Carbon trappers in new trade
Financial Times (UK), ft.com
November 10, 2000
By Charlie Pye-Smith
"We know how to grow maize and raise cattle," explains Enrique López, a loquacious Mayan Indian with angular features and a complexion the colour of mahogany. Like the other men who accompany us up a dirt track above Yaluma, a village in the Chiapas highlands, he is wearing the uniform of the Mexican campesino: starch-white sombrero, patched trousers and ragged boots. "But I don't want my children to do these things, to be poor like us," he continues. "I want them to study. And for that I need money, which is what I hope these trees will bring us."
Neither the village below, where plodding oxen pull wooden carts and women in iridescent shawls prepare tortillas and beans in small pantiled houses, nor López's aspirations, nor the plantation of pines which I have been brought to see are in any way unusual.
Yet these campesinos are pioneering what could turn out to be a highly lucrative new trade. They are planting trees, not just for timber, but for their ability to soak up carbon dioxide.
The Mayans' main partner in this new trade is the Federation Internationale de l'Automobile - motor racing's governing body - which is seeking to offset the 5,500 tonnes of carbon spewed into the atmosphere each year by Formula One racing activities.
"It's a tricky calculation," says Gus Hellier of the Edinburgh Centre for Carbon Management, which set up the scheme, "but we reckon this is the amount of carbon which trees planted with FIA money will sequester."
The project is known as Scolel Te, which means "growing trees" in Mayan, and it is injecting new life into a dozen villages.
When the project was first mooted the Mayans were puzzled. Maize as a cash crop was one thing, but trapping carbon quite another. "We explained that they were going to be paid to supply a service, to collect someone's rubbish - in this case Formula One's pollution," recalls Adalberto Vargas Guillén, who runs the local organisation which handles carbon sales. "Now they know exactly what it's all about."
Some economists believe that a fully fledged carbon emissions trade could channel billions of dollars each year from the industrialised world to the poor, and its proponents see it as a weapon in the war on global warming. Rising concentrations of greenhouse gases, in particular carbon dioxide released by the burning of fossil fuels, are thought to be causing a rise in temperatures. Forests soak up carbon, goes the thinking, so let's use them to mop up the pollution.
However, many governments and a vociferous coalition of environmental groups are bitterly opposed to any such forest-linked carbon trade, and next week the two sides will lock horns at a meeting of the UN Framework Convention on Climate Change in the Hague. Political leaders will have to decide whether or not polluting industries can invest in forestry projects as a means of complying with the Kyoto protocol, which seeks significant cuts in greenhouse gas emissions in industrialised countries.
Much of the debate will focus on the Clean Development Mechanism (CDM), which was so vaguely worded when 170 countries signed the protocol in 1997 that no one is sure how it will work.
In theory, the CDM will allow companies to offset their emissions by funding pollution-reducing projects in countries which are not subject to an emissions cap.
If, for example, a coal-fired utility was obliged to reduce its emissions and could only achieve 90 per cent of what was required by introducing clean technologies and improving its energy efficiency, then it could offset the remaining 10 per cent by paying others to make the savings on its behalf. However, it is unclear whether forestry activities will be eligible as part of the CDM.
Among those who hope they will be is Dale Heydlauff of American Electric Power, which supplies more than 8m customers with electricity, the bulk derived from burning coal, a relatively dirty fuel. AEP has provided half of the $9.6m invested in a pilot carbon project in Bolivia, in return for which the Bolivian government has agreed to conserve 650,000 hectares of forest which would otherwise have been logged.
The project will lock up at least 7m tonnes of carbon over 100 years, and if deals like this become eligible under the Kyoto protocol, and if AEP is required in future to cut emissions, then it and the other investors, PacifiCorp and BP Amoco, will have 51 per cent of carbon credits which they will be able to offset against the reductions demanded, and the Bolivian government will have the balance of credits that it can sell on the open market.
According to Tia Nelson of the Nature Conservancy, the US conservation group which designed the Noel Kempff Climate Action project, this is a good deal not just for wildlife, but for the Bolivians too.
"If forests are included in the CDM," she says, "it will provide unprecedented opportunities to capture the services which forests provide." And one of these services is sequestering carbon, for which no one was paid until recently.
On the contrary, say groups like Greenpeace and Friends of the Earth - allowing companies to invest in forests and claim carbon credits will simply be a charter to pollute.
"We will oppose any excuse the developed countries come up with to get round taking action at home," says FoE's Roda Verheyen. Every dollar spent on carbon forest projects in the developing world, she argues, means more pollution, not less, in the countries whose activities are largely responsible for global warming.
"If it's cheaper for them to buy carbon credits from abroad, rather than invest in cleaner technologies at home, that's exactly what they will do."
No one knows how much it will cost to buy carbon storage in forests in future. At present, investors in Chiapas are paying $12 for each tonne of carbon sequestered; Costa Rica has been charging the Norwegian government $10 to lock up each tonne of carbon; while Bolivia charges less than $2 a tonne. In Britain, Future Forests, brokers which are minor investors in Scolel Te, are offering to lock up carbon at £20 a tonne; its clients include an eclectic range of commercial and private investors, from Avis and Mazda to the Pet Shop Boys and Fulham Football Club.
None of these deals reflects true market prices; rather, they indicate what companies and individuals are voluntarily prepared to pay in an experimental market.
But all this will change if politicians at the Hague sanction a forest-based carbon trade. "I would expect carbon [credits] to sell at around $10-$15 a tonne and to see it quoted on the futures markets," says Pedro Moura-Costa, an economist at EcoSecurities, a company which raises capital to invest in greenhouse gas mitigation projects.
The price may ultimately depend on the cost of cutting emissions in industrialised countries. Some industries might be able to reduce emissions easily, but for those that can't, buying carbon credits from abroad could be attractive. Says Heydlauff: "It's going to be cheaper for us to acquire carbon credits from projects like the one in Bolivia than to convert coal-fired power stations to less polluting natural gas."
Still, he says, the vast majority of emissions savings will have to come from switching to cleaner fuels and improving energy efficiency at source. Few people have spent as much time tramping the world's tropical forests as Ken MacDicken, the imposing yet quietly spoken director of research at the Center for International Forestry Research (CIFOR) in Indonesia.
A native of Washington State, MacDicken has provided the scientific input to carbon projects in Costa Rica and Belize as well as Bolivia, and he is talked about in reverential terms by staff at the Nature Conservancy.
"The environmentalists are right when they say that including forests in the CDM would allow developing countries to emit higher levels in greenhouse gases than they would otherwise," he says, "but nobody's suggesting that planting trees, or stopping them being felled, will be the sole answer to climate change." Most of the cuts in emissions - 90 per cent or more - will have to come from cleaner fuels and improved efficiency. "But forests are part of the problem," insists MacDicken, "so they should be part of the solution too."
At least a fifth of all human-induced carbon emissions derive from the felling and burning of forests, three times more than the carbon emitted from the world's vehicles. When Indonesia was ravaged by fires in 1997, it sent as much carbon dioxide into the atmosphere as the US does in a year. Much of Chiapas is still well wooded, but even here, more than a quarter of the forest has been lost over 30 years, and if present trends continue deforestation could release more than 150m tonnes of carbon over the next two decades, roughly equivalent to the UK's emissions for one year.
Leaving forests out, says MacDicken, would be negligent, a view echoed by the Mayans I met. "Our parents used to burn the forests to clear land for maize," explains Armando García, as he swishes his machete, "but we don't burn any more. We know we need trees." They provide building timber, which locks up carbon, wood for fuel, fruit and medicinal plants.
But why haven't they planted more trees in the past?
"How could we buy saplings," replies one indignantly, "when often we couldn't even afford to buy fertiliser?" Being paid for the captura de carbón means they can now plant trees.
But many environmentalists fear that forest carbon projects could do harm. What is to stop the forest being felled elsewhere? Might companies destroy pristine forests in order to plant fast-growing eucalyptus, which captures carbon faster than mature forest?
CDM projects will also have to show that they are capturing carbon that would not otherwise have been captured. Could this mean companies, or countries, claiming they would have logged an area simply to solicit funds not to do so? In any case, says FoE's Verheyen, measuring how much carbon has been sequestered is extremely difficult.
Richard Tipper of the Edinburgh Centre for Carbon Management admits that such concerns are legitimate. "But," he says, "many of the objections can be applied equally to energy projects under the CDM, and they're not opposed to those."
For example, a UK power company might offset some of its emissions by paying an Indian company to install fuel-efficient water heaters. But this could lead to an increase in the use of hot water, and therefore use more energy, bringing an increase in carbon emissions.
Tipper also points out that measuring cuts in carbon pollution is just as difficult for energy projects as it is for forestry programmes.
Critics of forest carbon deals also claim they could have a serious impact on rural communities. Joyotee Smith, an economist at CIFOR, agrees that ill-conceived projects could exclude people from their traditional lands and channel financial benefits to wealthy companies, or to governments. But that is why there need to be strict rules and a monitoring system. "Well designed forestry projects can do much to improve rural livelihoods in poor countries, and at the same time help mop up carbon," says Smith.
Smith concedes that some projects, involving many individuals and complex negotiations, may produce carbon credits that are more expensive than those produced by large-scale conservation and reforestation programmes. She suggests companies investing in smaller, community schemes might receive tax benefits.
MacDicken speculates that there could be a two-tier market. While some companies will simply buy the cheapest carbon credits, others might invest in what he calls the boutique market, in projects such as the one in Chiapas, where communities derive explicit benefits and companies derive PR benefits.
But will the meeting in the Hague allow a forest-based carbon trade?
"The EU and the US are so far apart," says Verheyen, "that we have no idea how they will flesh out a deal - but they will." The US, fervently in favour of a deal that includes forests in the CDM, will be supported by many Latin American countries, as well as Australia, Russia and Norway. The EU is said to be implacably opposed, and will get strong support from Brazil, among others.
However, many believe the EU may give ground to encourage the US to ratify the Kyoto protocol and implement emission cuts. So expect a compromise, with some forms of forestry - possibly reforestation and afforestation - being eligible. Conservation projects, such as the one in Bolivia, seem less likely to be approved.
Richard Tipper, who first began working with the Mayans in the 1980s, believes new forestry projects will have little effect in the short term, as far as sequestering carbon is concerned, but that including forestry in the CDM would encourage polluters to invest in projects whose value as carbon sinks will kick in between 2020 and 2050.
What is more, warns Tipper, if forests are excluded from the CDM, rural areas in the developing world will lose an important source of investment.
Over lunch at Yaluma, Fernando López Aguilar recounts how Scolel Te has enabled him to plant 2,400 trees. "Many other campesinos would like to join the project," he says, "but they'll need money to buy saplings."
That means the Scolel Te must attract more investors. Whether it does will depend to some extent on what happens at The Hague.