard and perhaps the Gold Standard.

TÃœV SÃœD’s Blue Registry, on the other hand, only lists credits certified to the VER+ standard, but plans to extend its registry services to encompass a wide array of different standards, such as the Voluntary Carbon Standard, Chicago Climate Exchange Standards, and the Gold Standard.

The Bank of New York’s Custodial Registry only accepts credits certified to the Voluntary Carbon Standard, and ERT’s GHG Registry doesn’t specify whether or not registered credits are screened by a specific standard.

The majority of greenhouse gas registries are designed as public or partially public databases. For example, stakeholders interested in tracking the sales or purchases of a particular company registered on the Environmental Resource Trust’s GHG Registry website will find that most of the information is publicly-available.

Alternatively, the Bank of New York registry is structured less like a public database and more like a bank account – something Alex Rau of Climate Wedge says is critical to many investors.

“Would you want your bank account open to the public?” he asks.

Getting Registered: The Costs

The cost of listing credits on an OTC registry varies widely, and is often difficult to pin down – especially when you factor in the way different registries bundle their services.

ERT’s registry process, for example, costs more than Regi’s and plenty of others, but often includes third-party verification, while Regi only accepts credits that have passed inspection by a certification service.

The Registry Roster

Here is a brief run-down of registries either up and running or in the works:
The Asia Carbon Registry (ACR) was developed in 2007 by the Asia Carbon Group (ACG), which provides carbon advisory, finance and asset management services under several different initiatives, primarily the Asia Carbon Exchange (ACX) and the Asia Carbon Asset Development Facility. The Registry plans to accept a variety of carbon credit types, including Voluntary Carbon Standard and Gold Standard credits. Currently, however, voluntary credits traded on ACX are simply third-party VERs. The scope of registry services includes electronic listing, transferring, and eventually retiring VERs.

The Environmental Resources Trust (ERT) GHG Registry is a relatively long-standing registry. Created in 1997, it tracks both “qualified emissions reductions” and actual carbon credits. Both buyers and suppliers can register credits, which they can either re-sell or retire.

In mid-2008, Canada’ Globe Advisors plans to launch the Globe Carbon Registry, which attaches serial numbers to offset credits and uses them to track ownership transfer and retire credits against end-users emissions. It’s designed around accepting credits verified to a third party standard, but will also accept credits verified to a ‘custom standard’ and provide users information on the criteria utilized.

The GHG CleanProjects Registry‘s chief objective is to list and de-list GHG reduction projects that result in Verified Emission Reduction-Removal credits (VERRs) for the voluntary and regulated markets. Participants in this Canadian registry may attach a unique serial number to each VERR representing one tCO2e. Because the GHG CleanProjects Registry is structured to track projects rather than serve as an accounting tool, however, serialization of verified emission reduction volume is not required. The VERR classification requires adherence to the ISO 14064 standards adopted in March 2006.

New Zealand’s new online voluntary carbon offset registry is a project of M-co and hosted by Regi. While the website is tailored to players in New Zealand’s voluntary carbon market, it will also consider foreign account requests on a case-by-case basis. The online registry was created to get a feel for how much demand exists in New Zealand’s voluntary market. Gold Standard credits are issued on a provisional basis until the Gold Standard Foundation establishes a Gold Standard Registry, upon which all of the information on Regi will be transferred to APX, which administers the trading platform. Regi has a high level of transparency, and the general public can visit its website and view the Certificate Summary Listing, which identifies the offset provider, project name, credit type and volume, and transaction status.

The Triodos Climate Clearing House is a project of Netherlands-based Triodos Bank, which focuses on financing “enterprises which add social, environmental and cultural value”. It claims to track”CO2 credits in a transparent, accountable and efficient manner.” The organization does not explicitly state a requisite for third party verification or certification, but it does state that qualified projects include activities involving “afforestation, renewable energy and energy efficiency” and was created, in part, to assure that credits cannot be double counted. Account holders include the Carbon Neutral Group and the Dutch Face Foundation.

The upcoming TZ1 Registry was created to underpin the TZ1 Carbon Exchange. It aims to act as a “meta registry” that combines and connects the systems of other major voluntary carbon market registries. Credits will be assigned a serial number. In addition to tracking trades, the registry will also include an externally-audited retirement facility for both VERs and Kyoto credits. Organizations listing information on the registry will be able to choose the level of transparency in their account.

Examples of Exchange, Standard, Verifier or Supplier-Specific Registries

Similar to other trading platforms operating in emissions markets, the Australian Climate Exchange (ACX) maintains an operational registry that facilitates transparent transactions in its “Electronic Emissions Trading Platform.” The “product listing process” that compliments the ACX Registry provides market participants with the ability to track emission credits along the supply chain, from project generation, offset verification, transaction status, and eventually retirement. Transparency is limited to ACX participants, but ACX is in the process of establishing trade mechanisms to facilitate international transactions of CERs and VERs.

The Bank of New York’s Global Registry and Custody Service for Voluntary Carbon Units was created to become a means of accounting for Voluntary Carbon Standard Voluntary Carbon Units (VCUs). It aims to streamline and legitimize the trading process of the standard’s VCUs. This centralized, electronic, and private accounting system stores VCUs, assigns each a unique serial number for tracking and verification purposes, and provides clear parameters for defining account ownership. The registrar requires certification under the Voluntary Carbon Standard and account information is not publicly disclosed.

TÃœV SÃœD, a German company that validates and verifies both Kyoto and voluntary emission credits, created the BlueRegistry. For now, the database only covers VERs certified by TÃœV SÃœD, but the goal is to become a “master” registry for voluntary carbon credits, including CCX CFIs and Voluntary Carbon Standard VCUs. The BlueRegistry is designed to be transparent, and will have publicly available information on factors such as credit-type, credit ownership and vintage.

The California Climate Action Registry (CCAR) was established by California law as a non-profit voluntary registry for greenhouse gas (GHG) emissions aimed at protecting and rewarding companies reducing greenhouse gas emissions before required by regulation. Building on its emissions reporting system, CCAR launched the Climate Action Reserve in April. A program designed specifically to track and register voluntary projects verified to CCAR Protocols, CCAR currently has approved protocols for livestock methane and forest activities and will soon release a natural gas transmission and distribution reporting and certification protocol.

The Chicago Climate Exchange registry is an accounting system for the CCX cap-and-trade program. Suppliers seeking to include their credits in the Chicago Climate Exchange’s (CCX) registry must first become members and then have their offsets approved by The CCX Committee on Offsets, which then assigns serial numbers to ensuing third party verified credits. Because the CCX system trades both emissions reduction allowances and project-based offset credits, the registry is both an emission reductions tracking program and carbon credit (in this case referred to as Carbon Financial Instruments) accounting system. The registry is somewhat transparent, providing publicly available information regarding the offset provider/aggregator, project type and location, as well as transaction volume.

In 2008, the Gold Standard Foundation joined forces with APX to create a registry that creates, tracks, and enables the transfer of Gold Standard certified VERs, ERUs, and CERs. The Gold Standard Registry for Voluntary Emissions Reductions aims to be a user-friendly, low-cost and transparent electronic database. Information about the status of credits (for example, if they are sellable or retired) can be accessed by stakeholders who register on the website. The registry features the serialization of each Gold Standard VER credit, a double-entry accounting framework, and full ownership and transaction tracking for VERs, CERs and ERUs.

Katherine Hamilton is the Associate Director of Ecosystem Marketplace. She can be reached at [email protected].

Thomas Marcello is a Research Assistant at Ecosystem Marketplace. He can be reached at   [email protected].

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One of the most contentious issues in the debate over how to tackle climate change is the role of REDD (Reducing Emissions from Deforestation and Forest Degradation) in market-based mitigation strategies. The Ecosystem Marketplace summarizes the key issues.

19 May 2008 | In 2007, more than 50,000 fires raged through the Brazilian Amazon, reducing what were once lush rainforests to charred plains stretching to the horizon. Meanwhile, on the other side of the world, fires on the island of Borneo consumed millions of hectares of old-growth forests.

Drenched by more than 75 inches of rain annually, neither the Amazon nor Borneo have ecosystems that are naturally adapted to fire. Instead, these fires were set with the express purpose of clearing the forest – to open the land for soy production and cattle farming in the Amazon and for palm oil plantations in Borneo. While fires consumed these forests harboring some of the world’s most diverse ecosystems, they released the carbon that had been stored in the trees’ woody matter for as much as 1000 years.

Land-use change, such as the conversion of Amazonian forests to industrial mono-crop agriculture, accounts for approximately 20% of global greenhouse gas emissions – more than the emissions from the transportation sector worldwide. The majority of these land-use change emissions come from deforestation in developing countries, where forests are being cleared for agriculture and timber. Currently, the international climate change community is considering how to create incentives for reducing emissions from deforestation and forest degradation – or “REDD”.

Forests and Carbon Emissions

Forests play an integral role in mitigating climate change. Not only are they one of the most important carbon sinks, storing more carbon than both the atmosphere and the world’s oil reserves, they also constantly remove carbon from the atmosphere through photosynthesis, which converts atmospheric carbon to organic matter.

But while forests are working diligently to clean up the carbon we have emitted through burning fossil fuels, deforestation is pumping carbon right back into the atmosphere.

The Drivers of Deforestation

Deforestation in developing countries is frequently driven by agriculture, logging, and road expansion. Rising prices for soy, palm oil, and beef make it increasingly profitable for landowners in developing countries to clear forests and convert the land to agriculture. Often, burning is the cheapest and easiest way to clear the land.

Contrary to popular belief, when logging occurs, only a fraction of the wood that is cleared ends up as dimensional lumber and eventually in housing and other structures. The majority of the forest vegetation ends up as waste, and thus the majority of the carbon from the forest ends up in the atmosphere.

And it’s getting worse as policies that expand road infrastructure provide access for loggers, farmers and homesteaders to the previously inaccessible forest interior.

Deforestation Highest in Indonesia and Brazil

Deforestation is not evenly distributed around the world. In fact, Indonesia and Brazil account for 50% of the world’s deforestation emissions. Because of these deforestation emissions, Indonesia and Brazil are ranked third and fourth among the top greenhouse gas (GHG) emitting countries. If Indonesia and Brazil were able to abate their deforestation, their ranking would fall to 15th and eighth, respectively.

The irony is that we normally associate high GHG emissions with development and increasing GDP, but the activities that drive deforestation generally have low economic returns. Thus, Indonesia and Brazil are among the top GHG emitters, but their emissions are from low-return activities.

Low-Cost Emission Reductions

Analyses examining the cost of REDD activities indicate that abating deforestation is one of the most cost-effective ways to reduce emissions. In their conservative calculations, the Intergovernmental Panel on Climate Change (IPCC) estimates that approximately 25% of deforestation emissions can be abated at a cost of less than $20 per metric ton of carbon dioxide (tCO2).

By comparison, the market price for carbon on the European Union Emissions Trading Scheme (EU ETS) was $35/tCO2 in the first quarter of 2008. It is important to note that the IPCC’s cost estimates are based on the opportunity cost of probable land uses and don’t include transaction costs such as monitoring, enforcement, and capacity building.

The Role of REDD

Given the magnitude of deforestation emissions and the low cost of abating those emissions, REDD is poised to play a very important role in the global strategy to abate GHG emissions.

“We cannot solve the climate problem if we do not include forests,” said Stuart Eizenstat in testimony before the House Select Committee on Energy Independence and Global Warming. A former Under Secretary of State in the Clinton Administration, Eizenstat now advocates the need to include market-based incentives for REDD activities in any future climate-change policy.

In addition to the benefits from reducing emissions, REDD activities can protect the biodiversity and important ecosystem services provided by tropical rainforests. Although Eizenstat and others see REDD as an opportunity to collaborate with developing countries to shore up a huge source of emissions at relatively low cost, there are no incentives to pursue REDD in any of the market-based mechanisms of the Kyoto Protocol.

Banishing REDD from Kyoto

In 1997, the Kyoto Protocol laid out target emission reductions and the different mechanisms by which countries could achieve those targets. In order to achieve target emissions levels, countries had two options: either take actions to reduce their own domestic emissions, or pay someone else to reduce their emissions and thus offset the country’s domestic emissions with reductions somewhere else.

The Kyoto Protocol established the rules and financing structures surrounding different types of offset mechanisms. At that time, the Parties to the Protocol excluded REDD from the offset mechanism because of uncertainties about the magnitude of deforestation emissions and the ability to monitor deforestation.

The Kyoto Protocol does recognize credits from reforestation and afforestation – the first being when you replant forests that have recently been chopped down or otherwise destroyed, and the second being when you plant forests that have either been gone for quite some time or never existed. Both can be used to generate offsets under the Kyoto Protocol’s Clean Development Mechanism (CDM), but only if they meet a narrow definition of success.

Because of their exclusion from regulatory markets, REDD credits have been limited to the voluntary market, where a handful of projects are generating credits. These credits are sold at a fraction of the regulatory market price to buyers concerned about reducing their carbon footprint for reasons other than compliance with the law, as documented in State of the Voluntary Carbon Markets 2008, published by the Ecosystem Marketplace and New Carbon Finance.

Bali: REDD Rising?

The outlook for REDD changed at the 2005 Conference of the Parties in Montreal. Costa Rica and Papua New Guinea, on behalf of the Coalition for Rainforest Nations, proposed to give developing countries access to the carbon market through credits generated from REDD activities. In response, the United Nations Framework Convention on Climate Change (UNFCCC) launched a two-year initiative to examine the potential of REDD. Those two years culminated at the 13th UNFCCC Conference of the Parties (COP 13) in Bali.

Officially, the Bali decision was quite modest. The Bali Action Plan formally listed REDD among other mitigation activities as a potential means to achieve emissions targets and encouraged voluntary action on REDD. The decision of whether and how REDD will fit into the international climate mitigation strategy was put off until COP 15 in 2009 in Copenhagen.

And yet, Bali was a turning point for REDD.

“Bali put REDD on the broader COP agenda,” explains Tracy Johns, Policy Advisor and Research Associate at Woods Hole Research Center. “Bali legitimized REDD as a tool for the UNFCCC’s broader strategy to mitigate climate change, and put it on the same track and timeframe as the post-2012 discussion.”

The Bali decision sent a signal that the international climate change framework will take on the problem of emissions from deforestation, but the financing mechanism is far from decided.

Still, the Bali decision encourages capacity building and the development of pilot projects. By ameliorating some of the uncertainty about the future of REDD, the Bali decision encourages developing countries and project developers to begin investing in REDD activities.

Three Shades of REDD

Broadly speaking, you can break all REDD activities into three categories: project-based, policy-based, and sectoral.

Project-based REDD activities would generate credits based on the maintenance of carbon stocks in a localized area.

Many of the current REDD projects focus on forest conservation that creates reserves and parks to protect threatened forests. These place-based REDD projects preserve the carbon stocks on a parcel of land that otherwise would be deforested.

Policy-based REDD activities would generate credits by reforming land use policies in a manner that would lead to reduced deforestation.

Emissions from deforestation can be reduced by land use policies. Agricultural subsidies, for example, often create incentives to deforest, and transportation networks provide access to clear forests and remove timber. Reforming land use policy could lead to significant reductions in forestry emissions, just as reforms in energy policy are expected to reduce emissions rates in the electricity sector.

Sectoral REDD activities would generate market-based credits by reducing net deforestation rates over an entire country.

A country or province could take on an emissions cap in the forestry sector in which they would commit to a target emissions rate from forestry. For some developing countries, actively pursuing emissions targets in the forestry sector might be the most appealing and powerful way for them to participate in the global effort to mitigate climate change. Eizenstat points out that the voluntary participation in sectoral targets in the forestry sector could create “a model for other developing countries to take targets in other sectors, such as electric power or transportation.”

These three shades of REDD – project, policy, and sectoral targets – capture the different scales at which REDD activities could be implemented, and each have their own set of strengths and weaknesses.

An Argument for Every Shade

Project-based REDD activities could be modeled after the forestry CDM, and there are a number of project developers ready to begin investing in REDD projects. However, the CDM model has its strengths and weaknesses.

Because REDD projects would be geographically-bound, they would be easier to implement than sectoral or policy-based activities. There are, however, also a number of technical challenge that must be overcome – such as minimizing and accounting for “leakage”, which is what happens when preventing deforestation in one place encourages it somewhere else. This is dealt with in more detail under the heading Technical Issues.

Further, emissions from deforestation account for 20% of global carbon emissions, and there is concern that there would never be enough REDD projects to have a meaningful impact on the large magnitude of emissions from deforestation.

In contrast to project-based activities, policies and sectoral caps that reduce emissions from deforestation may be better matched to the scale of the problem. Consequently, they would also require more coordination, and some countries don’t have a sufficiently strong central government or the proper governance institutions to monitor and enforce these programs.

In reality, countries currently have very different capacities on the ground to implement REDD activities. A climate change policy could allow a spectrum of REDD activities, creating incentives for countries to take actions at the most appropriate scale for them. All three shades of REDD face a number of technical and policy-design challenges that must be addressed to ensure an environmentally robust REDD mechanism. These challenges differ with each shade of REDD. For example, projects that maintain carbon stocks on a hectare of land would require different accounting mechanisms than sectoral caps that reduce emissions rates over a country’s entire forests.

Potholes on the Road to Copenhagen

Although uncertainties still linger, the technical sub-committee that focused on REDD for the two years leading up to Bali concluded not only that the magnitude of deforestation emissions was significant – approximately 20% of global emissions – but that sufficiently cost-effective methodologies exist for measuring forest carbon and monitoring deforestation.

Support of the measurement and monitoring methodologies was a significant first step in overcoming the technical challenges that face the implementation of REDD policies, but there are a number of additional hurdles (technical and political) that lie on the road from Bali to Copenhagen.

Technical Issues

Leakage means that preventing deforestation in one place might actually encourage deforestation somewhere else. It could, for example, take the form of the actual deforestation agents shifting their equipment and labor to a nearby patch of forest. But it can also be less direct. If REDD activities force up the market price of timber, livestock, and crops, they could drive deforestation somewhere else.

Unless all global forests are included in a REDD policy, leakage cannot be eliminated; however, it can be minimized through careful project design. Further, leakage can be accounted for by requiring that a percentage of a project’s REDD credits be held in reserve and not be sold (the so-called “buffer” approach). In this manner, the reserve account would offset or neutralize the leakage that was assumed to have taken place.

Concerns over permanence are rooted in the idea that emission reductions are potentially reversible due to forests’ vulnerability to fires, pest outbreaks, changes in management, and other natural and anthropogenic disturbances. However, the scale at which REDD activities are implemented affects the risk of impermanence. For example, as you move to policy- and sectoral-scale activities, credits would be generated based on net deforestation rates over some political jurisdiction.

As a result, you are not bound to maintaining forest carbon in any one specific location, and increases in deforestation in one place can be offset with reducing deforestation somewhere else. As you move to scale, there is greater flexibility in how land is managed, and there is greater impermanence in any specific site.

Too Much of a Good Thing?

Because REDD credits are expected to be relatively inexpensive, there is concern that a mechanism that incentivizes REDD activities will flood the regulatory market with cheap credits, deflating the price of carbon and shifting attention away from low-carbon technologies such as carbon capture and storage.

The realistic extent of this concern depends on the extent to which REDD projects can be implemented and begin generating credits. While the potential for REDD credits is high, it’s not clear how much of this potential could be realized in a timely fashion. In reality, because many countries need to develop on-the-ground capacity before they can begin generating REDD credits, fears of a deluge may be over-stated.

Even so, the decision about whether to include REDD credits in a cap-and-trade program cannot be separated from the negotiations about future emissions targets. More aggressive emissions reductions targets would neutralize any effects on the price of carbon.

Policy Design Issues

Even more challenging are the policy design issues that will decide the extent to which a REDD instrument will interact with the over-arching climate change mitigation strategy.

In 2005, the Coalition for Rainforest Nations proposed creating market based incentives for REDD activities – arguing that because market prices for agricultural goods drive deforestation in many countries, then international prices for carbon would drive forest conservation if REDD is allowed into a global carbon-trading scheme. This, they said, would offset the incentive to chop down forests for agriculture, while enhancing economic development.

Some countries, however, oppose linking REDD activities to the compliance carbon market and favor creating a fund where REDD activities would be financially rewarded. Proponents of the fund approach argue that linking REDD credits to the carbon market will delay the transition of developed countries to low-carbon technologies and will restrict developing countries in their ability to reform land use policies.

Additionality and Baselines

As if leakage and permanence aren’t difficult enough issues to wrestle with, how do you prove that a REDD regime actually saves a forest that is in danger of being chopped down?

The typical answer is “baselines”, which are the yardstick by which countries measure whether they have successfully reduced deforestation or not. There is confidence in the ability to establish historic deforestation rates based on existing remote sensing imagery, but many regions and countries argue that historic rates don’t indicate the current risk of deforestation.

For example, some countries currently experiencing political instability have a low rate of deforestation because the domestic turmoil suppresses access to forests and markets. They argue that deforestation pressure will increase if the domestic situation subsides, and that the historic baseline thus underestimates the real pressure on the forests.

And what about countries that have already taken action to prevent deforestation? Some argue that countries with low rates of deforestation should be rewarded to avoid creating a perverse incentive for these countries to increase deforestation in order to then qualify for REDD incentives. However, in order to maintain the environmental integrity of a REDD policy, credits can only be generated by additional reductions in emissions from deforestation, and these countries would have to be rewarded through other means.

Co-Benefits and Sustainable Development

REDD activities are often touted because of the added benefits that come with preventing deforestation, such as preserving ecosystems and encouraging sustainable development.

“Investors express a preference for and will pay a premium for projects that demonstrate social and environmental benefits in addition to robust climate benefits,” observes Joanna Durbin, Director of the Climate, Community & Biodiversity Alliance (CCBA) that developed a design standard for climate change mitigation projects to ensure the projects are designed to support sustainable development and biodiversity in addition to their carbon benefits.

Although the Bali agreement recognizes that “reducing emissions from deforestation and forest degradation can promote co-benefits,” Durbin and others are concerned that if REDD-generated credits move into a compliance market, the incentives for multiple benefits will be lost.

REDD policies promise to face all of the governance and equity challenges that have marked the international climate policy negotiations. The long-term success of REDD activities on the ground relies on ensuring that the priorities of forest-dependent communities are met and the benefits from REDD activities reach the communities bearing the burden of forest stewardship.

The Bali agreement recognizes the importance of forest-dependent communities, stating: “The needs of local and indigenous communities should be addressed when action is taken to reduce emissions from deforestation and forest degradation in developing countries.” However, critics argue that local and indigenous communities currently don’t have a voice at the negotiations table, and thus their needs are not being heard.

Two-Year Sprint

There is much work to be done. In December, 2009, the Parties will meet in Copenhagen to negotiate new target emission levels. Further, the parties will decide the mechanisms by which countries can meet those targets, including whether REDD will be incentivized through market-based incentives, or if REDD activities will be accomplished through a fund that rewards countries for measurable, reportable and verifiable reductions in emissions from forestry.

Though much ink will be spilled over the next 2 years addressing the technical and policy challenges facing REDD, the role that REDD will ultimately play in achieving global emissions targets depends on the on-the-ground capacity to implement REDD activities. “Readiness for REDD”, a term often used for the technical and institutional capacity to implement REDD activities, varies tremendously from country to country and province to province. In an effort to build capacity for REDD a handful of new initiatives have been launched to improve readiness among key developing countries.

Priming the Pump

At COP-13 in Bali, the World Bank launched the Forest Carbon Partnership Facility (FCPF), a $250 million fund focusing exclusively on REDD. In its first stage, the FCPF will help about 20 developing countries to build capacity to implement REDD activities. These capacity-building activities could include helping to assess national forest carbon stocks and sources of forest emissions, define past and future emission rates, calculate opportunity costs of REDD activities, and design REDD strategies. Australia launched a similar fund called the Global Initiatives on Forests and Climate (GIFC) that will focus on Southeast Asia and the Pacific.

The challenges facing the incorporation of REDD into mainstream climate change policies are not trivial. However, the potential rewards from getting it right stretch beyond the emission reductions themselves and include the sustainable development of forest-dependent communities and the conservation of some of the world’s richest forest ecosystems.

With the World Bank’s Forest Carbon Partnership Facility (FCPF), the Australian government’s Global Initiative on Forests and Carbon (GIFC) and other funds catalyzing REDD activities on the ground, and the clock already ticking on the UNFCCC’s countdown to a decision at Copenhagen, the next two years offer a unique opportunity to shape how the worlds forests can join the fight to mitigate climate change.

Erin C. Myers is a consultant for Resources For the Future and a Master’s candidate at the Donald Bren School of Environmental Science and Management – University of California, Santa Barbara. Questions or comments can be sent to [email protected].

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Forestry advocates believe that halting the destruction of tropical rainforests is one of the easiest and most effective ways to slow global warming, and that’s led to a surge in development of projects designed to capture carbon in leaves, stalks, and bogs, but no centralized information hub for keeping track of all the activity – until now. Introducing: ForestCarbonPortal.com.

23 January 2009 | When Eveline Trines founded Treeness Consult in 2002, she was able to keep a running inventory in her head of all of the projects in the world that were offsetting industrial greenhouse gas emissions by capturing carbon in trees.

“Today, there’s no way,” she says. “You’ve got one initiative tumbling over the other, and the information stream is quite intimidating.”

And it’s bound to get more so as forest carbon projects evolve from ugly duckling to golden goose in the eyes of many project developers. The result is a torrent of information relevant to forest carbon, but no way to access the right resources.

To help meet the challenge, Ecosystem Marketplace recently launched the first phase of ForestCarbonPortal.com, an online information clearinghouse for the terrestrial carbon markets. Although still under construction, the site is active and can be viewed here.

SpeciesBanking.com for Trees

Like SpeciesBanking.com, ForestCarbonPortal.com is a satellite website to EcosystemMarkeplace.com and includes daily news posts, Ecosystem Marketplace articles, a calendar of events, and a “tool box” of the latest intro guides, curriculums, methodologies, software measurement tools and more.

In addition to news updates and a library of resources, the Portal also includes a first-of-its-kind Forest Carbon Inventory, which tracks terrestrial carbon markets. The Inventory also maps projects selling land-based carbon credits across the globe, and makes it possible for users to search for project sites by region, as well as by a variety of criteria such as project type, standard, registry, and credit prices.

Calling All Project Developers

The site only lists projects that have sold credits or have a publicly-available project design document (PDD), and all are described in consistent ‘nutrition labels‘ listing a range of criteria (click here for an example).

Forest Carbon Associate Maria Bendana has researched 250 projects so far, but only 30 have been posted – largely because verifying the information is a tedious process that begins with simple web searches and cold-calling, but ultimately involves analyzing project documentation. That tedium, she says, represents the true value to end users: because they won’t have to go through it themselves.

Potential Users See Promise, Challenges

Potential end users generally agree.

“I haven’t seen anything as complete and sophisticated as this,” says Trenes. “The need is definitely there – because the whole REDD (Reduced Emissions from Deforestation and Degradation) issue is so big at the moment, and it’s very difficult to cross oceans every time you think there might be an interesting project out there.”

One thing the Inventory does not include is projects that have not yet been developed. Katherine Hamilton, Managing Director at Ecosystem Marketplace explains that “the goal is currently to ensure information provided is accurate and to establish a dynamic list of active projects… so the site does not currently include pipeline projects. Instead we’re encouraging project developers to let us know if their project is not listed and to keep information updated.”

Joachim Sell, Head of Forestry and Biofuels for First Climate Group, is one voice asking for more. He says he’d like to see a sub-portal with more early-stage projects, even if they don’t have the degree of transparency necessary.

Room for Early-Stage Projects?

Sell says that his company looks for both issued credits and early-stage projects that want to sell carbon credits on a forward basis and then use the forward contract to attract further investments or as collateral to borrow money for further development.

“A main issue for the development of carbon forestry projects will be the availability of advance payments at risk, i.e. before the project is registered,” he says. “A platform with early stage projects could help to bring players together able to commit advanced payments that help to kick-start projects.”

Bendana, meanwhile, is asking project developers interested in getting their projects on the site to contact her – and trying to figure out how she’ll keep up with the paperwork if she gets what she’s asking for.

“I hope they will face that problem,” says Trenes. “It would mean a lot of projects are coming their way.”

If you would like to see your project showcased on the Forest Carbon Inventory map, or if your project is already on display and you have any corrections or additions, please contact Maria Bendana: [email protected].

Steve Zwick is Managing Editor of the Ecosystem Marketplace. He can be reached at [email protected].

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Voluntary and regional carbon reduction initiatives continue to save tropical rainforests by using them as carbon sinks – along the way helping to define and standardize the means of measuring carbon captured in trees. The Ecosystem Marketplace takes stock of the latest developments in Reduced Emissions from Deforestation and Degradation (REDD).

1 December 2008 | As the climate world gathers this week in Poznan, Poland, to discuss life after Kyoto, the question of how to deal with emissions from agriculture and deforestation hovers at the edge of the debate like a wayward son: filled with potential and also dashed hopes.

While negotiators begin twisting around the layers of complexity in the international forestry debate for post-2012, on the voluntary side of the market stakeholders are moving full speed ahead in refining standards and developing projects.

The Voluntary Carbon Standard (VCS) announced its long-awaited rules for Agriculture, Forestry and Other Land Use (AFLOU) in November, underscoring the role the voluntary market hopes to assume in forging rulemaking in a sector that has generally stymied regulators. But while the chance to open up the market’s doors to carbon credits from forestry appears closer, real obstacles remain. And those obstacles will be explored during the scientific sessions in Poznan – and perhaps in the closed-door political discussions as well.

The Voluntary Solution

No one doubts the land use sector’s appeal. Deforestation alone accounts for roughly 20 percent of the world’s annual greenhouse gas emissions, and AFLOU emissions dwarf those of heavyweight carbon producers like transportation.

Yet no asset class is fraught with more technical challenges. How does a project account for clear cutting just outside the project zone? How does a project account for wildfires and other natural disasters that can threaten carbon sequestration?

VCS has now entered a new realm — providing a third-party standard for avoided deforestation. This is commonly called Reduced Emissions from Deforestation and Degradation (REDD) in the carbon policy world.

By providing REDD guidance, as well as the framework to fold in a large variety of land-use practices under the same standard, VCS has introduced the most comprehensive approach to thorny issues of leakage and permanence in forestry projects. The approach in the voluntary market sets the stage to bring forestry into the international fold. It also demonstrates the work yet to come.

Built for Forestry

From its founding in 2007, the VCS has been well-positioned to tackle forestry issues.

The standard brought together The Climate Group, the International Emissions Trading Association (IETA), the World Business Council for Sustainable Development (WBCSD) and others interested in bringing some unity to the voluntary markets, which were hampered by the lack of standards. But the VCS also held the promise of becoming a proving ground of sorts, one in which the industry could test out promising market mechanisms in the voluntary space before advocating their adoption in regulated ones. No sector needed more help than forestry.

And yet forestry wasn’t included in the original sectors covered by VCS – for a variety of reasons.

The Permanence Problem

“Permanence issues have been a real stumbling block for these projects,” explains David Antonioli, who started as VCS’s CEO in October.

Permanence is the policy term that considers the risk that credited carbon benefits could reverse. A project’s financing may depend on trees absorbing carbon dioxide for years, but what happens if those trees burn down three years from now? Or if they are illegally logged? Numerous solutions have been proposed to deal with permanence issues in forestry, but none have received wide acceptance.

Toby Janson-Smith, senior director, forest carbon markets, with Conservation International, wanted to tackle the permanence problem again through VCS. If a credible approach to address permanence was developed, Janson-Smith asked, would forestry be considered for VCS? The answer was yes.

“Then, it was about getting the best and brightest minds together,” Janson-Smith says.

Those bright minds met in person, spoke on conference calls and swapped emails and emerged with a concept called the buffer pool that is now enshrined in the new VCS rules as the way to overcome permanence issues in land use projects.

The Buffer Pool

The VCS aims to tackle permanence problems in the land use projects by removing the risk from the project level via a so-called “buffer pool”.

Here’s how it works: Every project that applies to use the VCS standard undergoes a risk assessment, which determines how many credits from the project will be contributed to something called the Pooled Buffer Account. Depending on the risks, a project could contribute anywhere from 10% to 60% of its credits to this account.

The intention is to create fungiblity of credits, explains Janson-Smith. If a project collapses, the buffer account can fill the credit gap. That means a VCS forest credit enjoys a level of insurance, free from the risks of a particular project. That means it can be traded interchangeably with any other VCS credit.

“We call it a means of insurance or self-insurance within the standard,” he says. “It’s just not managed by an external private entity that has ultimate liability.”

The concept has generally been well-received.

“It’s a good first step,” says Leslie Durschinger, founder of Terra Global Capital, a land-use project developer who estimates that roughly 40% of her project pipeline is filled with VCS projects.

“It’s quite innovative,” says Keith Paustian, a soil and crop science professor at Colorado State University who lead the VCS Agricultural Land Management expert group. “There are some distinct advantages to something like that that provides the greater fungiblity.”

But actors recognize that the test of the concept is yet to come.

“I’ll tell you if I like the buffer later,” says Ray Victurine, director of Conservation Finance Program for the Wildlife Conservation Society. “I think it makes sense. But the question really is how large does it need to be? How that gets determined matters.”

Even Janson-Smith admits the real moment for the buffer concept is not outlining how it should work, but seeing how it actually does work. And to do that, there need to be projects.

“The most important thing is to get experience with actual projects and project performance,” says Janson-Smith. “In short order, we’ll have major on-the-ground implementation experience.”

The Methodology Crunch

But it isn’t just the VCS guidance that has been holding up REDD projects from getting funded by voluntary buyers. It’s the lack of approved VCS methodologies, the documents that justify credit creation on specific projects. VCS has no approved REDD methodologies as of yet, a fact that is directly impacting the market.

“This is a major blockade,” says Ross MacWhinney, a broker at Evolution Markets.

The stumbling block appears to be a lack of trained methodology reviewers.

“Anyone could submit a methodology today, but a lot of people who would be reviewing methodologies are writing methodologies right now,” says Victurine of Conservation Wildlife Society. “Their priority is to get the approved methodologies out.”

One of the more anticipated efforts is being led by Climate Focus, which is developing REDD methodology modules that will be available to all project developers to incorporate into their projects’ designs.

“Each module will deal with a chunk of methodology,” explains Robert O’Sullivan, executive director of Climate Focus North America. “One is for above-ground biomass. Another for leakage (when a reduction in one place is negated by deforestation elsewhere). There is a series of twelve pieces. Any project developer can simply pick and choose.”

Climate Focus will introduce its modules at a side event on December 5th in Poznan and then seek public comment and input. It plans to submit the modules for validation in early 2009.

REDD vs. Land Use

While the REDD community waits for approved VCS methodologies to advance forest protection schemes in the voluntary market, most developers working on other types of land-use projects in the United States appear to be more interested in delivering credits under CCAR.

Why? One reason is simple economics: CCAR credits are trading at a premium above VCS credits generally.

In addition, the very barriers that are restricting VCS at the moment – a dearth of methodologies and trained reviewers – do not exist in CCAR.

“CCAR seems to be more project developer friendly,” says Sean Carney, a broker with Cantor CO2e, “and the likelihood of CCAR to be accepted in future regulatory schemes is tremendous.”

Compliance REDD?

That means the real near-term opportunity for the new VCS rules lies with REDD projects. Once the methodologies start flowing, projects will begin entering the voluntary market. It won’t be long before these REDD credits become candidates for the regulated market.

Indeed the same day that the VCS announced its new rules, California and two other states signed a memorandum of understanding with governors from Indonesia and Brazil to work cooperatively to incorporate REDD credits from projects in those places into the emerging regulatory schemes in America.

“That sets an important precedent,” says Janson-Smith. “That’s a key milestone.”

It certainly suggests that the wayward son of forest carbon is inching closer to taking its place in the center of the carbon market. But no one seems to think that the journey is close to finished.

“It’s crucial to have a standard everyone feels comfortable about,” says Victurine, “but it’s going to be a learning process anyway. We’re all going to be on a bit of ride.”

Ted Rose consults companies and organizations on carbon offsets and renewable energy credits. He is based in Boulder, Colorado, and can be reached at [email protected].

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A slew of new tools, methodologies, and reports designed to support the markets for forest carbon were unveiled on Forest Day at the 14th UN Carbon Conference in Poznan – including initiatives from Avoided Deforestation Partners, the Climate, Community, and Biodiversity Alliance, and the Ecosystem Marketplace.

8 December 2008 | The Center for International Forestry Research (CIFOR) initiated the first Forest Day last year so that people attending the13th UN Climate Change Conference in Bali could spend one day focusing only on the science – and the politics – of using trees to absorb carbon and combat climate change.

This year’s event, dubbed “Forest Day 2”, drew more than 800 people and offered a chance for non-governmental organizations (NGOs) to voice their opinions, debate the details and introduce tools that support the use of forestry offsets. Here’s a quick recap of a handful of tools introduced on Saturday – most of which you can expect to see covered in more detail over the coming months:

Forestcarbonportal.com: Tracking Terrestrial Carbon

The Ecosystem Marketplace launched ForestCarbonPortal.com, an online information clearinghouse for the terrestrial carbon markets. This satellite website to EcosystemMarkeplace.com includes daily news posts, original articles, a calendar of events, and a “tool box” of the latest intro guides, methodologies, software measurement tools and beyond. The site will also map projects selling land based carbon credits across the globe. Users can search for project sites by region, as well as by a variety of criteria such as project type, standard, registry, and credit prices. Projects are described in consistent ‘nutrition labels’ listing a range of criteria.

Any developers interested in making sure their project makes the list should contact Maria Bendana at mbendana (at) forest-trends.org.

Using Modules to Build Your Own VCS Methodology

Another initiative soft-launched in Poznan is a proposed set of modules and accompanying “instruction manual” that project developers can use to develop REDD methodologies under the Voluntary Carbon Standard’s new rules for Agriculture, Forestry and Other Land Use (AFOLU).

Led by Avoided Deforestation Partners and funded by an array of NGOs and philanthropic organizations, the effort began at the Carbon Expo in Cologne, Germany, and involved consultation with some of the most experienced project developers in the industry.

The modules themselves are designed to harvest the lessons of past experience to serve as building blocks of a project methodology – which is the first major step in project development, and one that often consumes hundreds of thousands of dollars in research and planning. Under the current system, every project developer creates its own, highly specific (and costly) methodology.

Proponents of the modular approach believe it will streamline project development dramatically – but also warn that developing a project methodology is a bit more difficult than assembling a prefab doll house.

“There is not one project anywhere in the world that is the same as any other,” says Eveline Trines, Founding Director of Treeness Consult and a leading contributor to the project.

The upcoming “decision-support tool” that serves as an instruction manual of sorts poses a series of questions to help project developers determine which modules should be applied to which project types under which circumstances.

The draft version of both the modules and the decision support tool are being circulated among experts now, and a revised version will be made available for public comment in January – at which point you can expect to see a more detailed analysis on Ecosystem Marketplace.

In a similar note, Terra Global Capital also announced a new VCS methodology for avoided deforestation, which we will be covering in more depth later this month.

CCBA: Raising the Gold Bar

The Climate, Community & Biodiversity Alliance (CCBA) also made a splash on Forest Day, unveiling the second edition of its CCB Standard – which provides an overlay of social and biodiversity criteria to verify the ‘gourmet’ portion of existing carbon standards.

CCB 2.0 strengthens and clarifies a variety of criteria covered in the first edition, most importantly beefing up provisions for ensuring that the legal ownership of the carbon is clear and that the rightful owners consent to the project being undertaken.

The new edition also updates criteria needed to gain ‘Gold Level’ certification, requiring that such projects not only demonstrate exceptional community and biodiversity benefits, but also generate adaptation benefits.

Keep your eyes on Ecosystem Marketplace for an in-depth analysis of the new CCB Standards in the coming weeks.

UNEP’s Atlas: Finding the Frogs in the Trees

Anyone interested in blending biodiversity and carbon offsets will do well to check out another tool unveiled on Forest Day: the new Carbon and Biodiversity Demonstration Atlas launched jointly by the United Nations Environment Programme (UNEP), the German government, and the Humane Society.

The tool makes it easier to see which forests have how much carbon and how much biodiversity – and might thus be the most important to preserve environmentally and, theoretically, economically as well.

Little REDD Book

Finally, there’s the Global Canopy Programme’s Little REDD Book, which is a handy, 112-page primer on the Kyoto debates on REDD. Instead of trying to explain the concept from A to Z, it provides easy-to-read summaries of seminal positions on REDD put forth by various governments and NGOs, as well as links to detailed position papers.

Not surprisingly, it closes with a reference to PINC (Proactive Investment in Natural Capital), Global Canopy’s own acronym for the fledgling practice of investing in areas of tremendous environmental wealth but no regulatory drivers.

The concept is betting that our economy will evolve to the point of recognizing the economic benefits of ecosystem services and rewarding those who preserve them. PINC advocates aren’t waiting for regulatory drivers to create demand for ecosystem service payments, but are investing in fragile ecosystems now. This subject, too, is on our calendar for the coming months.

Steve Zwick is Managing Editor of the Ecosystem Marketplace. He can be reached at S[email protected].

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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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Brazilian NGO Ecolí³gica has been promoting the social benefits of carbon projects since long before “non-carbon” attributes became fashionable. Now, with voluntary carbon offset projects being judged (and priced) as much for their impact on local communities as for their impact on carbon emissions, they’re taking their methodology global by teaming up with international market players and joining the gaggle of standards with links to registries.

31 October 2008 | Rice grows in boat-shaped husks that taste nutty-soft when steamed to perfection – a treat most of us never get to enjoy (and those of us who do aren’t, as a rule, impressed). That’s good news for Ceramicas Reunidas, a family-owned Brazilian brick production company that recently earned carbon credits for switching its fuel from rainforest trees to discarded rice husks.

It’s a small project, designed to reduce emissions by just 16,000 tons of CO2 per year by switching from non-renewable biomass or fossil fuel to renewable biomass, but the focus of the project expands beyond sequestration to the human dimension. The fuel switch and technology upgrade was carried out in accordance with Social Carbon Methodology (SCM), a set of procedures designed over the past decade to promote carbon offset projects that contribute to sustainable development in local communities.

Like the better-known Climate, Community, and Biodiversity (CCB) Standards, SCM is not a stand-alone tool that defines agreed-upon methods for measuring carbon capture itself. That’s left to entities like the Voluntary Carbon Standard (VCS). Instead, SCM is a sustainability screen: it helps identify and promote “non-carbon” benefits flowing from projects that already meet the requirements of basic carbon standards.

“There will not be a separate certificate issued for Social Carbon credits and VCS credits,” says Stefano Merlin, the Italy-born economist who helped spearhead the development of SCM. “Instead, the Social Carbon designation will be embedded in a tag on the VCS certificate, so it may say ‘VCS/Social Carbon/001’ or something like that.”

“Social Carbon breaks sustainability into six ‘resources’ (see below), which is pretty comprehensive in terms of coverage of aspects of sustainability,” says Jochen Gassner, Director of Climate Neutral for German carbon broker First Climate. “They’ve got their indicators for all of these aspects, which is a good complementary assessment to what the normal standards such as VCS and VER+ do.”

Long-Time Coming

Although new on the global radar, the SCM has been in the works for roughly a decade.

“It evolved as a methodology before you had the concept of a formal standard like the VCS,” says Merlin, who in 2000 co-founded the Ecolí³gica Institute together with Brazilian agronomist Divaldo Rezende.

Ecolí³gica is a Brazilian non-governmental organization (NGO) that promotes sustainable solutions to environmental problems, and the methodology was created to monitor the Institute’s own projects.

“We started working on it in 1998, and it evolved over time,” says Merlin. “Only recently did we start calling it a standard, but it’s really a methodology.”

Today, Ecolí³gica administers the methodology, with projects being verified by third-party entities such as the Brazilian division of Germany’s TÃœV Nord.

CantorCO2e and TZ1: Taking it Global

More than 80 Latin American projects have so far become SCM-certified, but the methodology remained one of Brazil’s best-kept secrets until earlier this year, when Ecolí³gica and London-based project developer CantorCO2e launched the Social Carbon Company to develop projects around the world in accordance with SCM.

“The mission now is to expand beyond the boundaries of Brazil, and spread to as many organizations as possible,” says Merlin, adding that it’s easier to grow internationally with a global partner like Cantor, and that some of the profits from the company will be funneled back into Ecolí³gica. “The company licenses the Social Carbon Methodology to implement projects, and the Social Carbon Company is also a project developer utilizing the methodology.”

This week, Social Carbon and New Zealand-based environmental markets infrastructure provider TZ1 announced that TZ1 would act as the global registry for Social Carbon Credits – which are defined as carbon credits that have been validated under both SCM and a more basic standard, such as the VCS or even the Kyoto Protocol’s Clean Development Mechanism (CDM).

TZ1 is one of four registries selected to support VCS credits under a system that is still being put into place. It’s also the only registry that can initiate Social Carbon credits, but these credits can then be transferred to other registries acting in support of VCS once the four-registry system gets off the ground.

CCB and SCM

The challenge now is for Social Carbon is to differentiate itself from existing “co-benefit” standards like the CCB Standards and carve out its own niche in the market.

“Some areas of differentiation are obvious,” says Merlin. “For example, CCB is forestry-focused, while Social Carbon covers more technologies, like energy efficiency, fuel-switching, and small-scale hydro.”

But, while SCM has broader coverage than CCB in terms of carbon-reduction technologies, it has a narrower focus in terms of non-carbon benefits.

“You could argue that CCB focuses more on biodiversity than we do, while we focus more on sustainability,” says Merlin, adding that SCM does measure biodiversity, but sees it more as a resource that contributes to sustainable development than as an end in itself.

“Both methods are very comprehensive,” says Gassner. “We use both Social Carbon and CCB, depending on what type of project it is.”

Joanna Durbin, head of the CCB Alliance, agrees on the distinction – to a point.

“We come from a broad group of environmental NGOs, many of them concentrated on biodiversity,” she says. “Also, because we’re focused on land-based projects, biodiversity is a bigger issue, which it isn’t for energy projects.”

She emphasizes, however, that the CCB Standards do require proof of positive impact on communities, even if they don’t go into as much detail on how to foster sustainable livelihoods. She says the two initiatives don’t so much compete as they “fit together” – partly because of the slightly different focus, but also because one is a standard that focuses on results, while the other is a methodology that focuses on procedures.

“We’re not prescriptive about the methodology that a project uses,” she explains. “Rather, we say that a project has to demonstrate that it has identified the local stakeholders and gotten them involved, and that it has a net positive impact on local communities and has mitigated potential off-site negative impacts.”

The two are not mutually exclusive, and she believes we will one day see projects developed using Social Carbon Methodology that then get verified according to the CCB standard.

Stand-Alone or Alliance?

SCM also differs from CCB in its structure. While CCB is administered by a broad-based group of NGOs (the CCB Alliance), SCM is administered only by Ecolí³gica.

“That could make it difficult for SCM,” says Gassner. “There is some discussion of criteria for eligibility of standards that will be recognized by the International Carbon Reduction and Offset Alliance (ICROA), and the way the conversation is going, they will say that any approved standards should be governed either by an alliance or by a company that doesn’t have business interests other than the standard.”

Six Resources

SCM is built on the work of researchers Robert Chambers, Gordon Conway, and Ian Scoones, who defined what constitutes a sustainable livelihood. Scoones then came up with five different “resources” that contribute to sustainability (natural capital, economic or financial capital, human capital, social capital, and physical capital).

Merlin and his team adopted four of the resources for their methodology and then added two of their own: biodiversity (or technology, depending on the type of project) and carbon. They also decided to rate the availability of each resource in a particular region, and support projects that promote that availability (see “Social Carbon Guidelines”, right).

They define the resources as follows:

Biodiversity Resource The combination of species, ecosystems and genes that form the biological diversity present in any region. Relevant aspects of this component are the integrity of natural communities, the way people use and interact with biodiversity, the state of conservation, pressures and threats imposed on native species, and the existence of priority areas for conservation.

Natural Resource The stock of natural resources (eg soil, water, air, genetic resources) and environmental services (soil protection, maintenance of hydrological cycles, absorption of pollution, pest control, etc.) from which those resources derive.

Financial Resource The basic capital (money, credit/debt and other economic goods) available to people and organizations.

Human Resource The skill, knowledge and capacity for work that people possess, as well as good health.

Social Resources Work networks, social demands, social relations, relationships of trust, and association in social groups.

Carbon Resource The type of carbon project being developed.

Steve Zwick is Managing Editor of the Ecosystem Marketplace. He can be reached at [email protected].

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Additional resources

The voluntary carbon market has spawned more than twenty offset standards over the past year – enough to keep even the most diligent market participants feeling a bit overwhelmed. WWF has responded with a 105-page guide to the ten standards that have been around the longest, and the Ecosystem Marketplace takes stock of their efforts.

13 March 2008 | Anyone struggling to keep up with the slew of new carbon offset standards proliferating across the voluntary world will find it worth their while to download the WWF’s recently-released 105-page brochure Making Sense of the Voluntary Carbon Market: A Comparison of Carbon Offset Standards (pdf). It’s a clearly-written document that delivers on its promise of comparing voluntary standards – and although it doesn’t necessarily “make sense” of the voluntary market, it does provide a good primer for beginners and an adequate refresher for veterans.

As the title implies, the meat of the document is its analysis and comparison of ten voluntary standards currently in existence – a difficult task, because each standard has different objectives. The three authors (Anja Kollmuss and Clifford Polycarp of the Stockholm Environment Institute and Helge Zink of Tricorona) deal with this by using the Kyoto Protocol’s Clean Development Mechanism (CDM) as the benchmark standard against which the voluntary standards are measured – an iffy premise, as critics of the CDM can attest, and as the authors themselves make quite clear.

“Although the CDM additionality tool is well respected, it does not guarantee that only additional projects are approved,” they write early on. “Recent reports have shown that despite the fact that the additionality tool is required for all CDM projects, it is likely that a significant number of non-additional projects are registered.”

Analysis and Objectivity

The authors have also bent over backwards in their efforts to remain objective – despite WWF’s own involvement in and vocal support of the Gold Standard.

“The report itself needed to be as neutral as possible, and having a credible, neutral report was in WWF’s own interest,” says Kollmuss. “If WWF wanted to publish an advocacy piece, they could have done it in-house.”

The authors do leave room for their own subjective analysis – which they clearly label and delineate from the objective treatment that comprises the bulk of the document.

“I found the whole field is so complex that you can’t really make simplistic conclusions,” says Kollmuss. “There is no way to come up with a perfect standard because the way you define perfect depends on what your goal is—at the same time I wanted a space where I could write my opinions but wanted to make sure readers knew they were our opinions.”

Laying the Foundation

They also chose not to wade directly into the sticky territory of direct comparisons until providing a simple but dense summary of the CDM itself, and the result is an introductory section that serves as a tremendous aid if you understand the basics but aren’t clear on, say, the interplay between voluntary and compliance markets, or how exactly a project is designed and implemented, or when to call an offset a credit, and visa-versa.

The basic information on standards is woven into the narrative of the first half of the document itself – so, before giving you a chapter on each standard, they deliver chapters on concepts like “Additionality and Baseline Methodologies”, and then, within this, sub-chapters on “Additionality Requirements for Each Standard” and “Baseline Requirements for Each Standard”.

This provides a solid foundation from which to segue into a discussion of implementation procedures, and finally into the detailed analysis of each standard on its own – a section that takes up roughly half the document and wraps up with a summary matrix.

“The matrix was a little bit artificial,” says Kollmuss. “It took a long time for us to pull it together because we needed to go into quite a bit of detail to really divvy out what the differences are.”

Steve Zwick is managing editor of Ecosystem Marketplace. He can be reached at s[email protected].

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For four years California has been quietly developing a set of greenhouse gas emission accounting standards and a climate registry. Now it has come up with ideas on how to measure and account for the climate impact of forests. This work could one day have repercussions on carbon trading across the US and the world. The Ecosystem Marketplace takes a closer look. With Europe's newfound emphasis on carbon markets, with the impending entry into force of the Kyoto Protocol, and with the launch of the European Union's Emissions Trading System (ETS) in January of 2005, it comes as a bit of a surprise that some fundamental developments relating to the establishment of carbon markets appear to be coming from a country -the US- that steadfastly refuses to sign the Kyoto accord, and a state -California- that does not yet have (and is not currently planning) an emissions trading system. Although the US has been characterized as a climate laggard by many observers, there is a little-known initiative in California -the California Climate Action Registry- that has for three years been providing leading-edge thinking on issues of carbon accounting and emissions registries; issues that will likely prove instrumental in the creation of emissions trading regimes like those being put in place in Europe, Japan, Australia, and many other countries around the world. Indeed, on at least one issue -forest-related carbon and sequestration- the Registry has already begun to have an impact far beyond California's borders. In US politics, California has a history of instigating back-door revolutions: the sort of political change that happens when and from whence it is least expected. After all, the state is so big, and its approach to a variety of issues (especially environment) so progressive, that the California tail often wags the US dog: witness emissions standards for automobiles, anti-tobacco legislation, among others. So perhaps it isn't all that surprising that California, through the Climate Action Registry, should also be providing leadership on climate change. Still, for those interested in environmental markets, understanding the California Registry and its achievements is a worthwhile undertaking.

History of the Registry

The California Climate Action Registry was established by California law as a non-profit voluntary registry for greenhouse gas (GHG) emissions with a view to protecting and rewarding any early action companies might take in reducing greenhouse gas emissions. Diane Wittenberg, the Registry's President, puts it rather simply: "We are," she says, "a voluntary but rigorous registry that can help companies and others establish greenhouse gas emissions baselines against which any future reduction requirements may be applied. Additionally, all our registered emissions are third party certified and made publicly available through our web site (www.climateregistry.org)." The idea for the registry, she explains, started at the grassroots (or, if you prefer, at the point source) when a few companies in California went to the state government in 2000 saying they wanted to reduce their carbon emissions, but that, before doing so, they wanted some assurances from the state that their actions would not harm them down the line if a climate regulatory regime was established. Specifically, they said they wanted the state to protect their baselines and give them some sort of credit -should a regulatory system be put in place- for their early actions. They also wanted the state to help them gain recognition for their actions. The result of these requests was a law, California Senate Bill 1771 (SB 1771), and its amendments (e.g. SB 527) which were approved at the end of 2001. Together, these laws establish the California Registry and charge it with the following functions and responsibilities:

• To enable the voluntary recording of GHG (greenhouse gas) emissions in a consistent certified format;
• To qualify third-party organizations that have the capability to certify reported baseline emissions;
• To maintain a record of all certified GHG emissions baselines and emissions results;
• To adopt industry-specific reporting metrics;
• To encourage voluntary actions to increase energy efficiency and reduce GHG emissions;
• To provide participants with referrals to approved providers for technical assistance and advice on programs to monitor, estimate, calculate, report, and certify GHG emissions; establish emissions reduction goals; and improve energy efficiency;
• To recognize, publicize, and promote participants;
• To recruit broad participation from all economic sectors and regions of the state; and
• To provide additional services for participants such as workshops, training seminars, and "best practices" exchanges.

From the point of view of business, what is interesting about the law is that, in return for participation in the Registry, the state of California undertakes to "offer its best efforts to ensure that participants receive appropriate consideration for early actions in the event of any future state, federal or international greenhouse gas regulatory scheme." In short, California promises to throw its considerable political weight behind carbon market leaders; not to mention provide them with some level of environmental recognition.

Carbon Accounting Standards

From the point of view of markets, what is interesting about the law and California's Registry is that early on, its creators realized that in order to give credit to the State's "climate leaders", they needed to set up the accounting systems, the reporting mechanisms, and the certification/verification mechanisms that would enable them to ensure that emissions were being, in fact, reduced, and to compare these reductions to those of others; to, in other words, differentiate between the apples and the lemons. As a result, since the passage of that law, the California Registry has spent a considerable amount of time and technical expertise to establish a set of protocols that enable companies to measure, report, and certify their emissions. These have recently been supplemented by two industry-specific emissions reporting and certification protocols: one for the power/utility industry sector, and one for the forestry sector. According to Peter Miller -a Senior Scientist at the Natural Resources Defense Council and a member of the Registry Board- what California's registry is trying to do is essentially establish the generally agreed accounting principles for carbon; the sort of ability to measure and verify emissions that will ultimately enable those emissions to be freely traded and marketed. "The closest analogy I can think of for the Registry," he says, "is the Financial Accounting Standards Board (FASB) which establishes the standards by which all company finances in the US are judged." It is these standards, he adds, that allow companies to be analyzed, understood, and ultimately traded. In a similar fashion, he expects that the standards being developed and tested by California's Climate Action Registry will ultimately enable not only carbon trading mechanisms, but also effective greenhouse gas regulatory regimes. "After all," he says, "you can't manage what you can't count." To which one might add: neither can you trade what you can't count.

The Benefits of Being Voluntary

The work that the California registry is undertaking may be innovative, but what makes it even more interesting is how this work is being undertaken. For instance, while the negotiations surrounding the Kyoto Protocol have been largely governmental (with NGOs and companies, it is true, working in the background and/or shouting from the sidelines), the California registry involves industry, government, and non-profits as integral parts of their work. To give but a few examples: representatives of government, industry, and NGOs all sit on the Registry's Board, have largely equal powers, and participate actively in the development of protocols, standards, and workplans. Additionally, the Registry has a membership structure that includes companies like Pacific Gas and Electric, Eastman Kodak, and BP, as well as NGOs like the Union of Concerned Scientists, the Natural Resources Defense Council, and Environmental Defense, together with local governments such as the City of San Francisco, the City of Los Angeles, and the City of San Diego. Wendy Puling, Director of Environmental Policy for Pacific Gas and Electric (PG&E), one of the State's largest power companies, says that from the perspective of a large company, the registry process has been a success. "We are a charter member of the Registry," she says, "and have been supportive of the concept since its inception." She explains that PG&E joined the registry for a variety of reasons, including: to get a better sense of their own emissions, to better understand how the measurement protocols work, to prepare for a more carbon-constrained future, and to influence the development of emissions protocols for the power sector. Puling continued: "We believe there will be some sort of regulatory structure on carbon in place in the US within the next 10 years. Now our crystal ball isn't any better than anyone else's, but we think this is the direction we are headed in, and if and when that happens, we want to be ready." She further explains that PG&E supports market based solutions to the carbon problem and has therefore been very happy with the way the Registry has allowed them to understand and experiment, in a non-threatening way, with the sorts of information they will need to provide as climate change regulations develop worldwide. "Being voluntary," says NRDC's Miller, "does have its benefits. If the process was too legal, we wouldn't be able to focus on doing just what is right. As it is, we've been showing that large companies, cities, and environmental groups can work together in reasonable and effective ways to address the climate problem." He notes that to the extent that the Registry has been successful, it has been largely due to the fact that it conducts its business "in an atmosphere that is open and not highly politicized or charged."

Going Beyond California

Miller further believes that the impact of the California registry will go -indeed has already gone- well beyond the state's boundaries. Already, he says, the Registry is working closely with the World Economic Forum on their on their global greenhouse gas registry, and he believes that ultimately the principles established by the California registry will be adopted and adapted by other US states, by other countries, and possibly even lead to creation of national and international carbon accounting standards sometime in the future. Agreeing with PG&E's Puling, he predicts: "Eventually, the US will have a regulatory regime for greenhouse gases. It may not be as broad or as good as some might wish, but I think it will inevitably involve some sort of trading. When and if that happens, the standards being developed in California will become increasingly important." Wittenberg agrees and points out that the Registry is already working closely with states that are exploring regulatory approaches to climate change in both the Northeast and Northwest of the US. "I could easily see California's work on the Registry," she says, "have an impact at the national level across the US." She also explains that some of the Registry's participants are not limiting themselves to only reporting on their emissions in California, but are also using the Registry's protocols to report on their national, or even global, emissions. "Kodak," she says, "is an example of a company that recently joined the Registry and is planning on using our protocols to report on its global emissions." One area where the Registry's work is already having national -and maybe even international- repercussions is in the measurement of carbon emissions and reductions from forestry projects.

The Forestry Protocols

As anyone involved with the Kyoto negotiating process will tell you, the issue of how (or even whether) emissions reductions credits from forests should be included in any carbon trading scheme is exceedingly difficult and contentious (see overviews of the case for and against forest sinks at https://ecosystemmarketplace.com/news/article.feat.027.php and https://ecosystemmarketplace.com/news/article.feat.018.php respectively). But while the Kyoto crowd continues to endlessly debate the whys, wherefores, and hows of forestry projects and their relationship to carbon emissions, the California Climate Action Registry recently approved a series of protocols and standards that go a long way towards resolving many of the long-standing disputes surrounding this issue. According to Michelle Passero, Director of Policy Initiatives at the Pacific Forest Trust, a non-profit environmental group that was closely involved in the preparation of the forestry protocols, the decision to look at the carbon implications of forests was actually taken by the government of California in law SB 812. This law, which was enacted in January of 2003, called on the Registry to "adopt procedures and protocols, including specified criteria, for the monitoring, estimating, calculating, reporting, and certifying of carbon stores and carbon emissions resulting from the conservation and conservation-based management of native forest reservoirs in California." After an exhaustive process that took over a year and a half and involved consultations and reviews with a wide range of experts, non-profits, other stakeholders, and even a series of public reviews, the Registry's Board approved the new protocols in October of 2004. "Addressing the issue of forests and their relation to climate change is important," says Passero, "because forests are the world's second largest source of anthropogenic greenhouse emissions; largely through deforestation. In other words, they are a part of the problem and so should also be a part of the solution." The idea behind the protocols, she adds, has always been to provide incentives for landowners in California to protect, maintain, or enhance forest cover. "We wanted," Passero explains, "for California's forests to provide both climate benefits, as well as benefits to biodiversity and to the people on the ground."

Key Provisions on Forests

Like all of the Registry's protocols, the Forestry protocols are quite thorough and rigorous. Indeed they are composed of three different protocols: (i) the Forest Sector Protocol which helps forest companies measure and report on their emissions of greenhouse gases from biological sources at the entity level (the aptly-named General Reporting Protocol looks at non-biological emissions at the entity level); (ii) the Forest Project Protocol which looks at the biological emissions of GHGs at the project, as opposed to entity, level; and (iii) the Forest Certification Protocol, which explains how information provided on biological emissions of GHGs from forestry entities and projects is to be verified and certified (all these protocols are available at http://www.climateregistry.org/PROTOCOLS/ ). Some of the key provisions of the forest protocols attempt to address many of the contentious issues related to sequestration that have come up during the Kyoto negotiations, including:

• Additionality: For carbon stocks or emissions to be registered in the California Registry, the underlying forest activities must go beyond existing legal requirements, and they must truly be new. At the same time, anyone wishing to register emissions reductions from a forestry project must first have registered their emissions at the company or entity-wide level.
• Permanent risk mitigation: According to the protocol, all eligible forestlands will have to be dedicated to forest use permanently through a deed restriction that is granted in perpetuity – i.e. through a conservation easement.
• Net carbon stocks: The protocols set out a series of models to establish a baseline of carbon storage, and then provide steps that need to be taken to more precisely track the net gains and losses to the system. The Registry argues that their protocols provide a practical methodology that makes economic sense for landowners, while reliably reflecting the benefits to the atmosphere of proper forest management.
• Native forests: Registration of forest carbon stocks and emissions must promote and maintain native forest types.

In addition to the above, the Registry's protocols go far beyond the current Kyoto thinking (and well beyond what the CDM currently allows), by accepting GHG reductions from three distinct types of forest projects:

1. Conservation-based Forest Management: Forest projects that are based on the commercial or noncommercial harvest and regeneration of native trees and employ natural forest management practices;
2. Reforestation: Forest projects that are based on the restoration of native tree cover on lands that were previously forested, but have been out of tree cover for a minimum of ten years; and
3. Conservation: Forest projects that are based on specific actions to prevent the conversion of native forests to a non-forest use, such as agriculture or other commercial development.

Balancing Accuracy and Cost

Although NRDC's Miller believes that the above provisions make the Registry's Forestry Protocols extremely innovative -he in fact believes they are the first attempt by any organization anywhere to provide a rigorous yet practical system for measuring not just emissions of CO2 from forests, but also their role in sequestration- he does admit that in order to make the protocols workable, some shortcuts needed to be taken. For instance, he explains, the protocols do not address issues of "below-ground" CO2, the carbon dioxide that can be stored or emitted in forest soils. And this is no small omission, for he says that there can be twice as much carbon in the soils as in the atmosphere. "The problem," he says, "is that there is no easy or manageable way to measure these things. They are extremely heterogeneous and measurement/studies can be extremely expensive." He also says that the Protocols could have required registrants to certify reductions every year (instead of every five as the Protocols require) and to sample every tree every year, but he believes such onerous restrictions would have been counter-productive. "In other words," he explains, "we were constantly struggling with the issue of how much accuracy to require at what cost. In the end, I think we struck the right balance." So what now? Miller says the registry is currently in discussions with a number of forest companies about pilot projects that use the forest protocols, so these should be put to the test shortly. The Forest Trust's Passero, for her part, says that she would like to see other organizations take advantage of the Registry's work on forestry, particularly within the US. She adds that the protocols are very compatible with existing systems and are easily replicable. In other words, she believes they can export well. "Although the protocols were designed for California," she says, "95% of them can carry to other states and countries." Indeed, in a recent move, the Chicago Climate Exchange -a US-based carbon trading system- announced that as of November, 2004 it would accept emissions and reductions calculated using the Registry's forestry protocols for trading on its market, and added that it was in discussions with the Registry to further harmonize the two organization's reporting and certification requirements. It is also worth noting that the announcement was in fact made at the most recent meeting of the International Emissions Trading Association (IETA) in Zurich, Switzerland, so clearly the California Climate Action Registry is developing a solid international, as well as national, profile.

In Praise of Standards

This was to be expected. After all, it is precisely as a result of the growing interest in environmental markets worldwide, that people are beginning to pay closer attention to carbon metrics and accounting standards. As markets spread, people are coming to the realization that all markets -be they environmental or not- rely heavily on trust, standardization, and verification for their effective operation. Markets just can't function if people don't know what they are buying, if they can't measure what is being traded, and if there is no third party verification and certification of quality. So, again, in retrospect and with the benefit of hindsight, perhaps it should come as no surprise that players in the global carbon markets are beginning to gravitate towards the California Climate Action Registry and its set of coherent standards for measuring, reporting, and verifying emissions of greenhouse gases. That such standards are to be found in a perceived climate laggard such as the US matters less than the fact that they exist and that they are perceived as rigorous, credible, and most importantly, workable. Accountants and accounting standards may be much maligned, but they are nonetheless essential; even -or perhaps especially- when it comes to environmental markets. Ricardo Bayon is the Managing Editor of the Ecosystem Marketplace. He can be reached at [email protected].