Friday, April 4, 2008
Australia Forest Carbon Partnership Agreement with PNG
The agreement would enable the creation of a framework aimed at reducing greenhouse gas emissions in PNG from deforestation and forest degradation, improve the livelihoods of forest-dependent communities, and promote the protection of Papua New Guinea’s biodiversity.“If you look at the overall challenge of climate change, the big source of emissions is coal-fired electricity generation around the world; the second big challenge for the overall climate change dynamic is what happens with deforestation and avoided deforestation. “How do we best manage that into the future? And it is in this area where countries like Brazil, Indonesia and Papua New Guinea have such a significant role to play. “That’s why in this Papua New Guinea-Australia forest carbon partnership, we’ve outlined a new framework to work together on this, a regular dialogue on how we can advance this agenda within the international forums of the world,” Rudd said after signing the PNG-Australia Forest Carbon Partnership Agreement with Somare.As part of the agreement, PNG and Australia will engage in a policy dialogue on climate change issues, mainly focusing on how emissions from deforestation and forest degradation can be reduced using the provisions of the Kyoto Protocol and the United Nations Framework Convention on Climate Change (UNFCCC).Rudd said a private carbon market scheme could be created as part of the agreement, which would enable PNG to make a revenue from such a scheme.A recently released report on climate change, produced by Rudd’s climate change advisor Professor Ross Garnaut, recommended that Australia signed partnership agreements on greenhouse gas emissions with Indonesia and PNG.Garnaut said such an agreement if built around a framework utilising large revenue flows for the sale of emissions permits for development purposes (including cash and development opportunities for village communities currently enjoying cash and services from forestry operations), could be beneficial to PNG.
Looking for a new business idea? Try the carbon services market.
Australia is just two years from implementing an emissions trading regime. Permits are likely to be auctioned to a broad section of the Australian business community, raising up to $6 billion, depending on the size and price of the auction.
By that time, in early 2010, up to 900 corporate entities will need to be able to provide verifiable emissions data. A recent survey conducted by a group of institutional investors found that most Australian companies didn’t have a clue how much they emitted, least of all their suppliers. Someone is going to have to do some pretty fast, and hopefully very accurate, calculations.
Developing a carbon services industry – one that can map carbon footprints and verify emissions data – is just one of the big challenges Australia will be facing as it seeks to meet the Rudd government’s vow to have a carbon trading scheme in force in two years time.
Abyd Kamali, the global head of carbon emissions for Merrill Lynch, says the other major challenge would be the development on IT infrastructure to cope with a cap and trade scheme that would be able to identify individual allowances and carbon credits.
This, he says, was essential if Australia was to develop a scheme that could fit in with the UN framework for carbon abatement, and be compatible with other international trading schemes.
Poor verification and identification – the services market and the IT sector – were two of the biggest weakness of the European trading scheme when it was introduced a few years ago. What started as a strong market fell into a ditch when it was discovered that too many allocations had been issued. And the scheme has struggled with allowance identification issues.
The other major lesson from the ETS was the folly of allocating free allocations to the European utilities who were directly impacted by the scheme. It was thought that this could soften the blow to the utilities and mitigate a rise in energy prices to the consumer. Instead, it delivered windfall profits estimated at some $US20 billion across the continent, and did little to stop energy price hikes.
Australia must wrestle with the same issue. Professor Ross Garnaut, who heads a government review into the new scheme, favours the auctioning of all permits, if only – he argues – to ensure the simplicity, integrity, credibility and transparency of the scheme.
Large carbon emitters such as refiners and electricity distributors argue strongly that permits should be given away, for fear of putting some out of business or causing untenable rises in energy prices.
Merrill Lynch’s Kamali sits between the two schools of thought. He notes that in Europe, full auctioning will only occur in 2013, at the start of the new phase of the scheme. A bill before the US congress proposes only a third of such permits should be auctions.
"Australia would be sticking its neck out to go for 100 per cent auctioning on day one," he says.
"It is unrealistic to go from a standing start … to then suddenly having a scheme that is potentially going to be $6 billion worth of value on day one, requiring every single entity paying to purchase all of its allowances."
Meantime, Merrill Lynch is one of those investment banks keen to participate in the carbon services industry.
Apart from its current involvement in the European trading scheme and future involvement in the Australian involvement, Merrill Lynch has also struck a deal with the Lismore-based Carbon Conservation to help secure a 750,000 hectare forest in the Indonesia province of Aceh.
Merrill Lynch’s initial investment is for $9 million, which provides funds to help protect the forest (with the aid of around 1,000 former Aceh independence fighters), and an off-take agreement for the carbon credits this could generate – conceivably up to $400 million.
“Avoided deforestation” is the next big trend in the fight to contain carbon levels in the atmosphere. Rudd recognized this in his preliminary agreements with PNG, but Merrill is the first investment bank to invest directly in the area.
By that time, in early 2010, up to 900 corporate entities will need to be able to provide verifiable emissions data. A recent survey conducted by a group of institutional investors found that most Australian companies didn’t have a clue how much they emitted, least of all their suppliers. Someone is going to have to do some pretty fast, and hopefully very accurate, calculations.
Developing a carbon services industry – one that can map carbon footprints and verify emissions data – is just one of the big challenges Australia will be facing as it seeks to meet the Rudd government’s vow to have a carbon trading scheme in force in two years time.
Abyd Kamali, the global head of carbon emissions for Merrill Lynch, says the other major challenge would be the development on IT infrastructure to cope with a cap and trade scheme that would be able to identify individual allowances and carbon credits.
This, he says, was essential if Australia was to develop a scheme that could fit in with the UN framework for carbon abatement, and be compatible with other international trading schemes.
Poor verification and identification – the services market and the IT sector – were two of the biggest weakness of the European trading scheme when it was introduced a few years ago. What started as a strong market fell into a ditch when it was discovered that too many allocations had been issued. And the scheme has struggled with allowance identification issues.
The other major lesson from the ETS was the folly of allocating free allocations to the European utilities who were directly impacted by the scheme. It was thought that this could soften the blow to the utilities and mitigate a rise in energy prices to the consumer. Instead, it delivered windfall profits estimated at some $US20 billion across the continent, and did little to stop energy price hikes.
Australia must wrestle with the same issue. Professor Ross Garnaut, who heads a government review into the new scheme, favours the auctioning of all permits, if only – he argues – to ensure the simplicity, integrity, credibility and transparency of the scheme.
Large carbon emitters such as refiners and electricity distributors argue strongly that permits should be given away, for fear of putting some out of business or causing untenable rises in energy prices.
Merrill Lynch’s Kamali sits between the two schools of thought. He notes that in Europe, full auctioning will only occur in 2013, at the start of the new phase of the scheme. A bill before the US congress proposes only a third of such permits should be auctions.
"Australia would be sticking its neck out to go for 100 per cent auctioning on day one," he says.
"It is unrealistic to go from a standing start … to then suddenly having a scheme that is potentially going to be $6 billion worth of value on day one, requiring every single entity paying to purchase all of its allowances."
Meantime, Merrill Lynch is one of those investment banks keen to participate in the carbon services industry.
Apart from its current involvement in the European trading scheme and future involvement in the Australian involvement, Merrill Lynch has also struck a deal with the Lismore-based Carbon Conservation to help secure a 750,000 hectare forest in the Indonesia province of Aceh.
Merrill Lynch’s initial investment is for $9 million, which provides funds to help protect the forest (with the aid of around 1,000 former Aceh independence fighters), and an off-take agreement for the carbon credits this could generate – conceivably up to $400 million.
“Avoided deforestation” is the next big trend in the fight to contain carbon levels in the atmosphere. Rudd recognized this in his preliminary agreements with PNG, but Merrill is the first investment bank to invest directly in the area.
1,000 Trees Needed for Each Korean's Carbon Emission
Each Korean would have to plant 947 trees to remove the carbon dioxide he or she is responsible for emitting, research suggests. The Korea Forest Research Institute on Wednesday released a report on carbon offset standards, which shows how many trees people would have to plant to remove the carbon dioxide they emit.
Carbon dioxide is the main culprit of global warming. Suppose a person exhales 1 ton of carbon dioxide annually, they need to plant 360 pine trees to remove it. As each Korean emits an average of 2.63 tons of carbon dioxide every year, he or she needs to plant 947 young pine trees, requiring land half the size of a soccer stadium.
According to the U.S. Center for Global Development in 2007, South Korea ranked 10th among the world's greenhouse gas emitters by emitting 185 million tons of such gases annually.
The KFRI operates a "tree carbon calculator" (http://carbon.kfri.go.kr) to help individuals calculate their carbon footprint and make a plan to reduce carbon emissions. The exact amounts of carbon dioxide emissions is calculated by entering the amounts of energy used at home and of fuel used by cars.
(englishnews@chosun.com )
Carbon dioxide is the main culprit of global warming. Suppose a person exhales 1 ton of carbon dioxide annually, they need to plant 360 pine trees to remove it. As each Korean emits an average of 2.63 tons of carbon dioxide every year, he or she needs to plant 947 young pine trees, requiring land half the size of a soccer stadium.
According to the U.S. Center for Global Development in 2007, South Korea ranked 10th among the world's greenhouse gas emitters by emitting 185 million tons of such gases annually.
The KFRI operates a "tree carbon calculator" (http://carbon.kfri.go.kr) to help individuals calculate their carbon footprint and make a plan to reduce carbon emissions. The exact amounts of carbon dioxide emissions is calculated by entering the amounts of energy used at home and of fuel used by cars.
(englishnews@chosun.com )
Tree planting: A key weapon against global warming
Tree planting: A key weapon against global warmingFriday, 22 February 2008
Tree-planting activities - reforestation and afforestation - have come in for criticism in recent times, giving rise to a debate over whether planting new forests in order to combat climate change is worthwhile, and whether it can be accurately reflected in a system of economic credits.
Planting trees is hugely beneficial to the world in the face of accelerating climate change. There is now a strong international scientific consensus that human activity is causing global warming. A substantial reduction in the planet’s forest cover over recent centuries is a major contributor to this climatic change.As trees grow they absorb carbon dioxide (CO2), the main 'greenhouse gas' responsible for global warming, thereby reducing the concentration of this gas in the atmosphere. Forests are referred to as 'carbon sinks' for this function of CO2 absorption and storage. Planting trees to bolster carbon sink area, an example of what’s termed ‘carbon sequestration’, helps offset the loss of native forests and fights global warming. At a local level, tree-planting on deforested lands creates further environmental benefits. Forests play a vital role in regulating water supplies, helping to minimise both water shortages in times of drought and damaging floods in heavy rains. Trees also reduce soil erosion, thereby conserving soil quality upstream and water quality downstream. Forests also provide habitats for a wide array of plant and animal species, a number of which are threatened with extinction by deforestation.Socio-economic benefits of reforestation projects include direct employment, infrastructure development, skills-transfer and the creation of markets for related products and services. Certain plantation forest models may also provide local communities with additional products such as fuel-wood, fruit, nuts and herbs, and opportunities for agricultural activities (inter-cropping, livestock grazing) within the forest area. Finally, sustainable forestry can provide additional climate change and local environmental benefits in the longer term. Once harvested, the wood from the trees may be used either as a source of renewable energy, thereby reducing the use of fossil fuels, or for construction materials or furniture-making, thereby reducing deforestation elsewhere.
What are the criticisms? Against the background of the general benefits of tree planting there are a number of specific criticisms. These are summarised below and then examined in detail.
1. Tree-planting doesn’t address the real issue of preventing emissions at source
2. Trees take too long to make a difference to climate change
3. Carbon credits from tree plantations aren’t properly verified
4. Trees don’t last forever so their climate change value isn’t permanent
5. Money for plantations would be better spent preventing deforestation
6. Tree plantations are bad for biodiversity and the local environment
7. Forests may actually contribute to global warming
8. Plantations often have negative social impacts
1. Tree-planting doesn't address the real issue of preventing emissions at source: We cannot rely on planting trees to absorb our ever-increasing emissions of greenhouse gases. We must instead focus on reducing both our total energy consumption and our reliance upon ‘dirty’ technologies and fossil fuels. Yes, absolutely. But this does not mean that planting trees is a bad thing, merely that it should not be the primary focus of the global response to climate change. As with a new illness, where you treat the symptoms of existing cases whilst working on finding a vaccine against future cases, it is desirable to plant trees while we work on addressing the longer-term technological and behavioural challenges of emissions reduction. This criticism is in fact made not just of tree-planting, but of the wider concept of 'offsetting', that is, paying for greenhouse emissions reductions elsewhere to counter-balance one's own emissions. A common variant of the argument adds a moral perspective, likening offsetting to the medieval practice of buying ‘indulgences’ – effectively licences to sin - from the Church.However, the analogy is flawed: whilst one can choose to sin or not to sin, in today's world it is simply not possible to stop emitting greenhouse gases immediately, or within a few years. Even with significant financial commitments and fundamental lifestyle changes, climate change will not be stopped within a few years.So whilst in the long-term individual and corporate behaviour and the energy basis of the entire global economy must change, in the short-term it is better to purchase offsets than to do nothing at all. This is especially the case when considering the other environmental benefits that planting trees can bring beyond climate change.It is also worth noting that in existing and emerging emissions trading schemes, it is not possible for emitters to cover all their emissions with offsets. In the EU Emissions Trading Scheme (EU ETS) and the Regional Greenhouse Gas Initiative (RGGI) in the US North East, for example, the use of offsets is limited to a small proportion of the overall emissions cap, typically 3 to 15 per cent. These limits are designed to keep the focus on reducing emissions at their source.
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2. Trees take too long to make a difference to climate change:It takes 50 or 100 years for trees to grow large enough to absorb significant amounts of carbon so accurate carbon crediting shouldn’t see any generated for decades.This is not the case for plantation forests.Carbon absorption rates in trees depend on the species and the location. Fast-growing species in tropical climates can sequester CO2 many times faster than the average European forest, and plantation projects aimed at earning carbon credits are typically designed to maximise the sequestration potential.Over a 20-year lifecycle, the right species in the right conditions can absorb over 40,000 tonnes of CO2 per square kilometer. So a plantation of 100 square kilometers can absorb 4 million tonnes of CO2 over 20 years. That’s equivalent to taking 50,000 cars or more off the road during that time (based on annual emissions of 3 to 4 tonnes for the average car and its usage).Even when allowing for other factors that reduce the net carbon effect of tree planting, such as the greenhouse-gas emissions from vehicles and machinery used during planting and maintenance, a sizable plantation makes a very significant positive contribution to the greenhouse problem.Attracting deserved criticism, however, is the reported practice of some offset providers selling upfront, in one year, forest carbon credits for the total future CO2 absorption of trees over their lifetime. This is not good practice. However it is not permitted under the Kyoto Protocol’s Clean Development Mechanism (CDM); afforestation and reforestation credits are issued every five years, and only for the amount of carbon stored up until that point. Non-Kyoto carbon offset schemes are discussed below.
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3. Carbon credits from tree plantations aren’t properly verified:Reforestation credits are unreliable because there is little verification of trees grown or accurate accounting for credits generated. This is a valid criticism of the ‘voluntary’ market currently, but not the ‘compliance’ market. In the compliance market, offset credits are purchased to meet mandatory requirements under the Kyoto Protocol or other regional or national emissions trading schemes. The most widely used are CERs under the CDM. Carbon credits for compliance are highly standardised and regulated. Tight conditions govern what kinds of projects qualify for credits, strict monitoring and auditing is required, and centralised registration and issuance of credits prevents double-counting. The fact that afforestation and reforestation projects have been slower to get off the ground in the CDM than clean technology projects is largely because of the commitment within the UNFCCC to ensure that the rules governing measurement and credit generation are credible.So far, it’s a different story in the ‘voluntary’ market, where organisations and individuals buy carbon credits to offset their emissions by their own choice. There are no laws forcing them to do so, and hence a lack of common standards and regulatory oversight. Tree-planting is a common activity for generating offsets in this market. While many providers of voluntary credits do adhere to robust verification and accounting principles, there have also been cases of inconsistent calculation of credits, sales of non-existent credits, and double-counting of credits. The lack of consistency has made it difficult for buyers of credits to be sure that emission reduction projects are actually carried out and do deliver their promised reductions. There is certainly a need for greater standardisation and better regulation of this market to ensure that 'cowboys' cannot survive in it. Many providers of voluntary credits agree on this. International accreditation standards, such as the Voluntary Carbon Standard, VER+ and the Community, Climate and Biodiversity Alliance’s CCB Standard, are now emerging to address these concerns and provide buyers of credits with confidence that they are indeed getting their money's worth.Those looking to buy tree-planting credits in the voluntary market should be wary of projects that do not come with an internationally-recognised accreditation. If a project’s validity can’t be transparently demonstrated or independently verified, then the credits should not be bought.
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4. Trees don’t last forever so their climate change value isn’t permanent: You can never be sure how long the trees planted for carbon credits are going to remain in the ground. Yes, and carbon crediting should reflect this.A major difference between reforestation projects and other carbon credit projects is that tree planting takes CO2 out of the atmosphere. Forests are a carbon sink whereas most other carbon cutting projects directly prevent carbon going into the air in the first place – from sources such as factories, power plants and transport. Unlike direct reductions in emissions, carbon sequestration through tree-planting is reversible. Trees could burn down in a forest fire, die from disease or insect attack, or be chopped down by those seeking to exploit their economic value, all of which will sooner or later release some or all of the stored CO2 back into the atmosphere.The need to address this issue caused considerable debate and delay before afforestation and reforestation (A/R) projects were allowed to qualify for credits in the CDM. A/R projects were finally admitted in 2003, but with specific rules which differ from those for all other CDM credits. The A/R rules are complex but, in effect, credits have to be verified every five years. If the trees are not still standing, then the credits are no longer valid and replacements must be purchased. By contrast, all other credits under the CDM are valid in perpetuity once issued. As a result, A/R credits trade at significantly lower values per tonne of CO2 than other ‘permanent’ credits. Not many voluntary market projects apply this level of rigour in their carbon accounting as yet but, as described above, independent accreditation standards do exist. For example, the revamped Voluntary Carbon Standard (backed by The Climate Group, International Emissions Trading Association and the World Business Council for Sustainable Development) accounts for the possibility of carbon loss by requiring a proportion of carbon credits generated every year be held in a “buffer reserve” to cover potential losses.So, it is now possible to ensure the long-term credibility of carbon credits from forestry projects in both the Kyoto-compliance and voluntary carbon markets. Buyers should use only those offset providers that have achieved the appropriate accreditation.
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5. Money for plantations would be better spent preventing deforestation: Clearing of native forests results in large greenhouse gas emissions so investing in halting deforestation in the first place should be the priority.We need to do both.Slowing and halting the clearing of native forests is critical. Deforestation is the second largest source of global greenhouse gas emissions after power generation, according to the Global Canopy Programme, contributing to the release of up to 2 billion tonnes of CO2 into the atmosphere per year – significantly more than all the cars and trucks in the world. Support for globally co-ordinated deforestation initiatives - involving paying developing countries and their communities not to clear vital tropical rainforests – is gaining momentum.However, that solution is only just getting underway whilst deforestation continues apace. Until the significant political and technical obstacles to these initiatives are resolved, reforestation provides a valuable counter-balance to ongoing forest destruction. In the long-term, the ideal solution is that sound incentives be in place both to halt deforestation, and to encourage reforestation. The Reduced Emissions from Deforestation and Degradation (REDD) initiative is already beginning to see carbon credits paid for the preservation of existing tropical rainforest – properly monitored and verified to the CCB Standard. This is further evidence that the evolving market system of carbon credits is set for a key role on both sides of the forests-climate equation - deforestation and reforestation.
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6. Tree plantations are bad for biodiversity and the local environment: Large mono-culture plantations of exotic species do not benefit native plants and animals, and native forests are sometimes cut down to make way for them. This is true of some commercial timber plantation operations, but not of tree-planting overall, and particularly not of well-regulated carbon-financed projects. The first element of this argument is addressed in a key requirement for most carbon offset tree-planting schemes; that they be located on land that was cleared or degraded some time previously. To be eligible for credits under the CDM, it is necessary to provide detailed proof that the land was cleared before 1990, when the idea of carbon-based financing for reforestation first emerged. Other standards also require clear evidence that benefits are not accruing to those responsible for the original land-clearing. These controls ensure that carbon credits do not provide incentives for further deforestation.The second point is a valid criticism of purely commercial timber plantations of fast-growing tree-species, such as eucalyptus and certain types of pine, which certainly do not replicate the conditions of a natural forest. However, most carbon offset schemes include strict criteria on local environmental and biodiversity impacts in order to address these concerns. Species selected must be appropriate for the sites, and many schemes require a certain proportion of trees planted to be indigenous species or a certain proportion of the land to be devoted to native forest regeneration. And since offset projects are generally located on land that is already degraded, they still lead to an overall increase in ecosystem health and biodiversity. It is finally worth noting that it is somewhat unfair to judge commercial timber plantations against the benchmark of natural forest. This imposes a higher standard than that faced by commercial growers of other non-indigenous monoculture crops, such as wheat or maize, and ignores the additional environmental benefits that plantation forests do provide.
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7. Forests may actually contribute to global warming:Recent studies have found evidence that some forests’ atmospheric warming effects may outweigh their cooling impact. Not the case in most carbon sequestration plantations.One study released in late 2006 found that in addition to the ‘cooling effect’ due to absorption of CO2, forests have several other warming and cooling effects, which vary according to where the trees are planted. In temperate latitudes the dark foliage of trees absorbs more solar energy than the grasslands or open areas which they tend to replace, and trees also grow slowly, removing relatively low volumes of CO2 from the atmosphere per year. In tropical climates, by contrast, the trees generally replace dense ground vegetation and thus have little impact on solar energy absorption. The trees grow fast and absorb high volumes of CO2, and higher evaporation levels add a further cooling effect. The study thus concluded that whilst tree planting in the tropics has a net cooling effect, in temperate regions it can actually have a net warming effect. While forest plantation activity goes on at most latitudes around the globe, carbon projects tend to be located in the tropics, where faster growth rates maximise the rate of carbon absorption and hence the volume of carbon credits generated.Another study published in 2006 by scientists at the Max Planck Institute in Germany, claimed to have discovered that plants actually emit methane, a greenhouse gas with 23 times the global warming potency of CO2. This triggered an international debate on whether planting trees might actually worsen global warming rather than help to mitigate it.Clarification provided by the authors of the study since, however, is that methane emissions from plants are very low and that the climatic benefits of forests far outweighed the negatives. The benefits gained by reforestation would be reduced by only 1 to 4 per cent due to methane emissions, said Frank Keppler, one of the authors.Furthermore, in May 2007, scientists at Plant Research International in Wageningen in The Netherlands published the results of a study which tested the Planck findings in more controlled conditions. It found no evidence at all of methane emissions from plants and suggested that the methane detected in the original study may have come from elsewhere.
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8. Plantations often have negative social impacts:Many forest planting schemes are bad for surrounding local communities, for example, their operators pay exploitative wages or force people off their land. Not a criticism of tree planting per se, but an important consideration. All tree-planting projects, especially those in the developing world, should ensure that wages are fair, that land rights are respected, and that the views and needs of local communities are taken into consideration in project design and management. The socio-economic benefits of projects should far outweigh any genuinely unavoidable negative impacts. The CDM and the emerging accreditation schemes for voluntary carbon projects include social as well as environmental criteria, and require detailed initial analysis and ongoing monitoring to ensure that these are met. For CDM projects the host country government must confirm that it does contribute in all respects to national objectives for social, environmental and economic development. In the voluntary market, the ongoing strengthening and wider application of common project standards is certainly needed to assure buyers that their carbon credits do not come with hidden social costs.
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In conclusion
In assessing the major arguments advanced against the practice of planting trees in order to mitigate climate change, Carbon Positive has sought to put the pros and cons into their proper perspective. We are not saying that all tree plantation activity is positive, nor that those plantations that are positive are flawless and can't be improved in some aspects. We are saying that tree planting is an inherently positive activity, and that, when done right, it does offer substantial benefits for the climate, for the surrounding environment and for local people. We are saying that carbon financing is a valid and powerful means of achieving these benefits. Getting it right, however, is not easy. As the industry evolves, there are wrong turns and mistakes being made and those involved must be ready to accept constructive criticism. But we hope this article demonstrates that tree planting is fundamentally desirable and that a major contribution to fighting climate change is achievable. As such, those that genuinely strive towards the appropriate environmental and social principles should be encouraged.Ally Charlton, Ian HamiltonCarbon Positive
back to top Related links:Carbon trading simply explainedIPCC: Human hand in climate changeForests key to global warming fightTree planting not always carbon positive
Tree-planting activities - reforestation and afforestation - have come in for criticism in recent times, giving rise to a debate over whether planting new forests in order to combat climate change is worthwhile, and whether it can be accurately reflected in a system of economic credits.
The criticisms focus on:
- the validity and accuracy of methods used to calculate the climate change benefits,
- the ethics of ‘offsetting’, that is, compensating for emissions rather than eliminating them at source,
- and the social and environmental impacts of plantations.
Planting trees is hugely beneficial to the world in the face of accelerating climate change. There is now a strong international scientific consensus that human activity is causing global warming. A substantial reduction in the planet’s forest cover over recent centuries is a major contributor to this climatic change.As trees grow they absorb carbon dioxide (CO2), the main 'greenhouse gas' responsible for global warming, thereby reducing the concentration of this gas in the atmosphere. Forests are referred to as 'carbon sinks' for this function of CO2 absorption and storage. Planting trees to bolster carbon sink area, an example of what’s termed ‘carbon sequestration’, helps offset the loss of native forests and fights global warming. At a local level, tree-planting on deforested lands creates further environmental benefits. Forests play a vital role in regulating water supplies, helping to minimise both water shortages in times of drought and damaging floods in heavy rains. Trees also reduce soil erosion, thereby conserving soil quality upstream and water quality downstream. Forests also provide habitats for a wide array of plant and animal species, a number of which are threatened with extinction by deforestation.Socio-economic benefits of reforestation projects include direct employment, infrastructure development, skills-transfer and the creation of markets for related products and services. Certain plantation forest models may also provide local communities with additional products such as fuel-wood, fruit, nuts and herbs, and opportunities for agricultural activities (inter-cropping, livestock grazing) within the forest area. Finally, sustainable forestry can provide additional climate change and local environmental benefits in the longer term. Once harvested, the wood from the trees may be used either as a source of renewable energy, thereby reducing the use of fossil fuels, or for construction materials or furniture-making, thereby reducing deforestation elsewhere.
What are the criticisms? Against the background of the general benefits of tree planting there are a number of specific criticisms. These are summarised below and then examined in detail.
1. Tree-planting doesn’t address the real issue of preventing emissions at source
2. Trees take too long to make a difference to climate change
3. Carbon credits from tree plantations aren’t properly verified
4. Trees don’t last forever so their climate change value isn’t permanent
5. Money for plantations would be better spent preventing deforestation
6. Tree plantations are bad for biodiversity and the local environment
7. Forests may actually contribute to global warming
8. Plantations often have negative social impacts
1. Tree-planting doesn't address the real issue of preventing emissions at source: We cannot rely on planting trees to absorb our ever-increasing emissions of greenhouse gases. We must instead focus on reducing both our total energy consumption and our reliance upon ‘dirty’ technologies and fossil fuels. Yes, absolutely. But this does not mean that planting trees is a bad thing, merely that it should not be the primary focus of the global response to climate change. As with a new illness, where you treat the symptoms of existing cases whilst working on finding a vaccine against future cases, it is desirable to plant trees while we work on addressing the longer-term technological and behavioural challenges of emissions reduction. This criticism is in fact made not just of tree-planting, but of the wider concept of 'offsetting', that is, paying for greenhouse emissions reductions elsewhere to counter-balance one's own emissions. A common variant of the argument adds a moral perspective, likening offsetting to the medieval practice of buying ‘indulgences’ – effectively licences to sin - from the Church.However, the analogy is flawed: whilst one can choose to sin or not to sin, in today's world it is simply not possible to stop emitting greenhouse gases immediately, or within a few years. Even with significant financial commitments and fundamental lifestyle changes, climate change will not be stopped within a few years.So whilst in the long-term individual and corporate behaviour and the energy basis of the entire global economy must change, in the short-term it is better to purchase offsets than to do nothing at all. This is especially the case when considering the other environmental benefits that planting trees can bring beyond climate change.It is also worth noting that in existing and emerging emissions trading schemes, it is not possible for emitters to cover all their emissions with offsets. In the EU Emissions Trading Scheme (EU ETS) and the Regional Greenhouse Gas Initiative (RGGI) in the US North East, for example, the use of offsets is limited to a small proportion of the overall emissions cap, typically 3 to 15 per cent. These limits are designed to keep the focus on reducing emissions at their source.
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2. Trees take too long to make a difference to climate change:It takes 50 or 100 years for trees to grow large enough to absorb significant amounts of carbon so accurate carbon crediting shouldn’t see any generated for decades.This is not the case for plantation forests.Carbon absorption rates in trees depend on the species and the location. Fast-growing species in tropical climates can sequester CO2 many times faster than the average European forest, and plantation projects aimed at earning carbon credits are typically designed to maximise the sequestration potential.Over a 20-year lifecycle, the right species in the right conditions can absorb over 40,000 tonnes of CO2 per square kilometer. So a plantation of 100 square kilometers can absorb 4 million tonnes of CO2 over 20 years. That’s equivalent to taking 50,000 cars or more off the road during that time (based on annual emissions of 3 to 4 tonnes for the average car and its usage).Even when allowing for other factors that reduce the net carbon effect of tree planting, such as the greenhouse-gas emissions from vehicles and machinery used during planting and maintenance, a sizable plantation makes a very significant positive contribution to the greenhouse problem.Attracting deserved criticism, however, is the reported practice of some offset providers selling upfront, in one year, forest carbon credits for the total future CO2 absorption of trees over their lifetime. This is not good practice. However it is not permitted under the Kyoto Protocol’s Clean Development Mechanism (CDM); afforestation and reforestation credits are issued every five years, and only for the amount of carbon stored up until that point. Non-Kyoto carbon offset schemes are discussed below.
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3. Carbon credits from tree plantations aren’t properly verified:Reforestation credits are unreliable because there is little verification of trees grown or accurate accounting for credits generated. This is a valid criticism of the ‘voluntary’ market currently, but not the ‘compliance’ market. In the compliance market, offset credits are purchased to meet mandatory requirements under the Kyoto Protocol or other regional or national emissions trading schemes. The most widely used are CERs under the CDM. Carbon credits for compliance are highly standardised and regulated. Tight conditions govern what kinds of projects qualify for credits, strict monitoring and auditing is required, and centralised registration and issuance of credits prevents double-counting. The fact that afforestation and reforestation projects have been slower to get off the ground in the CDM than clean technology projects is largely because of the commitment within the UNFCCC to ensure that the rules governing measurement and credit generation are credible.So far, it’s a different story in the ‘voluntary’ market, where organisations and individuals buy carbon credits to offset their emissions by their own choice. There are no laws forcing them to do so, and hence a lack of common standards and regulatory oversight. Tree-planting is a common activity for generating offsets in this market. While many providers of voluntary credits do adhere to robust verification and accounting principles, there have also been cases of inconsistent calculation of credits, sales of non-existent credits, and double-counting of credits. The lack of consistency has made it difficult for buyers of credits to be sure that emission reduction projects are actually carried out and do deliver their promised reductions. There is certainly a need for greater standardisation and better regulation of this market to ensure that 'cowboys' cannot survive in it. Many providers of voluntary credits agree on this. International accreditation standards, such as the Voluntary Carbon Standard, VER+ and the Community, Climate and Biodiversity Alliance’s CCB Standard, are now emerging to address these concerns and provide buyers of credits with confidence that they are indeed getting their money's worth.Those looking to buy tree-planting credits in the voluntary market should be wary of projects that do not come with an internationally-recognised accreditation. If a project’s validity can’t be transparently demonstrated or independently verified, then the credits should not be bought.
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4. Trees don’t last forever so their climate change value isn’t permanent: You can never be sure how long the trees planted for carbon credits are going to remain in the ground. Yes, and carbon crediting should reflect this.A major difference between reforestation projects and other carbon credit projects is that tree planting takes CO2 out of the atmosphere. Forests are a carbon sink whereas most other carbon cutting projects directly prevent carbon going into the air in the first place – from sources such as factories, power plants and transport. Unlike direct reductions in emissions, carbon sequestration through tree-planting is reversible. Trees could burn down in a forest fire, die from disease or insect attack, or be chopped down by those seeking to exploit their economic value, all of which will sooner or later release some or all of the stored CO2 back into the atmosphere.The need to address this issue caused considerable debate and delay before afforestation and reforestation (A/R) projects were allowed to qualify for credits in the CDM. A/R projects were finally admitted in 2003, but with specific rules which differ from those for all other CDM credits. The A/R rules are complex but, in effect, credits have to be verified every five years. If the trees are not still standing, then the credits are no longer valid and replacements must be purchased. By contrast, all other credits under the CDM are valid in perpetuity once issued. As a result, A/R credits trade at significantly lower values per tonne of CO2 than other ‘permanent’ credits. Not many voluntary market projects apply this level of rigour in their carbon accounting as yet but, as described above, independent accreditation standards do exist. For example, the revamped Voluntary Carbon Standard (backed by The Climate Group, International Emissions Trading Association and the World Business Council for Sustainable Development) accounts for the possibility of carbon loss by requiring a proportion of carbon credits generated every year be held in a “buffer reserve” to cover potential losses.So, it is now possible to ensure the long-term credibility of carbon credits from forestry projects in both the Kyoto-compliance and voluntary carbon markets. Buyers should use only those offset providers that have achieved the appropriate accreditation.
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5. Money for plantations would be better spent preventing deforestation: Clearing of native forests results in large greenhouse gas emissions so investing in halting deforestation in the first place should be the priority.We need to do both.Slowing and halting the clearing of native forests is critical. Deforestation is the second largest source of global greenhouse gas emissions after power generation, according to the Global Canopy Programme, contributing to the release of up to 2 billion tonnes of CO2 into the atmosphere per year – significantly more than all the cars and trucks in the world. Support for globally co-ordinated deforestation initiatives - involving paying developing countries and their communities not to clear vital tropical rainforests – is gaining momentum.However, that solution is only just getting underway whilst deforestation continues apace. Until the significant political and technical obstacles to these initiatives are resolved, reforestation provides a valuable counter-balance to ongoing forest destruction. In the long-term, the ideal solution is that sound incentives be in place both to halt deforestation, and to encourage reforestation. The Reduced Emissions from Deforestation and Degradation (REDD) initiative is already beginning to see carbon credits paid for the preservation of existing tropical rainforest – properly monitored and verified to the CCB Standard. This is further evidence that the evolving market system of carbon credits is set for a key role on both sides of the forests-climate equation - deforestation and reforestation.
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6. Tree plantations are bad for biodiversity and the local environment: Large mono-culture plantations of exotic species do not benefit native plants and animals, and native forests are sometimes cut down to make way for them. This is true of some commercial timber plantation operations, but not of tree-planting overall, and particularly not of well-regulated carbon-financed projects. The first element of this argument is addressed in a key requirement for most carbon offset tree-planting schemes; that they be located on land that was cleared or degraded some time previously. To be eligible for credits under the CDM, it is necessary to provide detailed proof that the land was cleared before 1990, when the idea of carbon-based financing for reforestation first emerged. Other standards also require clear evidence that benefits are not accruing to those responsible for the original land-clearing. These controls ensure that carbon credits do not provide incentives for further deforestation.The second point is a valid criticism of purely commercial timber plantations of fast-growing tree-species, such as eucalyptus and certain types of pine, which certainly do not replicate the conditions of a natural forest. However, most carbon offset schemes include strict criteria on local environmental and biodiversity impacts in order to address these concerns. Species selected must be appropriate for the sites, and many schemes require a certain proportion of trees planted to be indigenous species or a certain proportion of the land to be devoted to native forest regeneration. And since offset projects are generally located on land that is already degraded, they still lead to an overall increase in ecosystem health and biodiversity. It is finally worth noting that it is somewhat unfair to judge commercial timber plantations against the benchmark of natural forest. This imposes a higher standard than that faced by commercial growers of other non-indigenous monoculture crops, such as wheat or maize, and ignores the additional environmental benefits that plantation forests do provide.
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7. Forests may actually contribute to global warming:Recent studies have found evidence that some forests’ atmospheric warming effects may outweigh their cooling impact. Not the case in most carbon sequestration plantations.One study released in late 2006 found that in addition to the ‘cooling effect’ due to absorption of CO2, forests have several other warming and cooling effects, which vary according to where the trees are planted. In temperate latitudes the dark foliage of trees absorbs more solar energy than the grasslands or open areas which they tend to replace, and trees also grow slowly, removing relatively low volumes of CO2 from the atmosphere per year. In tropical climates, by contrast, the trees generally replace dense ground vegetation and thus have little impact on solar energy absorption. The trees grow fast and absorb high volumes of CO2, and higher evaporation levels add a further cooling effect. The study thus concluded that whilst tree planting in the tropics has a net cooling effect, in temperate regions it can actually have a net warming effect. While forest plantation activity goes on at most latitudes around the globe, carbon projects tend to be located in the tropics, where faster growth rates maximise the rate of carbon absorption and hence the volume of carbon credits generated.Another study published in 2006 by scientists at the Max Planck Institute in Germany, claimed to have discovered that plants actually emit methane, a greenhouse gas with 23 times the global warming potency of CO2. This triggered an international debate on whether planting trees might actually worsen global warming rather than help to mitigate it.Clarification provided by the authors of the study since, however, is that methane emissions from plants are very low and that the climatic benefits of forests far outweighed the negatives. The benefits gained by reforestation would be reduced by only 1 to 4 per cent due to methane emissions, said Frank Keppler, one of the authors.Furthermore, in May 2007, scientists at Plant Research International in Wageningen in The Netherlands published the results of a study which tested the Planck findings in more controlled conditions. It found no evidence at all of methane emissions from plants and suggested that the methane detected in the original study may have come from elsewhere.
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8. Plantations often have negative social impacts:Many forest planting schemes are bad for surrounding local communities, for example, their operators pay exploitative wages or force people off their land. Not a criticism of tree planting per se, but an important consideration. All tree-planting projects, especially those in the developing world, should ensure that wages are fair, that land rights are respected, and that the views and needs of local communities are taken into consideration in project design and management. The socio-economic benefits of projects should far outweigh any genuinely unavoidable negative impacts. The CDM and the emerging accreditation schemes for voluntary carbon projects include social as well as environmental criteria, and require detailed initial analysis and ongoing monitoring to ensure that these are met. For CDM projects the host country government must confirm that it does contribute in all respects to national objectives for social, environmental and economic development. In the voluntary market, the ongoing strengthening and wider application of common project standards is certainly needed to assure buyers that their carbon credits do not come with hidden social costs.
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In conclusion
In assessing the major arguments advanced against the practice of planting trees in order to mitigate climate change, Carbon Positive has sought to put the pros and cons into their proper perspective. We are not saying that all tree plantation activity is positive, nor that those plantations that are positive are flawless and can't be improved in some aspects. We are saying that tree planting is an inherently positive activity, and that, when done right, it does offer substantial benefits for the climate, for the surrounding environment and for local people. We are saying that carbon financing is a valid and powerful means of achieving these benefits. Getting it right, however, is not easy. As the industry evolves, there are wrong turns and mistakes being made and those involved must be ready to accept constructive criticism. But we hope this article demonstrates that tree planting is fundamentally desirable and that a major contribution to fighting climate change is achievable. As such, those that genuinely strive towards the appropriate environmental and social principles should be encouraged.Ally Charlton, Ian HamiltonCarbon Positive
back to top Related links:Carbon trading simply explainedIPCC: Human hand in climate changeForests key to global warming fightTree planting not always carbon positive
Monday, March 31, 2008
JP Morgan acquires UK based ClimateCare
UPDATE 2- LONDON/NEW YORK, March 26 (Reuters) - JPMorgan has acquired the UK-based carbon offsetting company ClimateCare, the U.S. investment bank said on Wednesday.
Carbon offsetting allows countries and companies to fight climate change by paying for others to cut planet warming gases on their behalf, and is catching on among the public wanting to offset emissions voluntarily.
Investment banks including Citigroup, Morgan Stanley and Merrill Lynch have all recently bought stakes in developers of emissions-cutting projects but JPMorgan said it was the first case to buy a developer outright.
"We have a very healthy (offsets) pipeline both from the build-out of our own team and from ClimateCare, sufficient to match what we want to do in the next 12 to 18 months," said Bruce Tozer, global head of environmental markets.
JPMorgan declined to comment on the value of the deal or the amount of carbon offsets ClimateCare had developed.
Investment banks like carbon markets both to trade in these often volatile markets and to sell emissions permits and offsets to corporate clients facing voluntary or legally binding emissions targets.
BOOMING
Global carbon markets are booming, growing 80 percent to 40 billion euros ($62.94 billion) last year according to researchers Point Carbon, and that may continue because all remaining U.S. presidential candidates support a U.S. federal carbon trading market to match a European scheme.
But the European Union has said its demand for carbon offsets from developing countries, through a U.N.-run scheme under the Kyoto Protocol, depends on all countries agreeing a post-2012 successor to Kyoto in talks scheduled to end next year.
"(The EU) did increase uncertainty regarding post-2012 demand. It does potentially increase the risks on demand for CERs and ERUs," Tozer said, referring to U.N. jargon for offsets traded under the Kyoto scheme.
"The EU does strongly support purchases from less developed countries, and ClimateCare's presence in Africa plays into that," he added, referring to an EU proposal that new offset projects are only accepted from least developed countries after 2012.
ClimateCare has an office in Kenya and has been active in the unregulated voluntary carbon market worth about $400 million last year, and which has had its own critics because it operates outside rules under official government and U.N.-led schemes.
"We and ClimateCare have been actively involved in bringing greater transparency," said Tozer, referring to new voluntary carbon market standards.
JPMorgan said it had made the acquisition through its investment bank and that its environmental markets group would initially operate under the JPMorgan and ClimateCare brands.
In 2007, JPMorgan hired more than 50 new marketing, sales and trading professionals in commodities and would hire at least as many in 2008, the bank said. ClimateCare has 40 staff.
(Reporting by the New York Equities Desk and Gerard Wynn in London; editing by James Jukwey)
((gerard.wynn@reuters.com; +44 207 542 2302)) ($1=.6355 Euro)
Keywords: CARBON/JPMORGAN
Carbon offsetting allows countries and companies to fight climate change by paying for others to cut planet warming gases on their behalf, and is catching on among the public wanting to offset emissions voluntarily.
Investment banks including Citigroup
"We have a very healthy (offsets) pipeline both from the build-out of our own team and from ClimateCare, sufficient to match what we want to do in the next 12 to 18 months," said Bruce Tozer, global head of environmental markets.
JPMorgan declined to comment on the value of the deal or the amount of carbon offsets ClimateCare had developed.
Investment banks like carbon markets both to trade in these often volatile markets and to sell emissions permits and offsets to corporate clients facing voluntary or legally binding emissions targets.
BOOMING
Global carbon markets are booming, growing 80 percent to 40 billion euros ($62.94 billion) last year according to researchers Point Carbon, and that may continue because all remaining U.S. presidential candidates support a U.S. federal carbon trading market to match a European scheme.
But the European Union has said its demand for carbon offsets from developing countries, through a U.N.-run scheme under the Kyoto Protocol, depends on all countries agreeing a post-2012 successor to Kyoto in talks scheduled to end next year.
"(The EU) did increase uncertainty regarding post-2012 demand. It does potentially increase the risks on demand for CERs and ERUs," Tozer said, referring to U.N. jargon for offsets traded under the Kyoto scheme.
"The EU does strongly support purchases from less developed countries, and ClimateCare's presence in Africa plays into that," he added, referring to an EU proposal that new offset projects are only accepted from least developed countries after 2012.
ClimateCare has an office in Kenya and has been active in the unregulated voluntary carbon market worth about $400 million last year, and which has had its own critics because it operates outside rules under official government and U.N.-led schemes.
"We and ClimateCare have been actively involved in bringing greater transparency," said Tozer, referring to new voluntary carbon market standards.
JPMorgan said it had made the acquisition through its investment bank and that its environmental markets group would initially operate under the JPMorgan and ClimateCare brands.
In 2007, JPMorgan hired more than 50 new marketing, sales and trading professionals in commodities and would hire at least as many in 2008, the bank said. ClimateCare has 40 staff.
(Reporting by the New York Equities Desk and Gerard Wynn in London; editing by James Jukwey)
((gerard.wynn@reuters.com; +44 207 542 2302)) ($1=.6355 Euro)
Keywords: CARBON/JPMORGAN
Merrill Lynch and Societe Generale launch global carbon indexes
UPDATE 1- LONDON, Mar 26 (Reuters) -
U.S. investment bank Merrill Lynch and France's Societe Generale both launched global carbon indexes on Wednesday to track the international carbon markets, which were worth some $60 billion last year.
The indexes will allow investors to access the world's carbon markets, including the European Union's emissions trading scheme and carbon trading markets under the United Nations' Kyoto Protocol.
"The (Merrill Lynch indexes) come in response to strong demand from our institutional, asset management, and wealth management clients who seek exposure to the rapidly growing global carbon market," Abyd Karmali, managing director and global head of emissions markets at Merrill Lynch, said in a statement.
The European Union Allowances (EUAs) and U.N.-approved certified emissions reductions (CERs) are currently the most traded greenhouse gas credits, making up more than 99 percent of global market activity.
The research arm of Merrill Lynch said its MLCX Global CO2 Emissions Index will weigh EUAs and CERs at 71 percent and 29 percent respectively.
"The weightings of the new MLCX Global CO2 Emissions Index are based on liquidity of the underlying instruments, a crucially important element for investors looking to gain exposure to a new and fast-growing market," Francisco Blanch, Merrill Lynch's head of global commodities research Francisco Blanch, said.
Societe Generale's SGI-orbeo Carbon Credit Index, launched with joint-venture orbeo, will weigh the two types evenly.
SGI-orbeo is a joint venture between Societe Generale and chemicals group Rhodia.
(Reporting by Michael Szabo; Editing by Jane Merriman)
U.S. investment bank Merrill Lynch
The indexes will allow investors to access the world's carbon markets, including the European Union's emissions trading scheme and carbon trading markets under the United Nations' Kyoto Protocol.
"The (Merrill Lynch indexes) come in response to strong demand from our institutional, asset management, and wealth management clients who seek exposure to the rapidly growing global carbon market," Abyd Karmali, managing director and global head of emissions markets at Merrill Lynch, said in a statement.
The European Union Allowances (EUAs) and U.N.-approved certified emissions reductions (CERs) are currently the most traded greenhouse gas credits, making up more than 99 percent of global market activity.
The research arm of Merrill Lynch said its MLCX Global CO2 Emissions Index will weigh EUAs and CERs at 71 percent and 29 percent respectively.
"The weightings of the new MLCX Global CO2 Emissions Index are based on liquidity of the underlying instruments, a crucially important element for investors looking to gain exposure to a new and fast-growing market," Francisco Blanch, Merrill Lynch's head of global commodities research Francisco Blanch, said.
Societe Generale's SGI-orbeo Carbon Credit Index, launched with joint-venture orbeo, will weigh the two types evenly.
SGI-orbeo is a joint venture between Societe Generale and chemicals group Rhodia
(Reporting by Michael Szabo; Editing by Jane Merriman)
Four nations in race to be first to go carbon neutral
Iceland, New Zealand, Norway and Costa Rica are all hoping to turn their economies green, but the challenges they face are formidable
By Geoffrey Lean and Bryan KaySunday, 30 March 2008
It's the race for the greenest of the laurels, the contest for the ultimate ecological accolade. Four countries are competing to be the first of the world's 195 nations to go entirely carbon neutral.
They make a disparate line-up of runners, comprising the world's most northerly and southernmost independent countries, its third largest oil exporter, and a state that long ago dispensed with its army.
The starting pistol was fired last month in Monaco – better known for its gas-guzzling Grand Prix than for such a determined race in the other direction – at the annual meeting of the Governing Council of the United Nations Environment Programme.
Iceland, New Zealand, Norway and Costa Rica formally signed up to go zero carbon, joining the Climate Neutral Network launched at the meeting. Achim Steiner, UNEP's executive director, calls it "an idea whose time has come, driven by the urgent need to address climate change and the abundant economic opportunities emerging for those willing to embrace a transition to a green economy."
He spells out the diverse challenges facing each of the contenders. Norway's main issue, he said, was "emissions from oil and gas", whereas most of New Zealand's pollution came from agriculture. Iceland's "central challenge" was "transport and industry, including fishing", while Costa Rica faced the special circumstances of being a developing country.
In fact one UN member state already claims to have beaten then all. The Vatican announced last September that it was becoming the world's first – but is widely held to have cheated. It said that it was winning the prize by offsetting its entire emissions for 2007 though planting trees to restore an ancient forest in Hungary.
But critics say that the true champion will have to achieve carbon neutrality at home – and point out that the Holy See has failed to count the carbon emitted by its travelling officials, or emissions from its buildings outside the Vatican City.
All the main contenders get much of their energy from renewable sources. Iceland has gone the furthest, already achieving almost complete carbon neutrality in heating buildings and in electricity generation. Its greatest asset is disclosed in the name of its capital city, Reykjavik, which means "bay of smokes", referring to the plumes rising from its hot springs. Such geothermal energy now heats it and much of the rest of the country.
Only 1 per cent of its homes are heated by fossil fuels, and 99 per cent of its electricity is generated by geothermal and hydroelectric power. "But we have not entirely kicked our carbon habit", writes its Environment Minister, Thorunn Sveinbjarnardottir, in the forthcoming issue of UNEP's magazine, Our Planet.
"Our fishing fleets and our cars are still running on fossil fuels. Our car fleet is one of the biggest, per capita, in the world. And Icelanders tend to like big cars, as any visitor to our country will soon notice." The country will give people discounts to buy eco-friendly vehicles and fit fuel cells to fishing boats, aiming to reduce its relatively small national emissions of carbon dioxide by 75 per cent by 2050.
On the other side of the world, New Zealand's Prime Minister, Helen Clark, has already set her country the goal of being the world's first carbon-neutral country. It aims to generate 90 per cent of its energy from renewable sources by 2025, and to halve its transport emissions per head by 2040. But the country has a particular problem with agriculture, which accounts for half its emissions of greenhouse gases.
Norway has set an even more ambitious target, aiming for carbon neutrality by 2030, despite being the world's third largest oil exporter. It already gets 95 per cent of its electricity from hydroelectric power, and heavily taxes cars and fuel: a 4x4 costs four times as much as in the United States. And it is planning to capture and store carbon in old North Sea oil fields. But Frederic Hauge – the head of Bellona, the country's largest environment pressure group – is sceptical. "We are a nice little country of petroholics and that has made us lazy", he says.
On paper at least, the poorest of the four countries is in the lead – Costa Rica plans to reach its goal by 2021. It has just released a plan of action, which relies heavily on planting trees to soak up emissions. Last year it planted five million of them, a world record, and the banana industry – the country's largest exporter – has promised to go carbon neutral. However, its number of cars has increased more than five-fold in the past 20 years and its air traffic more than seven-fold in just six, making its task far harder.
By Geoffrey Lean and Bryan KaySunday, 30 March 2008
It's the race for the greenest of the laurels, the contest for the ultimate ecological accolade. Four countries are competing to be the first of the world's 195 nations to go entirely carbon neutral.
They make a disparate line-up of runners, comprising the world's most northerly and southernmost independent countries, its third largest oil exporter, and a state that long ago dispensed with its army.
The starting pistol was fired last month in Monaco – better known for its gas-guzzling Grand Prix than for such a determined race in the other direction – at the annual meeting of the Governing Council of the United Nations Environment Programme.
Iceland, New Zealand, Norway and Costa Rica formally signed up to go zero carbon, joining the Climate Neutral Network launched at the meeting. Achim Steiner, UNEP's executive director, calls it "an idea whose time has come, driven by the urgent need to address climate change and the abundant economic opportunities emerging for those willing to embrace a transition to a green economy."
He spells out the diverse challenges facing each of the contenders. Norway's main issue, he said, was "emissions from oil and gas", whereas most of New Zealand's pollution came from agriculture. Iceland's "central challenge" was "transport and industry, including fishing", while Costa Rica faced the special circumstances of being a developing country.
In fact one UN member state already claims to have beaten then all. The Vatican announced last September that it was becoming the world's first – but is widely held to have cheated. It said that it was winning the prize by offsetting its entire emissions for 2007 though planting trees to restore an ancient forest in Hungary.
But critics say that the true champion will have to achieve carbon neutrality at home – and point out that the Holy See has failed to count the carbon emitted by its travelling officials, or emissions from its buildings outside the Vatican City.
All the main contenders get much of their energy from renewable sources. Iceland has gone the furthest, already achieving almost complete carbon neutrality in heating buildings and in electricity generation. Its greatest asset is disclosed in the name of its capital city, Reykjavik, which means "bay of smokes", referring to the plumes rising from its hot springs. Such geothermal energy now heats it and much of the rest of the country.
Only 1 per cent of its homes are heated by fossil fuels, and 99 per cent of its electricity is generated by geothermal and hydroelectric power. "But we have not entirely kicked our carbon habit", writes its Environment Minister, Thorunn Sveinbjarnardottir, in the forthcoming issue of UNEP's magazine, Our Planet.
"Our fishing fleets and our cars are still running on fossil fuels. Our car fleet is one of the biggest, per capita, in the world. And Icelanders tend to like big cars, as any visitor to our country will soon notice." The country will give people discounts to buy eco-friendly vehicles and fit fuel cells to fishing boats, aiming to reduce its relatively small national emissions of carbon dioxide by 75 per cent by 2050.
On the other side of the world, New Zealand's Prime Minister, Helen Clark, has already set her country the goal of being the world's first carbon-neutral country. It aims to generate 90 per cent of its energy from renewable sources by 2025, and to halve its transport emissions per head by 2040. But the country has a particular problem with agriculture, which accounts for half its emissions of greenhouse gases.
Norway has set an even more ambitious target, aiming for carbon neutrality by 2030, despite being the world's third largest oil exporter. It already gets 95 per cent of its electricity from hydroelectric power, and heavily taxes cars and fuel: a 4x4 costs four times as much as in the United States. And it is planning to capture and store carbon in old North Sea oil fields. But Frederic Hauge – the head of Bellona, the country's largest environment pressure group – is sceptical. "We are a nice little country of petroholics and that has made us lazy", he says.
On paper at least, the poorest of the four countries is in the lead – Costa Rica plans to reach its goal by 2021. It has just released a plan of action, which relies heavily on planting trees to soak up emissions. Last year it planted five million of them, a world record, and the banana industry – the country's largest exporter – has promised to go carbon neutral. However, its number of cars has increased more than five-fold in the past 20 years and its air traffic more than seven-fold in just six, making its task far harder.
Texas: Reliant stands to gain from forest preservation giftEffort provides useful practice in carbon trading
March 27, 2008, y TOM FOWLER
Copyright 2008 Houston Chronicle
Reliant Energy's $300,000 gift to help preserve coastal forests near Houston also will help the company get ready for a future fixture of the power business — carbon trading.
The donation to the U.S. Fish and Wildlife Service will buy more than 1,100 acres in an area known as the Columbia Bottomlands, which stretches across Brazoria, Matagorda, Fort Bend and Wharton counties. The area includes some of the largest remaining tracts of old-growth forests in the southern United States.
Under the deal, Reliant gets the rights to "carbon credits" that will be created by the forest's ability to draw up to 154,000 tons of the greenhouse gas carbon dioxide from the atmosphere.
While it has no immediate plans to sell the credits, Reliant can use them on one of the carbon markets now operating in the U.S. or in a future market that many expect will be created by federal climate change laws in the coming years.
"Our interest is less in the credits themselves than in the opportunity to learn how to do more projects like this and get familiar with carbon markets today and in the future," said Dave Freysinger, a senior vice president in charge of generation operations for Reliant.
Electricity retailing giantReliant is best known in Texas as the state's largest electric retailer, selling power generated by other companies to millions of customers. But it also owns and operates 16,000 megawatts of power plant capacity in nine other states. About 4,600 megawatts of that comes from coal-fired plants, which have the highest CO2 emissions among power plants. Reliant generates the rest with natural gas.
As the largest stationary sources of CO2, power producers likely will face the most direct effect from proposed federal legislation aimed at reducing greenhouse gas emissions.
The plan with the most support so far would set a cap on the amount of CO2 emissions a company is allowed per year and then reduce the cap over time. Companies could cut their emissions by shutting plants and improving technologies or develop projects that reduce CO2 in the atmosphere.
The largest CO2 credit trading market is a mandatory program in Europe launched several years ago under the Kyoto Protocol, an international climate treaty the U.S. did not sign, said Emilie Mazzacurati, a senior analyst with research firm PointCarbon.
Despite early problems, the market is running fairly well, she said, with about $60 billion in transactions per year.
The U.S. has several voluntary markets in place or starting up soon, Mazzacurati said, but they have relatively low carbon reduction goals.
"They're not very ambitious, so companies can reach the goals without too much effort," she said.
They're still useful to help companies get comfortable with creating and trading carbon offsets, however, as Houston-based Waste Management has discovered. The landfill operator is a charter member of the Chicago Climate Exchange, a marketplace created in 2002 to providing a framework for buying and selling carbon offsets.
"It provides a consistent set of rules and uses third-party verification of the offsets, which is important for buying and selling any commodity," said Kerry Kelly, director of federal public affairs at Waste Management.
The company captures methane — considered a more environmentally damaging greenhouse gas than CO2 — at 108 of its landfills and burns it to generate nearly 500 megawatts of power.
Through third-party certifications those projects create carbon credits the company trades on the Exchange.
Since the existing U.S. markets are voluntary, prices for carbon credits are generally lower than they're expected to be under any federal regulations. They have traded at $1 to $5 per ton, but studies have put the price at $20 to $50 per ton under laws proposed in Congress, Mazzacurati said.
Other preservation efforts
Reliant's work on the Columbia Bottomlands isn't its first such effort. In addition to more than a dozen nature and wildlife preservation projects around the country, in 2003 it paid $160,000 to plant 162,000 seedlings on land in Smith County, a project expected to help remove more than 200,000 tons of CO2 from the atmosphere.
Such projects don't absorb all that CO2 at once, but capture the gas over many years.
"You need to protect the land in perpetuity to let forests recover and allow carbon to be permanently removed from the atmosphere," said Mike Lange, a wildlife biologist with the U.S. Fish and Wildlife Service who has been working on preserving the Columbia Bottomlands. "It is easy to plant a tree, but for carbon sequestration to work, the land that tree is planted on must be protected permanently."
Copyright 2008 Houston Chronicle
Reliant Energy's $300,000 gift to help preserve coastal forests near Houston also will help the company get ready for a future fixture of the power business — carbon trading.
The donation to the U.S. Fish and Wildlife Service will buy more than 1,100 acres in an area known as the Columbia Bottomlands, which stretches across Brazoria, Matagorda, Fort Bend and Wharton counties. The area includes some of the largest remaining tracts of old-growth forests in the southern United States.
Under the deal, Reliant gets the rights to "carbon credits" that will be created by the forest's ability to draw up to 154,000 tons of the greenhouse gas carbon dioxide from the atmosphere.
While it has no immediate plans to sell the credits, Reliant can use them on one of the carbon markets now operating in the U.S. or in a future market that many expect will be created by federal climate change laws in the coming years.
"Our interest is less in the credits themselves than in the opportunity to learn how to do more projects like this and get familiar with carbon markets today and in the future," said Dave Freysinger, a senior vice president in charge of generation operations for Reliant.
Electricity retailing giantReliant is best known in Texas as the state's largest electric retailer, selling power generated by other companies to millions of customers. But it also owns and operates 16,000 megawatts of power plant capacity in nine other states. About 4,600 megawatts of that comes from coal-fired plants, which have the highest CO2 emissions among power plants. Reliant generates the rest with natural gas.
As the largest stationary sources of CO2, power producers likely will face the most direct effect from proposed federal legislation aimed at reducing greenhouse gas emissions.
The plan with the most support so far would set a cap on the amount of CO2 emissions a company is allowed per year and then reduce the cap over time. Companies could cut their emissions by shutting plants and improving technologies or develop projects that reduce CO2 in the atmosphere.
The largest CO2 credit trading market is a mandatory program in Europe launched several years ago under the Kyoto Protocol, an international climate treaty the U.S. did not sign, said Emilie Mazzacurati, a senior analyst with research firm PointCarbon.
Despite early problems, the market is running fairly well, she said, with about $60 billion in transactions per year.
The U.S. has several voluntary markets in place or starting up soon, Mazzacurati said, but they have relatively low carbon reduction goals.
"They're not very ambitious, so companies can reach the goals without too much effort," she said.
They're still useful to help companies get comfortable with creating and trading carbon offsets, however, as Houston-based Waste Management has discovered. The landfill operator is a charter member of the Chicago Climate Exchange, a marketplace created in 2002 to providing a framework for buying and selling carbon offsets.
"It provides a consistent set of rules and uses third-party verification of the offsets, which is important for buying and selling any commodity," said Kerry Kelly, director of federal public affairs at Waste Management.
The company captures methane — considered a more environmentally damaging greenhouse gas than CO2 — at 108 of its landfills and burns it to generate nearly 500 megawatts of power.
Through third-party certifications those projects create carbon credits the company trades on the Exchange.
Since the existing U.S. markets are voluntary, prices for carbon credits are generally lower than they're expected to be under any federal regulations. They have traded at $1 to $5 per ton, but studies have put the price at $20 to $50 per ton under laws proposed in Congress, Mazzacurati said.
Other preservation efforts
Reliant's work on the Columbia Bottomlands isn't its first such effort. In addition to more than a dozen nature and wildlife preservation projects around the country, in 2003 it paid $160,000 to plant 162,000 seedlings on land in Smith County, a project expected to help remove more than 200,000 tons of CO2 from the atmosphere.
Such projects don't absorb all that CO2 at once, but capture the gas over many years.
"You need to protect the land in perpetuity to let forests recover and allow carbon to be permanently removed from the atmosphere," said Mike Lange, a wildlife biologist with the U.S. Fish and Wildlife Service who has been working on preserving the Columbia Bottomlands. "It is easy to plant a tree, but for carbon sequestration to work, the land that tree is planted on must be protected permanently."
Investor buys Guyana forest's rain and carbon
Thu Mar 27, 2008 4:32pm GMT
LONDON (Reuters) - The British-based investment firm Canopy Capital said on Thursday it had bought a share in the rain-making potential of a chunk of Guyanan rainforest bigger than the Mediterranean island of Mallorca.
The move is a novel twist in an investor frenzy to make money from the prospect of climate change that has also seen businesses snap up permits to emit greenhouse gases and invest in low carbon-emitting technologies.
Perhaps more lucratively, the company has also bought rights to the carbon -- a heat-trapping gas when released into the atmosphere -- stored in the forest's timber.
Canopy Capital is betting that global climate talks due to end next year in Copenhagen will agree a successor to the Kyoto Protocol that includes a legal format for paying developing countries to preserve their forests.
Deforestation contributes 20 percent of total greenhouse gas emissions. Scientists say the effects of global warming could reduce rainfall, and make it more irregular.
"It's a new asset class," said Hylton Philipson, Canopy Capital's director and a former investment banker.
"If you fly over the forest, you can see there's no cloud coming off the cleared land."
"I think there's a real appetite out there (for this type of investment)," he said.
The company said it would fund a "meaningful" chunk of the $1.2 million annual management budget for the 371,000 hectare (917,000 acre) Iwokrama reserve.
Pressure is growing for tropical countries such as Indonesia to be able to sell carbon offsets to rich countries in return for not destroying their remaining forests and so prevent more carbon entering the atmosphere. The concept is known as "avoided deforestation".
Philipson hopes to sell the carbon storage and other rights at a profit within 18 months.
"I would seriously hope to put something together of real value between now and Copenhagen with appeal to the wider investment community," he said, adding that the reserve would receive 80 percent of any profit.
"There is a road planned from Manaus to Georgetown that goes slap through the reserve. If you can generate income from standing trees, maybe people won't chop them down."
(Reporting by Gerard Wynn; Editing by Kevin Liffey)
LONDON (Reuters) - The British-based investment firm Canopy Capital said on Thursday it had bought a share in the rain-making potential of a chunk of Guyanan rainforest bigger than the Mediterranean island of Mallorca.
The move is a novel twist in an investor frenzy to make money from the prospect of climate change that has also seen businesses snap up permits to emit greenhouse gases and invest in low carbon-emitting technologies.
Perhaps more lucratively, the company has also bought rights to the carbon -- a heat-trapping gas when released into the atmosphere -- stored in the forest's timber.
Canopy Capital is betting that global climate talks due to end next year in Copenhagen will agree a successor to the Kyoto Protocol that includes a legal format for paying developing countries to preserve their forests.
Deforestation contributes 20 percent of total greenhouse gas emissions. Scientists say the effects of global warming could reduce rainfall, and make it more irregular.
"It's a new asset class," said Hylton Philipson, Canopy Capital's director and a former investment banker.
"If you fly over the forest, you can see there's no cloud coming off the cleared land."
"I think there's a real appetite out there (for this type of investment)," he said.
The company said it would fund a "meaningful" chunk of the $1.2 million annual management budget for the 371,000 hectare (917,000 acre) Iwokrama reserve.
Pressure is growing for tropical countries such as Indonesia to be able to sell carbon offsets to rich countries in return for not destroying their remaining forests and so prevent more carbon entering the atmosphere. The concept is known as "avoided deforestation".
Philipson hopes to sell the carbon storage and other rights at a profit within 18 months.
"I would seriously hope to put something together of real value between now and Copenhagen with appeal to the wider investment community," he said, adding that the reserve would receive 80 percent of any profit.
"There is a road planned from Manaus to Georgetown that goes slap through the reserve. If you can generate income from standing trees, maybe people won't chop them down."
(Reporting by Gerard Wynn; Editing by Kevin Liffey)
Air New Zealand Offers Carbon Offsets, Starts Environment Fund
By Gavin Evans
March 27 (Bloomberg) -- Air New Zealand Ltd., the nation's biggest carrier, is offering customers carbon credits to offset emissions from their travel and is investing in forest planting to reduce its own pollution.
Customers will be able to purchase credits, initially sourced from a New Zealand wind farm owned by TrustPower Ltd., Chief Executive Officer Rob Fyfe said in a statement e-mailed to Bloomberg today. The company will also fund a three-year tree planting program to help offset emissions from staff travel.
Air New Zealand promotes the country's clean environmental image to fill international services which account for about two-thirds of its revenue. It is buying fuel-efficient jetliners to cut emissions and fuel costs and will this year test biofuels in a joint study with Boeing Co. and Rolls-Royce Group Plc.
Customers ``will now be able to make a conscious choice about whether or not to take positive steps toward helping our environment,'' Fyfe said in the statement.
Offsetting emissions on a flight from Auckland to Wellington will cost NZ$4.50 ($3.60), rising to NZ$13.70 for a Christchurch to Sydney service and NZ$88.10 on an Auckland to Los Angeles trip, the airline said.
Customers can also donate to an environmental trust which the airline is underwriting with an initial NZ$450,000 donation and will support with ongoing contributions. the fund's first project is a native forest restoration on 100 acres of land on Mangarara Station in Hawke's Bay.
To contact the reporter on this story: Gavin Evans in Wellington at Gavinevans@bloomberg.net Last Updated: March 26, 2008 17:34 EDT
March 27 (Bloomberg) -- Air New Zealand Ltd., the nation's biggest carrier, is offering customers carbon credits to offset emissions from their travel and is investing in forest planting to reduce its own pollution.
Customers will be able to purchase credits, initially sourced from a New Zealand wind farm owned by TrustPower Ltd., Chief Executive Officer Rob Fyfe said in a statement e-mailed to Bloomberg today. The company will also fund a three-year tree planting program to help offset emissions from staff travel.
Air New Zealand promotes the country's clean environmental image to fill international services which account for about two-thirds of its revenue. It is buying fuel-efficient jetliners to cut emissions and fuel costs and will this year test biofuels in a joint study with Boeing Co. and Rolls-Royce Group Plc.
Customers ``will now be able to make a conscious choice about whether or not to take positive steps toward helping our environment,'' Fyfe said in the statement.
Offsetting emissions on a flight from Auckland to Wellington will cost NZ$4.50 ($3.60), rising to NZ$13.70 for a Christchurch to Sydney service and NZ$88.10 on an Auckland to Los Angeles trip, the airline said.
Customers can also donate to an environmental trust which the airline is underwriting with an initial NZ$450,000 donation and will support with ongoing contributions. the fund's first project is a native forest restoration on 100 acres of land on Mangarara Station in Hawke's Bay.
To contact the reporter on this story: Gavin Evans in Wellington at Gavinevans@bloomberg.net Last Updated: March 26, 2008 17:34 EDT
Friday, March 28, 2008
Possible carbon tariffs could have an impact on growth: report
Jacqueline Thorpe, National Post Published: Thursday, March 27, 2008
Tariffs on carbon emissions could shift manufacturing back to more efficient countries like Canada, say financial experts.
The West's next weapon in the fight against global warming may be a carbon tariff on imports from the developing world, a strategy that could have a profound impact on the global economy, a new report argues.
Not only will new charges for carbon emissions trim growth in developed countries, but carbon tariffs could boost inflation and reverse the march toward offshoring as manufacturers who have relocated to countries like China move to more energy-efficient environments back home, CIBC World Markets said in a report released yesterday.
"As OECD countries begin to tax their own economies by charging growing fees on carbon emissions, their tolerance for the carbon practices of their trading partners will diminish rapidly -- particularly when the painful cuts made by North America, Western Europe and a handful of other OECD countries are dwarfed by the emission trail spewing from China and the rest of the developing world," Jeff Rubin, chief economist at CIBC WM said the report with Benjamin Tal.
"The response is likely to involve a carbon tariff -- an equalizing force that will tax the implicit subsidies on the carbon content of imports that come from carbon non-compliant countries."
In an interview, Mr. Rubin said it looks increasingly likely the United States will join Europe in imposing a charge on carbon emissions either through a tax or a "cap and trade" system where companies are allowed to emit a certain amount of carbon but must pay to go over the limit.
"If you look at the McCain platform, the Obama platform or the Clinton platform, irrespective of who captures the White House, the next administration is going to impose a price on carbon," Mr. Rubin said.
That would be the precursor for the United States to attempt to impose a carbon tariff on developing world imports, he said. In effect, a carbon tariff would be similar to a countervailing trade duty, imposing a charge for unfair energy subsidies that Chinese exports reap from their cost-free carbon emissions, Mr. Rubin said.
At US$45 per tonne of CO2 -- about the going rate under current European trading schemes -- such a tariff would raise roughly US$55-billion a year from Chinese exports to the United States or equivalent to an average 17% tariff, almost six times bigger than the current 3% effective tariff on Chinese goods.
"At least initially, before other carbon compliant sourcing can be found, it will be U.S. consumers who will have to bear the bulk of the tariff burden in higher import prices," Mr. Rubin wrote. Based on China's share of U.S. imports alone, that would raise the annual U.S. consumer price index by more than 0.6 percentage points.
Canada would likely face a similar increase and costlier goods prices would hit growth as well.
Mr. Rubin estimates U.S. efforts themselves to curb emissions will shave 0.6 percentage points off growth in real gross domestic product per year for the next five years, and that is if emissions are only cut by 10%.
The inflationary impact may be mitigated however, if North American industries shift production back home, a trend Mr. Rubin fully expects to materialize as companies try to escape the tariff and improve their energy efficiency.
"Throw US$40-$50 per tonne carbon costs into an environment of triple-digit oil prices and you suddenly redefine the meaning of competitiveness," he wrote. "In a whole swath of manufacturing industries, ranging from chemicals to primary metals, energy costs and their carbon trail, not labour costs, will soon become key."
Ultimately, a carbon tariff could reverse current trade and offshoring patterns, Mr. Rubin said.
Mr. Rubin notes efforts to decarbonize in advance economies come as carbon emissions are skyrocketing in the developing world, particularly China, which relies heavily on coal for energy.
As of 2006, China surpassed the United States as the single largest carbon emitter in the world and today it already emits 9% more than the United States, accounting for over a fifth of global emission.
Breakneck economic growth and the absence of environmental emissions have been key drivers but in its manufacturing-intensive economy, energy use as a share of GDP is also four times greater than the services-based U.S. economy.
China is also not energy efficient, producing a third more CO2 emissions per unit of energy than the United States, largely because it relies on coal for two-thirds of its total energy needs.
"There are more coal plants in China today than there are in the United States, the U.K. and India combined," Mr. Rubin and Mr. Tal write. At is current rate of one new coal plant per week, it will see 30 more coal plants built before the "green" Olympic games this summer. Plans call for 560 new coal-fired generation plants by 2012.
"You can't have the OECD making a long-term commitment to decarbonize their economy and have the developing world...rapidly carbonize their economies," Mr. Rubin said. "It makes absolutely no sense. The savings the [OECD] makes on their own emmssions are going to be dwarfed by the rate of growth...in the developing world."
Tariffs on carbon emissions could shift manufacturing back to more efficient countries like Canada, say financial experts.
The West's next weapon in the fight against global warming may be a carbon tariff on imports from the developing world, a strategy that could have a profound impact on the global economy, a new report argues.
Not only will new charges for carbon emissions trim growth in developed countries, but carbon tariffs could boost inflation and reverse the march toward offshoring as manufacturers who have relocated to countries like China move to more energy-efficient environments back home, CIBC World Markets said in a report released yesterday.
"As OECD countries begin to tax their own economies by charging growing fees on carbon emissions, their tolerance for the carbon practices of their trading partners will diminish rapidly -- particularly when the painful cuts made by North America, Western Europe and a handful of other OECD countries are dwarfed by the emission trail spewing from China and the rest of the developing world," Jeff Rubin, chief economist at CIBC WM said the report with Benjamin Tal.
"The response is likely to involve a carbon tariff -- an equalizing force that will tax the implicit subsidies on the carbon content of imports that come from carbon non-compliant countries."
In an interview, Mr. Rubin said it looks increasingly likely the United States will join Europe in imposing a charge on carbon emissions either through a tax or a "cap and trade" system where companies are allowed to emit a certain amount of carbon but must pay to go over the limit.
"If you look at the McCain platform, the Obama platform or the Clinton platform, irrespective of who captures the White House, the next administration is going to impose a price on carbon," Mr. Rubin said.
That would be the precursor for the United States to attempt to impose a carbon tariff on developing world imports, he said. In effect, a carbon tariff would be similar to a countervailing trade duty, imposing a charge for unfair energy subsidies that Chinese exports reap from their cost-free carbon emissions, Mr. Rubin said.
At US$45 per tonne of CO2 -- about the going rate under current European trading schemes -- such a tariff would raise roughly US$55-billion a year from Chinese exports to the United States or equivalent to an average 17% tariff, almost six times bigger than the current 3% effective tariff on Chinese goods.
"At least initially, before other carbon compliant sourcing can be found, it will be U.S. consumers who will have to bear the bulk of the tariff burden in higher import prices," Mr. Rubin wrote. Based on China's share of U.S. imports alone, that would raise the annual U.S. consumer price index by more than 0.6 percentage points.
Canada would likely face a similar increase and costlier goods prices would hit growth as well.
Mr. Rubin estimates U.S. efforts themselves to curb emissions will shave 0.6 percentage points off growth in real gross domestic product per year for the next five years, and that is if emissions are only cut by 10%.
The inflationary impact may be mitigated however, if North American industries shift production back home, a trend Mr. Rubin fully expects to materialize as companies try to escape the tariff and improve their energy efficiency.
"Throw US$40-$50 per tonne carbon costs into an environment of triple-digit oil prices and you suddenly redefine the meaning of competitiveness," he wrote. "In a whole swath of manufacturing industries, ranging from chemicals to primary metals, energy costs and their carbon trail, not labour costs, will soon become key."
Ultimately, a carbon tariff could reverse current trade and offshoring patterns, Mr. Rubin said.
Mr. Rubin notes efforts to decarbonize in advance economies come as carbon emissions are skyrocketing in the developing world, particularly China, which relies heavily on coal for energy.
As of 2006, China surpassed the United States as the single largest carbon emitter in the world and today it already emits 9% more than the United States, accounting for over a fifth of global emission.
Breakneck economic growth and the absence of environmental emissions have been key drivers but in its manufacturing-intensive economy, energy use as a share of GDP is also four times greater than the services-based U.S. economy.
China is also not energy efficient, producing a third more CO2 emissions per unit of energy than the United States, largely because it relies on coal for two-thirds of its total energy needs.
"There are more coal plants in China today than there are in the United States, the U.K. and India combined," Mr. Rubin and Mr. Tal write. At is current rate of one new coal plant per week, it will see 30 more coal plants built before the "green" Olympic games this summer. Plans call for 560 new coal-fired generation plants by 2012.
"You can't have the OECD making a long-term commitment to decarbonize their economy and have the developing world...rapidly carbonize their economies," Mr. Rubin said. "It makes absolutely no sense. The savings the [OECD] makes on their own emmssions are going to be dwarfed by the rate of growth...in the developing world."
Possible U.S. carbon tariff may affect growth: report
Jacqueline Thorpe, National Post Published: Friday, March 28, 2008
The West's next weapon in the fight against global warming may be a carbon tariff on imports from the developing world, a strategy that could have a profound impact on the global economy, a new report argues.
Not only will new charges for carbon emissions trim growth in developed countries, but carbon tariffs could boost inflation and reverse the march toward offshoring as manufacturers who have relocated to countries such as China move to more energy-efficient environments back home, CIBC World Markets said in a report released yesterday.
"As OECD countries begin to tax their own economies by charging growing fees on carbon emissions, their tolerance for the carbon practices of their trading partners will diminish rapidly -- particularly when the painful cuts made by North America, Western Europe and a handful of other OECD countries are dwarfed by the emission trail spewing from China and the rest of the developing world," Jeff Rubin, chief economist at CIBC WM, said in the report with Benjamin Tal. "The response is likely to involve a carbon tariff -- an equalizing force that will tax the implicit subsidies on the carbon content of imports that come from carbon non-compliant countries."
In an interview, Mr. Rubin said it looks increasingly likely the United States will join Europe in imposing a charge on carbon emissions either through a tax or a "cap and trade" system, where companies are allowed to emit a certain amount of carbon but must pay to go over the limit.
"If you look at the McCain platform, the Obama platform or the Clinton platform, irrespective of who captures the White House, the next administration is going to impose a price on carbon," Mr. Rubin said.
That would be the precursor for the United States to attempt to impose a carbon tariff on developing-world imports, he said. In effect, a carbon tariff would be similar to a countervailing trade duty, imposing a charge for unfair energy subsidies that Chinese exports reap from their cost-free carbon emissions, Mr. Rubin said.
At US$45 per tonne of carbon dioxide -- about the going rate under current European trading schemes -- such a tariff would raise roughly US$55-billion a year from Chinese exports to the United States or equivalent to an average 17% tariff, almost six times bigger than the current 3% effective tariff on Chinese goods.
"At least initially, before other carbon-compliant sourcing can be found, it will be U.S. consumers who will have to bear the bulk of the tariff burden in higher import prices," Mr. Rubin wrote. Based on China's share of U.S. imports alone, that would raise the annual U.S. consumer price index by more than 0.6 percentage points.
Canada would likely face a similar increase, and costlier goods prices would hit growth as well.
Mr. Rubin estimates U.S. efforts to curb emissions will shave 0.6 percentage points off growth in real gross domestic product per year for the next five years, and that is if emissions are only cut by 10%.
The inflationary impact may be mitigated however, if North American industries shift production back home, a trend Mr. Rubin fully expects to materialize as companies try to escape the tariff and improve their energy efficiency.
"Throw US$40-$50 per tonne carbon costs into an environment of triple-digit oil prices and you suddenly redefine the meaning of competitiveness," he wrote. "In a whole swath of manufacturing industries, ranging from chemicals to primary metals, energy costs and their carbon trail, not labour costs, will soon become key."
Ultimately, a carbon tariff could reverse current trade and offshoring patterns, Mr. Rubin said.
Mr. Rubin notes efforts to decarbonize in advance economies come as carbon emissions are skyrocketing in the developing world, particularly China, which relies heavily on coal for energy.
As of 2006, China surpassed the United States as the single largest carbon emitter in the world and today it already emits 9% more than the United States, accounting for over one-fifth of global emissions.
Breakneck economic growth and the absence of environmental emissions have been key drivers, but in its manufacturing-intensive economy, energy use as a share of GDP is also four times greater than the services-based U.S. economy.
China is also not energy efficient, producing a third more carbon dioxide emissions per unit of energy than the United States, largely because it relies on coal for two-thirds of its total energy needs.
"There are more coal plants in China today than there are in the United States, the U.K. and India combined," Mr. Rubin and Mr. Tal write. At its current rate of one new coal plant per week, it will see 30 more coal plants built before the "green" Olympic games this summer. Plans call for 560 new coal-fired generation plants by 2012.
"You can't have the OECD making a long-term commitment to decarbonize their economy and have the developing world … rapidly carbonize their economies," Mr. Rubin said. "It makes absolutely no sense. The savings the [OECD] makes on their own emissions are going to be dwarfed by the rate of growth … in the developing world."
jthorpe@nationlpost.com
The West's next weapon in the fight against global warming may be a carbon tariff on imports from the developing world, a strategy that could have a profound impact on the global economy, a new report argues.
Not only will new charges for carbon emissions trim growth in developed countries, but carbon tariffs could boost inflation and reverse the march toward offshoring as manufacturers who have relocated to countries such as China move to more energy-efficient environments back home, CIBC World Markets said in a report released yesterday.
"As OECD countries begin to tax their own economies by charging growing fees on carbon emissions, their tolerance for the carbon practices of their trading partners will diminish rapidly -- particularly when the painful cuts made by North America, Western Europe and a handful of other OECD countries are dwarfed by the emission trail spewing from China and the rest of the developing world," Jeff Rubin, chief economist at CIBC WM, said in the report with Benjamin Tal. "The response is likely to involve a carbon tariff -- an equalizing force that will tax the implicit subsidies on the carbon content of imports that come from carbon non-compliant countries."
In an interview, Mr. Rubin said it looks increasingly likely the United States will join Europe in imposing a charge on carbon emissions either through a tax or a "cap and trade" system, where companies are allowed to emit a certain amount of carbon but must pay to go over the limit.
"If you look at the McCain platform, the Obama platform or the Clinton platform, irrespective of who captures the White House, the next administration is going to impose a price on carbon," Mr. Rubin said.
That would be the precursor for the United States to attempt to impose a carbon tariff on developing-world imports, he said. In effect, a carbon tariff would be similar to a countervailing trade duty, imposing a charge for unfair energy subsidies that Chinese exports reap from their cost-free carbon emissions, Mr. Rubin said.
At US$45 per tonne of carbon dioxide -- about the going rate under current European trading schemes -- such a tariff would raise roughly US$55-billion a year from Chinese exports to the United States or equivalent to an average 17% tariff, almost six times bigger than the current 3% effective tariff on Chinese goods.
"At least initially, before other carbon-compliant sourcing can be found, it will be U.S. consumers who will have to bear the bulk of the tariff burden in higher import prices," Mr. Rubin wrote. Based on China's share of U.S. imports alone, that would raise the annual U.S. consumer price index by more than 0.6 percentage points.
Canada would likely face a similar increase, and costlier goods prices would hit growth as well.
Mr. Rubin estimates U.S. efforts to curb emissions will shave 0.6 percentage points off growth in real gross domestic product per year for the next five years, and that is if emissions are only cut by 10%.
The inflationary impact may be mitigated however, if North American industries shift production back home, a trend Mr. Rubin fully expects to materialize as companies try to escape the tariff and improve their energy efficiency.
"Throw US$40-$50 per tonne carbon costs into an environment of triple-digit oil prices and you suddenly redefine the meaning of competitiveness," he wrote. "In a whole swath of manufacturing industries, ranging from chemicals to primary metals, energy costs and their carbon trail, not labour costs, will soon become key."
Ultimately, a carbon tariff could reverse current trade and offshoring patterns, Mr. Rubin said.
Mr. Rubin notes efforts to decarbonize in advance economies come as carbon emissions are skyrocketing in the developing world, particularly China, which relies heavily on coal for energy.
As of 2006, China surpassed the United States as the single largest carbon emitter in the world and today it already emits 9% more than the United States, accounting for over one-fifth of global emissions.
Breakneck economic growth and the absence of environmental emissions have been key drivers, but in its manufacturing-intensive economy, energy use as a share of GDP is also four times greater than the services-based U.S. economy.
China is also not energy efficient, producing a third more carbon dioxide emissions per unit of energy than the United States, largely because it relies on coal for two-thirds of its total energy needs.
"There are more coal plants in China today than there are in the United States, the U.K. and India combined," Mr. Rubin and Mr. Tal write. At its current rate of one new coal plant per week, it will see 30 more coal plants built before the "green" Olympic games this summer. Plans call for 560 new coal-fired generation plants by 2012.
"You can't have the OECD making a long-term commitment to decarbonize their economy and have the developing world … rapidly carbonize their economies," Mr. Rubin said. "It makes absolutely no sense. The savings the [OECD] makes on their own emissions are going to be dwarfed by the rate of growth … in the developing world."
jthorpe@nationlpost.com
Possible U.S. carbon tariff may affect growth: report
Jacqueline Thorpe, National Post Published: Friday, March 28, 2008
The West's next weapon in the fight against global warming may be a carbon tariff on imports from the developing world, a strategy that could have a profound impact on the global economy, a new report argues.
Not only will new charges for carbon emissions trim growth in developed countries, but carbon tariffs could boost inflation and reverse the march toward offshoring as manufacturers who have relocated to countries such as China move to more energy-efficient environments back home, CIBC World Markets said in a report released yesterday.
"As OECD countries begin to tax their own economies by charging growing fees on carbon emissions, their tolerance for the carbon practices of their trading partners will diminish rapidly -- particularly when the painful cuts made by North America, Western Europe and a handful of other OECD countries are dwarfed by the emission trail spewing from China and the rest of the developing world," Jeff Rubin, chief economist at CIBC WM, said in the report with Benjamin Tal. "The response is likely to involve a carbon tariff -- an equalizing force that will tax the implicit subsidies on the carbon content of imports that come from carbon non-compliant countries."
The West's next weapon in the fight against global warming may be a carbon tariff on imports from the developing world, a strategy that could have a profound impact on the global economy, a new report argues.
Not only will new charges for carbon emissions trim growth in developed countries, but carbon tariffs could boost inflation and reverse the march toward offshoring as manufacturers who have relocated to countries such as China move to more energy-efficient environments back home, CIBC World Markets said in a report released yesterday.
"As OECD countries begin to tax their own economies by charging growing fees on carbon emissions, their tolerance for the carbon practices of their trading partners will diminish rapidly -- particularly when the painful cuts made by North America, Western Europe and a handful of other OECD countries are dwarfed by the emission trail spewing from China and the rest of the developing world," Jeff Rubin, chief economist at CIBC WM, said in the report with Benjamin Tal. "The response is likely to involve a carbon tariff -- an equalizing force that will tax the implicit subsidies on the carbon content of imports that come from carbon non-compliant countries."
In an interview, Mr. Rubin said it looks increasingly likely the United States will join Europe in imposing a charge on carbon emissions either through a tax or a "cap and trade" system, where companies are allowed to emit a certain amount of carbon but must pay to go over the limit.
"If you look at the McCain platform, the Obama platform or the Clinton platform, irrespective of who captures the White House, the next administration is going to impose a price on carbon," Mr. Rubin said.
That would be the precursor for the United States to attempt to impose a carbon tariff on developing-world imports, he said. In effect, a carbon tariff would be similar to a countervailing trade duty, imposing a charge for unfair energy subsidies that Chinese exports reap from their cost-free carbon emissions, Mr. Rubin said.
At US$45 per tonne of carbon dioxide -- about the going rate under current European trading schemes -- such a tariff would raise roughly US$55-billion a year from Chinese exports to the United States or equivalent to an average 17% tariff, almost six times bigger than the current 3% effective tariff on Chinese goods.
"At least initially, before other carbon-compliant sourcing can be found, it will be U.S. consumers who will have to bear the bulk of the tariff burden in higher import prices," Mr. Rubin wrote. Based on China's share of U.S. imports alone, that would raise the annual U.S. consumer price index by more than 0.6 percentage points.
Canada would likely face a similar increase, and costlier goods prices would hit growth as well.
Mr. Rubin estimates U.S. efforts to curb emissions will shave 0.6 percentage points off growth in real gross domestic product per year for the next five years, and that is if emissions are only cut by 10%.
The inflationary impact may be mitigated however, if North American industries shift production back home, a trend Mr. Rubin fully expects to materialize as companies try to escape the tariff and improve their energy efficiency.
"Throw US$40-$50 per tonne carbon costs into an environment of triple-digit oil prices and you suddenly redefine the meaning of competitiveness," he wrote. "In a whole swath of manufacturing industries, ranging from chemicals to primary metals, energy costs and their carbon trail, not labour costs, will soon become key."
Ultimately, a carbon tariff could reverse current trade and offshoring patterns, Mr. Rubin said.
Mr. Rubin notes efforts to decarbonize in advance economies come as carbon emissions are skyrocketing in the developing world, particularly China, which relies heavily on coal for energy.
As of 2006, China surpassed the United States as the single largest carbon emitter in the world and today it already emits 9% more than the United States, accounting for over one-fifth of global emissions.
Breakneck economic growth and the absence of environmental emissions have been key drivers, but in its manufacturing-intensive economy, energy use as a share of GDP is also four times greater than the services-based U.S. economy.
China is also not energy efficient, producing a third more carbon dioxide emissions per unit of energy than the United States, largely because it relies on coal for two-thirds of its total energy needs.
"There are more coal plants in China today than there are in the United States, the U.K. and India combined," Mr. Rubin and Mr. Tal write. At its current rate of one new coal plant per week, it will see 30 more coal plants built before the "green" Olympic games this summer. Plans call for 560 new coal-fired generation plants by 2012.
"You can't have the OECD making a long-term commitment to decarbonize their economy and have the developing world … rapidly carbonize their economies," Mr. Rubin said. "It makes absolutely no sense. The savings the [OECD] makes on their own emissions are going to be dwarfed by the rate of growth … in the developing world."
jthorpe@nationlpost.com
Carbon tariff trade war?
Terence Corcoran, Financial Post Published: Tuesday, March 25, 2008
As world financial markets struggle through credit risks, looming currency crisis and talk of recession/depression, along come an assortment of politicians and economists set to pile on another round of global downers: carbon taxes and a possible carbon trade war.
A European Union summit agreement two weeks ago to slash carbon emissions by 2020 ended with a veiled threat. If the rest of the world doesn't match Europe's carbon tax and control regimes, "appropriate measures" can be taken by the EU, the final summit statement said. The phrase "appropriate measures" hasn't been defined yet, but French President Nicolas Sarkozy thinks Europe should impose a carbon tariff on goods imported into Europe. If steel arrives from China or America, countries that have no carbon taxes in place, then Europe should tax the steel.
European governments love a good excuse to build trade barriers. Carl B. Hamilton, a Swedish MP and economics professor, warns in a letter to the Financial Times that EU-initiated carbon trade barriers "could provoke a global trade war between the EU on the one hand and countries such as the United States, China, India and Brazil on the other."
Risks of carbon protectionism are rising elsewhere. Two Canadian economists, Thomas Courchene and John R. Allan of the Institute for Research on Public Policy, write in the latest issue of the institute's magazine, Policy Options, that "carbon tariffs" offer a solution to the inevitable "free rider" problems that will flow from national and local carbon tax regimes.
The free rider problem is twofold. First, if Canada or Europe imposes carbon taxes, companies based in non-carbon-tax countries will have a competitive advantage. Second, Canadian companies hit by Canadian taxes will have an incentive to build new plants in non-tax jurisdictions. The way to fix these two problems, Messrs. Courchene and Allan say, is to impose a carbon tariff on imports. As they put it:
A national carbon tariff or a carbon import tax [would be] levied on the carbon footprint of all imports from all countries (including on the carbon emissions components relating to the logistics compnent, especially shipping, throughout the supply chain). Consistency ... would require that it be applied to all domestically produced and consumed products.
Fitting these tariffs into the world trading system would be a piece of cake. "So long as the national environmental policies do not discriminate arbitrarily between foreign and domestic products, or between products imported from different trading partners, there should be no problem." Well, that was easy to say, but what it means in practice is another matter.
Tracking carbon inputs in any product is an impossible task, a nightmare of measurement and calculation that would require a massive bureaucracy at the World Carbon Trade Measurement Agency and tie up carbon trade negotiators for decades, assuming no trade war intervenes to crash the world trade system. An example is beer: Canadian beer would benefit if European beer faced a carbon tax on transport costs from Europe. But Canadian beer might use hops and other inputs that have to be transported across Canada. What kind of electricity and water sources are used in each location? Would carbon tariffs become a protectionist policy favouring Canadian beer?
In Ottawa, the Liberals appear to be leaning toward a carbon tax plan. As the Liberal economic strategist, M.P. John Mc-Callum would know that Canada is in no position to impose a carbon tax in isolation. It would impose a burden on Canadian industries and hit the country's competitiveness. Even the National Round Table on the Economy and the Environment only endorsed a carbon tax if it were part of an international effort. Canada cannot impose a carbon tax on its own, unless Mr. Mc-Callum intends to follow the advice of Tom Courchene and John Allan. If the Liberals want a carbon tax, they will have to adopt, like the EU, compensating threats of trade action against non-carbon tax nations.
Before we go too far on this, we might want to remember the story of the U.S. Smoot-Hawley Tariff. Back in 1931, at the beginning of the Great Depression, Congress whipped up a tariff bill to protect U.S. industry and farmers. It raised existing tariffs from 40% to more than 50%. The tariff on Canadian wheat jumped 40%. The trade-crippling law hit the world economy and is widely credited with exacerbating the Depression.
Well, you might say, no carbon tariff is going to be that severe. But who can say? To hit carbon emission reductions targets set by governments, carbon taxes are going to have to run to US$200 or US$300 a tonne, equal to more than 75¢ on a litre of gasoloine. That's bad enough, but doubly dangerous if imposed in the context of a global trade war and worldwide financial crises.
Another option, of course, is to have the United Nations impose a global carbon tax that it would collect and redistribute. There's a name for that kind of global measure: the Tobin tax. That's what the carbon tax effort is all about, if anybody wants to look it up.
As world financial markets struggle through credit risks, looming currency crisis and talk of recession/depression, along come an assortment of politicians and economists set to pile on another round of global downers: carbon taxes and a possible carbon trade war.
A European Union summit agreement two weeks ago to slash carbon emissions by 2020 ended with a veiled threat. If the rest of the world doesn't match Europe's carbon tax and control regimes, "appropriate measures" can be taken by the EU, the final summit statement said. The phrase "appropriate measures" hasn't been defined yet, but French President Nicolas Sarkozy thinks Europe should impose a carbon tariff on goods imported into Europe. If steel arrives from China or America, countries that have no carbon taxes in place, then Europe should tax the steel.
European governments love a good excuse to build trade barriers. Carl B. Hamilton, a Swedish MP and economics professor, warns in a letter to the Financial Times that EU-initiated carbon trade barriers "could provoke a global trade war between the EU on the one hand and countries such as the United States, China, India and Brazil on the other."
Risks of carbon protectionism are rising elsewhere. Two Canadian economists, Thomas Courchene and John R. Allan of the Institute for Research on Public Policy, write in the latest issue of the institute's magazine, Policy Options, that "carbon tariffs" offer a solution to the inevitable "free rider" problems that will flow from national and local carbon tax regimes.
The free rider problem is twofold. First, if Canada or Europe imposes carbon taxes, companies based in non-carbon-tax countries will have a competitive advantage. Second, Canadian companies hit by Canadian taxes will have an incentive to build new plants in non-tax jurisdictions. The way to fix these two problems, Messrs. Courchene and Allan say, is to impose a carbon tariff on imports. As they put it:
A national carbon tariff or a carbon import tax [would be] levied on the carbon footprint of all imports from all countries (including on the carbon emissions components relating to the logistics compnent, especially shipping, throughout the supply chain). Consistency ... would require that it be applied to all domestically produced and consumed products.
Fitting these tariffs into the world trading system would be a piece of cake. "So long as the national environmental policies do not discriminate arbitrarily between foreign and domestic products, or between products imported from different trading partners, there should be no problem." Well, that was easy to say, but what it means in practice is another matter.
Tracking carbon inputs in any product is an impossible task, a nightmare of measurement and calculation that would require a massive bureaucracy at the World Carbon Trade Measurement Agency and tie up carbon trade negotiators for decades, assuming no trade war intervenes to crash the world trade system. An example is beer: Canadian beer would benefit if European beer faced a carbon tax on transport costs from Europe. But Canadian beer might use hops and other inputs that have to be transported across Canada. What kind of electricity and water sources are used in each location? Would carbon tariffs become a protectionist policy favouring Canadian beer?
In Ottawa, the Liberals appear to be leaning toward a carbon tax plan. As the Liberal economic strategist, M.P. John Mc-Callum would know that Canada is in no position to impose a carbon tax in isolation. It would impose a burden on Canadian industries and hit the country's competitiveness. Even the National Round Table on the Economy and the Environment only endorsed a carbon tax if it were part of an international effort. Canada cannot impose a carbon tax on its own, unless Mr. Mc-Callum intends to follow the advice of Tom Courchene and John Allan. If the Liberals want a carbon tax, they will have to adopt, like the EU, compensating threats of trade action against non-carbon tax nations.
Before we go too far on this, we might want to remember the story of the U.S. Smoot-Hawley Tariff. Back in 1931, at the beginning of the Great Depression, Congress whipped up a tariff bill to protect U.S. industry and farmers. It raised existing tariffs from 40% to more than 50%. The tariff on Canadian wheat jumped 40%. The trade-crippling law hit the world economy and is widely credited with exacerbating the Depression.
Well, you might say, no carbon tariff is going to be that severe. But who can say? To hit carbon emission reductions targets set by governments, carbon taxes are going to have to run to US$200 or US$300 a tonne, equal to more than 75¢ on a litre of gasoloine. That's bad enough, but doubly dangerous if imposed in the context of a global trade war and worldwide financial crises.
Another option, of course, is to have the United Nations impose a global carbon tax that it would collect and redistribute. There's a name for that kind of global measure: the Tobin tax. That's what the carbon tax effort is all about, if anybody wants to look it up.
China: Possible carbon tariffs could have an impact on growth
Prices could rise but manufacturing may flock back to developed world
Jacqueline Thorpe, National Post Published: Thursday, March 27, 2008
Tariffs on carbon emissions could shift manufacturing back to more efficient countries like Canada, say financial experts.
The West's next weapon in the fight against global warming may be a carbon tariff on imports from the developing world, a strategy that could have a profound impact on the global economy, a new report argues.
Not only will new charges for carbon emissions trim growth in developed countries, but carbon tariffs could boost inflation and reverse the march toward offshoring as manufacturers who have relocated to countries like China move to more energy-efficient environments back home, CIBC World Markets said in a report released yesterday.
"As OECD countries begin to tax their own economies by charging growing fees on carbon emissions, their tolerance for the carbon practices of their trading partners will diminish rapidly -- particularly when the painful cuts made by North America, Western Europe and a handful of other OECD countries are dwarfed by the emission trail spewing from China and the rest of the developing world," Jeff Rubin, chief economist at CIBC WM said the report with Benjamin Tal.
"The response is likely to involve a carbon tariff -- an equalizing force that will tax the implicit subsidies on the carbon content of imports that come from carbon non-compliant countries."
In an interview, Mr. Rubin said it looks increasingly likely the United States will join Europe in imposing a charge on carbon emissions either through a tax or a "cap and trade" system where companies are allowed to emit a certain amount of carbon but must pay to go over the limit.
In an interview, Mr. Rubin said it looks increasingly likely the United States will join Europe in imposing a charge on carbon emissions either through a tax or a "cap and trade" system where companies are allowed to emit a certain amount of carbon but must pay to go over the limit.
"If you look at the McCain platform, the Obama platform or the Clinton platform, irrespective of who captures the White House, the next administration is going to impose a price on carbon," Mr. Rubin said.
That would be the precursor for the United States to attempt to impose a carbon tariff on developing world imports, he said. In effect, a carbon tariff would be similar to a countervailing trade duty, imposing a charge for unfair energy subsidies that Chinese exports reap from their cost-free carbon emissions, Mr. Rubin said.
At US$45 per tonne of CO2 -- about the going rate under current European trading schemes -- such a tariff would raise roughly US$55-billion a year from Chinese exports to the United States or equivalent to an average 17% tariff, almost six times bigger than the current 3% effective tariff on Chinese goods.
"At least initially, before other carbon compliant sourcing can be found, it will be U.S. consumers who will have to bear the bulk of the tariff burden in higher import prices," Mr. Rubin wrote. Based on China's share of U.S. imports alone, that would raise the annual U.S. consumer price index by more than 0.6 percentage points.
Canada would likely face a similar increase and costlier goods prices would hit growth as well.
Mr. Rubin estimates U.S. efforts themselves to curb emissions will shave 0.6 percentage points off growth in real gross domestic product per year for the next five years, and that is if emissions are only cut by 10%.
The inflationary impact may be mitigated however, if North American industries shift production back home, a trend Mr. Rubin fully expects to materialize as companies try to escape the tariff and improve their energy efficiency.
"Throw US$40-$50 per tonne carbon costs into an environment of triple-digit oil prices and you suddenly redefine the meaning of competitiveness," he wrote. "In a whole swath of manufacturing industries, ranging from chemicals to primary metals, energy costs and their carbon trail, not labour costs, will soon become key."
Ultimately, a carbon tariff could reverse current trade and offshoring patterns, Mr. Rubin said.
Mr. Rubin notes efforts to decarbonize in advance economies come as carbon emissions are skyrocketing in the developing world, particularly China, which relies heavily on coal for energy.
As of 2006, China surpassed the United States as the single largest carbon emitter in the world and today it already emits 9% more than the United States, accounting for over a fifth of global emission.
Breakneck economic growth and the absence of environmental emissions have been key drivers but in its manufacturing-intensive economy, energy use as a share of GDP is also four times greater than the services-based U.S. economy.
China is also not energy efficient, producing a third more CO2 emissions per unit of energy than the United States, largely because it relies on coal for two-thirds of its total energy needs.
"There are more coal plants in China today than there are in the United States, the U.K. and India combined," Mr. Rubin and Mr. Tal write. At is current rate of one new coal plant per week, it will see 30 more coal plants built before the "green" Olympic games this summer. Plans call for 560 new coal-fired generation plants by 2012.
"You can't have the OECD making a long-term commitment to decarbonize their economy and have the developing world...rapidly carbonize their economies," Mr. Rubin said. "It makes absolutely no sense. The savings the [OECD] makes on their own emmssions are going to be dwarfed by the rate of growth...in the developing world."
jthorpe@nationlpost.com
Thursday, March 27, 2008
Trading Emissions builds carbon credit portfolio London
27 March: UK-based carbon investment company Trading Emissions (TEP) expects to be issued with 5 million carbon credits by the UN by the end of April 2009, from a contracted portfolio of 53 million – up 2 million in the last three months.
Including deals that are under negotiation, TEP’s portfolio holds 65 million certified emission reductions (CERs), each representing a one-tonne cut in carbon dioxide, close to its promise to deliver 66 million credits during 2008–12.
Announcing its interim results today, the company booked a notional pre-tax profit of £74 million ($148 million) in the six months to 31 December 2007 – up from £3 million in the same period last year.
On this basis, TEP valued its shares at £1.84, higher than the £1.14 at which they were priced on 25 March. The company said it will take action to address this undervaluing by the market, which it believes to be a short-term anomaly that will be corrected once the company starts generating cash from its carbon sales.
In January, the company bought back almost 7 million shares. “If the share price remains significantly undervalued then share buy-backs make sense,” said Simon Shaw, chief executive of EEA Fund Management, the investment advisor to TEP.
He added that the problems at other listed companies in the carbon sector, such as Dublin-based AgCert which is presently seeking protection from its creditors, was unfairly reflected in TEP’s valuation. Its share price received a slight boost upon publication of the results, climbing 3.5% to £1.18 at the close today.
TEP’s strategy is to avoid selling credits forward and conditions in the CER spot market are “not yet optimal for large-scale disposal", the company said, citing delays in establishing the International Transaction Log – the link between national carbon credit registries. It has been issued 1.9 million CERs by the UN and has entered deals to sell 724,000 CERs before the end of April 2009, including swapping CERs for allowances in the EU Emissions Trading Scheme.
The firm is also turning its attention towards the US, where there is a “strong likelihood of a mandatory cap-and-trade scheme passing through the legislature during 2009”. In January 2008, TEP put a further $10 million into a carbon credit investment fund managed by US-based Element Markets. TEP has also built up its stake in project developer Environmental Credit Corp to 76%; this firm has launched a subsidiary, Ag Carbon Management, specifically to develop methane capture projects at agricultural sites in the US.
Including deals that are under negotiation, TEP’s portfolio holds 65 million certified emission reductions (CERs), each representing a one-tonne cut in carbon dioxide, close to its promise to deliver 66 million credits during 2008–12.
Announcing its interim results today, the company booked a notional pre-tax profit of £74 million ($148 million) in the six months to 31 December 2007 – up from £3 million in the same period last year.
On this basis, TEP valued its shares at £1.84, higher than the £1.14 at which they were priced on 25 March. The company said it will take action to address this undervaluing by the market, which it believes to be a short-term anomaly that will be corrected once the company starts generating cash from its carbon sales.
In January, the company bought back almost 7 million shares. “If the share price remains significantly undervalued then share buy-backs make sense,” said Simon Shaw, chief executive of EEA Fund Management, the investment advisor to TEP.
He added that the problems at other listed companies in the carbon sector, such as Dublin-based AgCert which is presently seeking protection from its creditors, was unfairly reflected in TEP’s valuation. Its share price received a slight boost upon publication of the results, climbing 3.5% to £1.18 at the close today.
TEP’s strategy is to avoid selling credits forward and conditions in the CER spot market are “not yet optimal for large-scale disposal", the company said, citing delays in establishing the International Transaction Log – the link between national carbon credit registries. It has been issued 1.9 million CERs by the UN and has entered deals to sell 724,000 CERs before the end of April 2009, including swapping CERs for allowances in the EU Emissions Trading Scheme.
The firm is also turning its attention towards the US, where there is a “strong likelihood of a mandatory cap-and-trade scheme passing through the legislature during 2009”. In January 2008, TEP put a further $10 million into a carbon credit investment fund managed by US-based Element Markets. TEP has also built up its stake in project developer Environmental Credit Corp to 76%; this firm has launched a subsidiary, Ag Carbon Management, specifically to develop methane capture projects at agricultural sites in the US.
JPMorgan buys carbon offset firm ClimateCare London,
27 March: US investment bank JPMorgan has bought ClimateCare, one of the oldest carbon offset providers, to strengthen its carbon credit origination business.
The two parties did not disclose the value of the transaction, but it will see UK-based ClimateCare’s 40 staff around the world joining JPMorgan’s 11-strong environmental markets team. The US bank will assume ClimateCare’s portfolio of projects, origination capacity and existing book of business.
As part of the acquisition, ClimateCare’s project sourcing arm, Pioneer Carbon, will become part of the newly combined business. The group will initially operate under both the JPMorgan and ClimateCare brand names.
Mike Mason, founder of ClimateCare, said: “After building up this business for over a decade, becoming part of JPMorgan is exactly what ClimateCare needs in order to grow rapidly and achieve its goal of having the biggest impact possible in tackling climate change.”
ClimateCare, which counts flooring manufacturer Interface, Land Rover and the UK’s major political parties among its clients, specialises in supplying carbon offsets to the voluntary market. It has a particular focus on higher-quality projects with a social component in addition to their emissions reduction potential.
However, it has been moving into the mandatory markets, developing projects that qualify under the Kyoto Protocol’s Clean Development Mechanism (CDM). According a ClimateCare spokesman, the company has a pipeline of some 8 to 10 million tonnes of carbon dioxide or equivalent, all accredited “to leading standards”, such as the Gold Standard, the Voluntary Carbon Standard and the CDM.
The company, which is based in Oxford, UK, has field offices in Kenya, Turkey, Mauritius and Chile.
Updated 27 March 2008
The two parties did not disclose the value of the transaction, but it will see UK-based ClimateCare’s 40 staff around the world joining JPMorgan’s 11-strong environmental markets team. The US bank will assume ClimateCare’s portfolio of projects, origination capacity and existing book of business.
As part of the acquisition, ClimateCare’s project sourcing arm, Pioneer Carbon, will become part of the newly combined business. The group will initially operate under both the JPMorgan and ClimateCare brand names.
Mike Mason, founder of ClimateCare, said: “After building up this business for over a decade, becoming part of JPMorgan is exactly what ClimateCare needs in order to grow rapidly and achieve its goal of having the biggest impact possible in tackling climate change.”
ClimateCare, which counts flooring manufacturer Interface, Land Rover and the UK’s major political parties among its clients, specialises in supplying carbon offsets to the voluntary market. It has a particular focus on higher-quality projects with a social component in addition to their emissions reduction potential.
However, it has been moving into the mandatory markets, developing projects that qualify under the Kyoto Protocol’s Clean Development Mechanism (CDM). According a ClimateCare spokesman, the company has a pipeline of some 8 to 10 million tonnes of carbon dioxide or equivalent, all accredited “to leading standards”, such as the Gold Standard, the Voluntary Carbon Standard and the CDM.
The company, which is based in Oxford, UK, has field offices in Kenya, Turkey, Mauritius and Chile.
Updated 27 March 2008
Merrill Lynch, SocGen launch carbon indexes
London, 27 March: Investment banks Merrill Lynch and Société Générale (SocGen) have both announced the launch of carbon indexes, following similar moves by Barclays Capital and UBS.
Both indexes will track prices for EU allowances (EUAs) and certified emission reductions (CERs), with a weighting of 71:29 in the Merrill Lynch Global CO2 emissions index and an even 50:50 split for SocGen’s. Merrill Lynch is also offering a separate EUA index and CER index.
The US investment bank will source EUA prices from the London-based European Climate Exchange (ECX), while the CER index will be an average of closing prices from three brokerages, which the bank will call every day. The three brokerages are yet to be decided upon, said Francisco Blanch, head of global commodities research for Merrill Lynch.
“We try to move towards exchange-traded markets when we can,” he told Environmental Finance, as it is more transparent and “better for the client if he can see closing prices on an exchange”.
The indexes will roll in February every year, to the following year’s vintage, said Blanch – meaning that the indexes right now are based on December 2009 prices.
Meanwhile, SocGen has teamed up with Paris-based emissions trading company Orbeo, which the bank owns jointly with French chemicals firm Rhodia, to launch its SGI-Orbeo Carbon Credit Index. This index will track the “first nearby” vintage in both the EUA and CER futures contracts, starting with the December 2008 contracts on the ECX, said Emmanuel Fages, analyst and business developer for Orbeo, with both contracts holding an equal weight in the index.
“It is very simple,” said Fages of the index. "It will track one maturity," with the most liquidity – which tends to be the front December, he said.
The bank will target “traditional fund managers” for investment in the index, such as pension funds and hedge funds, said Fages.
Both indexes will track prices for EU allowances (EUAs) and certified emission reductions (CERs), with a weighting of 71:29 in the Merrill Lynch Global CO2 emissions index and an even 50:50 split for SocGen’s. Merrill Lynch is also offering a separate EUA index and CER index.
The US investment bank will source EUA prices from the London-based European Climate Exchange (ECX), while the CER index will be an average of closing prices from three brokerages, which the bank will call every day. The three brokerages are yet to be decided upon, said Francisco Blanch, head of global commodities research for Merrill Lynch.
“We try to move towards exchange-traded markets when we can,” he told Environmental Finance, as it is more transparent and “better for the client if he can see closing prices on an exchange”.
The indexes will roll in February every year, to the following year’s vintage, said Blanch – meaning that the indexes right now are based on December 2009 prices.
Meanwhile, SocGen has teamed up with Paris-based emissions trading company Orbeo, which the bank owns jointly with French chemicals firm Rhodia, to launch its SGI-Orbeo Carbon Credit Index. This index will track the “first nearby” vintage in both the EUA and CER futures contracts, starting with the December 2008 contracts on the ECX, said Emmanuel Fages, analyst and business developer for Orbeo, with both contracts holding an equal weight in the index.
“It is very simple,” said Fages of the index. "It will track one maturity," with the most liquidity – which tends to be the front December, he said.
The bank will target “traditional fund managers” for investment in the index, such as pension funds and hedge funds, said Fages.
Sunday, March 23, 2008
Australia carbon monitoring technology and forest for developing countries
February 18, 2008
AUSTRALIAN technology for measuring carbon emissions from diminishing forests is to be made available to developing countries in cooperation with a group created by former US president Bill Clinton.The Clinton Climate Initiative has selected the CSIRO-developed National Carbon Accounting System (NCAS) as the platform for a global rollout, Climate Change Minister Penny Wong said today.
The global system would assist in recognising sustainable forest management and reforestation and would be adapted to meet the individual needs of developing nations, Senator Wong said. "An internationally-accepted carbon monitoring and accounting system is critical to integrating forests into the global carbon markets," she told the launch of the partnership in Canberra. "This can play an important role to alleviate poverty in developing countries through encouraging and providing a mechanism to reward sustainable management."
About 20 per cent of global emissions come from deforestation and forest degradation.
The NCAS uses remote sensing, satellite images, greenhouse-gas accounting methods and modelling of environmental changes to monitor and account for emissions from land-based sectors.
Clinton Climate Initiative representative Ira Magaziner said the organisation and the Australian government had agreed to make the world-leading technology freely available. "Not to try to wall it off or get commercial gain from it, because this is a public good - something that the world needs, that we all need," Mr Magaziner told the function. "We hope over the next few years to deploy systems around the world that will begin that process and capture that CO2 and that carbon in the air that we need to capture."
AUSTRALIAN technology for measuring carbon emissions from diminishing forests is to be made available to developing countries in cooperation with a group created by former US president Bill Clinton.The Clinton Climate Initiative has selected the CSIRO-developed National Carbon Accounting System (NCAS) as the platform for a global rollout, Climate Change Minister Penny Wong said today.
The global system would assist in recognising sustainable forest management and reforestation and would be adapted to meet the individual needs of developing nations, Senator Wong said. "An internationally-accepted carbon monitoring and accounting system is critical to integrating forests into the global carbon markets," she told the launch of the partnership in Canberra. "This can play an important role to alleviate poverty in developing countries through encouraging and providing a mechanism to reward sustainable management."
About 20 per cent of global emissions come from deforestation and forest degradation.
The NCAS uses remote sensing, satellite images, greenhouse-gas accounting methods and modelling of environmental changes to monitor and account for emissions from land-based sectors.
Clinton Climate Initiative representative Ira Magaziner said the organisation and the Australian government had agreed to make the world-leading technology freely available. "Not to try to wall it off or get commercial gain from it, because this is a public good - something that the world needs, that we all need," Mr Magaziner told the function. "We hope over the next few years to deploy systems around the world that will begin that process and capture that CO2 and that carbon in the air that we need to capture."
Old growth forests for carbon storage - Australia, Tasmania
Peg Putt MP
Monday, 28th January 2008
For Comment: State Parliamentary Offices of the Tasmanian Greens, (03) 6233 8300
The Tasmanian Greens today are unsurprised that a bleak outlook is forecast for Tasmania’s woodchip industry, even if Gunns’ pulp mill is built, and that pulp sales from the mill would also have to compete with low priced pulp from low cost South American producers, trends the Greens have repeatedly pointed out from their market analysis, now also reported by URS Australia in a consultancy to the Federal government (reported in today’s Australian newspaper).
Greens Opposition Leader Peg Putt MP said that taxpayer subsidisation of Forestry Tasmania had masked to a degree the fact that international markets are moving away from low quality native forest woodchip, and that in the era of action on climate change the best opportunity to make money from Tasmania’s native forests is to restore them to old growth to capture carbon and the dollars that will flow as carbon credits.
Ms Putt said that over recent years the big woodchippers had externalised risks associated with the market trend away from native forest woodchips onto forest contractors, not all of whom could survive, but that the woodchip companies and governments had played politics with the issue and put their energy into blaming conservationists for a trend actually precipitated by the establishment of massive hardwood eucalypt plantations in South America and south-east Asia.
“There is a bleak outlook for Tasmania’s native forest woodchip industry because higher quality plantation eucalypt is now available in large volumes at competitive prices from South America and south-east Asia, a trend that has been entirely predictable for years but has been masked by taxpayer subsidisation of Forestry Tasmania and the industry, together with the ideological determination to blame conservationists rather face up to reality,” Ms Putt said.
“Market trends mean that even if the pulp mill is built it will not be a panacea and contractors reliant on logging native forests for woodchip will continue to go out backwards, it’s dishonest of the government and of Gunns to lead people on about this and disgracefully blinkered that we don’t recognise the value in economic as well as environmental terms of restoring these forests to old growth instead.”
“Even the pulp mill will struggle to sell its product in competition with low cost producers, and we are very concerned that Tasmanian taxpayers will be locked into increasing subsidisation of Gunns pulp mill, which will end up as the monopoly buyer of woodchip dictating terms that suit the company’s bottom line.”
“The money generated from forests into the future will increasingly be through carbon capture, that is by retaining and restoring old growth forest and benefiting from carbon credits.”
“Tasmania has to break the stranglehold of the loggers on decision-makers if we are to be genuinely the clean, green and clever state, and if we are to stop throwing taxpayers dollars at an industry that is going down the gurgler because the rest of the world has moved on,” Ms Putt said.
Monday, 28th January 2008
For Comment: State Parliamentary Offices of the Tasmanian Greens, (03) 6233 8300
The Tasmanian Greens today are unsurprised that a bleak outlook is forecast for Tasmania’s woodchip industry, even if Gunns’ pulp mill is built, and that pulp sales from the mill would also have to compete with low priced pulp from low cost South American producers, trends the Greens have repeatedly pointed out from their market analysis, now also reported by URS Australia in a consultancy to the Federal government (reported in today’s Australian newspaper).
Greens Opposition Leader Peg Putt MP said that taxpayer subsidisation of Forestry Tasmania had masked to a degree the fact that international markets are moving away from low quality native forest woodchip, and that in the era of action on climate change the best opportunity to make money from Tasmania’s native forests is to restore them to old growth to capture carbon and the dollars that will flow as carbon credits.
Ms Putt said that over recent years the big woodchippers had externalised risks associated with the market trend away from native forest woodchips onto forest contractors, not all of whom could survive, but that the woodchip companies and governments had played politics with the issue and put their energy into blaming conservationists for a trend actually precipitated by the establishment of massive hardwood eucalypt plantations in South America and south-east Asia.
“There is a bleak outlook for Tasmania’s native forest woodchip industry because higher quality plantation eucalypt is now available in large volumes at competitive prices from South America and south-east Asia, a trend that has been entirely predictable for years but has been masked by taxpayer subsidisation of Forestry Tasmania and the industry, together with the ideological determination to blame conservationists rather face up to reality,” Ms Putt said.
“Market trends mean that even if the pulp mill is built it will not be a panacea and contractors reliant on logging native forests for woodchip will continue to go out backwards, it’s dishonest of the government and of Gunns to lead people on about this and disgracefully blinkered that we don’t recognise the value in economic as well as environmental terms of restoring these forests to old growth instead.”
“Even the pulp mill will struggle to sell its product in competition with low cost producers, and we are very concerned that Tasmanian taxpayers will be locked into increasing subsidisation of Gunns pulp mill, which will end up as the monopoly buyer of woodchip dictating terms that suit the company’s bottom line.”
“The money generated from forests into the future will increasingly be through carbon capture, that is by retaining and restoring old growth forest and benefiting from carbon credits.”
“Tasmania has to break the stranglehold of the loggers on decision-makers if we are to be genuinely the clean, green and clever state, and if we are to stop throwing taxpayers dollars at an industry that is going down the gurgler because the rest of the world has moved on,” Ms Putt said.
Vatican Climate Forest in Hungary
TISZAKESZI, Hungary: This summer the cardinals at the Vatican accepted an unusual donation from a Hungarian start-up called Klimafa: The company said it would plant trees to restore an ancient forest on a denuded island by the Tizsa River to offset the Vatican's carbon emissions.
The young trees, on a 15-hectare, or 37-acre, tract of land that will be renamed the "Vatican Climate Forest" will in theory absorb as much carbon dioxide as the Vatican makes through its various activities in 2007: driving cars, heating offices, lighting St. Peters Basilica at night.
In so doing, the Vatican announced, it would become the world's first carbon-neutral state.
"As the Holy Father, Pope Benedict XVI, recently stated, the international community needs to respect and encourage a 'green culture,' " said Cardinal Paul Poupard, head of the Pontifical Council for Culture, who took part in a ceremony marking the event at the Vatican. "The Book of Genesis tell us of a beginning in which God placed man as guardian over the earth to make it fruitful."
The Vatican, which has recently made an effort to go green on its own by installing solar panels, sought to set an example by offsetting its carbon emissions. Hungary, whose government scientists are consulting on the project, will take over large swaths of environmentally degraded, abandoned land restored as a native forest. That will have a beneficial effect on the climate there, and provide jobs in a economically depressed area, as well.
Klimafa, an 18-month-old company, gets the Vatican's seal of approval and a lot of free publicity for its first project. In addition to the Vatican's 15 hectares, several European governments as well as Dell, the computer maker, have purchased carbon offsets, which will be backed by tree planting on the 225-hectare island.
"It seems so obvious, but no one was doing it," said David Gazdag, a former medical doctor who brokered the project, with backing from his San Francisco parent company, Planktos International.
But creating and selling carbon "offsets" or "credits" is still a novel concept for both business and science, and many controversies remain. The calculation for tree planting in particular is complicated.
Planting forests is only "a partial solution, and a temporary one," said Laszlo Galhidy, forestry officer for the environmental group WWF Hungary, although he praised the project as a useful step.
Young forests - dominated by growing trees - soak up lots of carbon dioxide, but once the forests mature, they absorb far less, he said.
Also, "carbon credits" are not a hard currency like a euro or a Hungarian forint, but something far more nebulous, like a stock market future. There is no scientific system for predicting the exact carbon absorbing capacity of a project like the Vatican Forest, whose trajectory depends on rainfall, temperature and how fast trees grow.
Finally, man increases his polluting activities faster than he can offset them.
"Planting forests will only compensate for a small fraction of emissions, even if you cover all of Hungary in young trees," Galhidy said. Gazdag acknowledges that carbon offsetting is not an exact science. "People have only been thinking about offsetting for about 10 years," he said.
But he and others say that market mechanisms created by the Kyoto Protocol and the European Union at least force polluters to pay in some form for the emissions they create.
Kyoto and the European Union's Cap and Trade scheme set emissions targets for countries or large companies. Those that exceed their allowances - emitting too much carbon - need to purchase "carbon credits" from countries or companies that do not need their allotment or from companies like Klimafa that create credits through green projects like planting trees.
On the EU market, carbon credits are trading at about €21, or $28; one credit counters one ton of emitted carbon dioxide. Klimafa says its donation to the Vatican is worth about €100,000.
Some U.S. companies, like Dell, voluntarily purchase credits as a sign of their environmental commitment even though there is currently no U.S. law that requires them to do so.
Within Europe, the EU scheme allows for a much needed transfer of money from the more developed countries of Western Europe to the new economies of the East. Countries and companies in the West tend to exceed their allowance, whereas Eastern countries tend to have excess credits to sell since so many polluting Communist-era factories have been shut.
Also, many of the former Eastern Bloc countries had to decommission farmland to join the European Union in accordance with EU agricultural policy. In Hungary, as in other new member states, huge tracts of marginal fields have been repurchased by the government from farmers and are readily available for reforesting.
The island that will host Klimafa's first eco-restoration project, originally called "Forest Island," was cleared in the Middle Ages, though it is on a flood plain and has always been risky to farm.
Klimafa is also negotiating for nine more projects in Hungary as well as others in Bulgaria and Romania.
The island is now a mix of tangled weeds, wetlands, a lake and a few fields of corn that farmers are planting illegally even though they no longer own the land. Much of the island is a jumble of goldenrod and amorpha fruticosa - a tree-like weed that grows like wildfire.
The plant "doesn't sequester much, and it is not stable since it has little biodiversity since it is mostly two or three species," said Gergely Torda, a plant biologist from the Hungarian Academy of Sciences, who is consulting on the project. "It is deforested enough that you pretty much have to start from scratch to restore the native forest."
He scans the land as a blank canvas, describing plans for what will be planted where.
Later this year, Klimafa will begin clearing the weeds, using local labor, and then start environmentally sensitive planting of saplings that are native and will thrive in the local environment. These include willows, beeches, ash, certain poplars and oaks. The growing forest will absorb 10 times the carbon that the land currently absorbs, and will be self-sustaining, Torda said.
Klimafa has been given the right to restore the land by the Bukk National Park, which owns it; costs will be covered by carbon credit purchases.
Torda notes that it will take 50 to 150 years to produce a mature forest. Once that happens it will be less effective, since mature forests contain decaying trees that release CO2, as well as growing trees that absorb it. Also, there are pitfalls that will need to be avoided. Too much plowing, for example, releases carbon from the soil, which reduces the beneficial effect.
In some carbon credit projects, for example in Indonesia, the draining and plowing of peatland to make way for tree planting released so much carbon (peat is rich in the element) that it canceled the effect of the later planting of palm trees, according to Wetlands International. But the soil on the Hungarian island now is dry and low in carbon.
The world of carbon credits is filled with untested projects. For example, Planktos, Klimafa's San Francisco-based parent company, plans to seed an area in the Pacific with iron to stimulate the growth of carbon-eating algae.
After the Vatican agreement was announced, Monsignor Melchor Sánchez de Toca Alameda, an official at the Vatican's Council for Culture, told the Catholic News Service that buying credits was like doing penance: "One can emit less CO2 by not using heating and not driving a car or one can do penance by intervening to offset emissions, in this case by planting trees," he said.
But some critics derided the Vatican for planting trees rather than trying to rein in energy use in Rome. The Vatican did not have to pay anything for the Klimafa program, although the donation is only for 2007, and does not cover air travel.
Just last week, the Vatican began sponsoring low-cost flights for pilgrims from Rome to holy sites like Lourdes ("More convenient than a 22-hour train ride!" one priest said on Italian television.) Plane travel is hugely polluting.
The young trees, on a 15-hectare, or 37-acre, tract of land that will be renamed the "Vatican Climate Forest" will in theory absorb as much carbon dioxide as the Vatican makes through its various activities in 2007: driving cars, heating offices, lighting St. Peters Basilica at night.
In so doing, the Vatican announced, it would become the world's first carbon-neutral state.
"As the Holy Father, Pope Benedict XVI, recently stated, the international community needs to respect and encourage a 'green culture,' " said Cardinal Paul Poupard, head of the Pontifical Council for Culture, who took part in a ceremony marking the event at the Vatican. "The Book of Genesis tell us of a beginning in which God placed man as guardian over the earth to make it fruitful."
The Vatican, which has recently made an effort to go green on its own by installing solar panels, sought to set an example by offsetting its carbon emissions. Hungary, whose government scientists are consulting on the project, will take over large swaths of environmentally degraded, abandoned land restored as a native forest. That will have a beneficial effect on the climate there, and provide jobs in a economically depressed area, as well.
Klimafa, an 18-month-old company, gets the Vatican's seal of approval and a lot of free publicity for its first project. In addition to the Vatican's 15 hectares, several European governments as well as Dell, the computer maker, have purchased carbon offsets, which will be backed by tree planting on the 225-hectare island.
"It seems so obvious, but no one was doing it," said David Gazdag, a former medical doctor who brokered the project, with backing from his San Francisco parent company, Planktos International.
But creating and selling carbon "offsets" or "credits" is still a novel concept for both business and science, and many controversies remain. The calculation for tree planting in particular is complicated.
Planting forests is only "a partial solution, and a temporary one," said Laszlo Galhidy, forestry officer for the environmental group WWF Hungary, although he praised the project as a useful step.
Young forests - dominated by growing trees - soak up lots of carbon dioxide, but once the forests mature, they absorb far less, he said.
Also, "carbon credits" are not a hard currency like a euro or a Hungarian forint, but something far more nebulous, like a stock market future. There is no scientific system for predicting the exact carbon absorbing capacity of a project like the Vatican Forest, whose trajectory depends on rainfall, temperature and how fast trees grow.
Finally, man increases his polluting activities faster than he can offset them.
"Planting forests will only compensate for a small fraction of emissions, even if you cover all of Hungary in young trees," Galhidy said. Gazdag acknowledges that carbon offsetting is not an exact science. "People have only been thinking about offsetting for about 10 years," he said.
But he and others say that market mechanisms created by the Kyoto Protocol and the European Union at least force polluters to pay in some form for the emissions they create.
Kyoto and the European Union's Cap and Trade scheme set emissions targets for countries or large companies. Those that exceed their allowances - emitting too much carbon - need to purchase "carbon credits" from countries or companies that do not need their allotment or from companies like Klimafa that create credits through green projects like planting trees.
On the EU market, carbon credits are trading at about €21, or $28; one credit counters one ton of emitted carbon dioxide. Klimafa says its donation to the Vatican is worth about €100,000.
Some U.S. companies, like Dell, voluntarily purchase credits as a sign of their environmental commitment even though there is currently no U.S. law that requires them to do so.
Within Europe, the EU scheme allows for a much needed transfer of money from the more developed countries of Western Europe to the new economies of the East. Countries and companies in the West tend to exceed their allowance, whereas Eastern countries tend to have excess credits to sell since so many polluting Communist-era factories have been shut.
Also, many of the former Eastern Bloc countries had to decommission farmland to join the European Union in accordance with EU agricultural policy. In Hungary, as in other new member states, huge tracts of marginal fields have been repurchased by the government from farmers and are readily available for reforesting.
The island that will host Klimafa's first eco-restoration project, originally called "Forest Island," was cleared in the Middle Ages, though it is on a flood plain and has always been risky to farm.
Klimafa is also negotiating for nine more projects in Hungary as well as others in Bulgaria and Romania.
The island is now a mix of tangled weeds, wetlands, a lake and a few fields of corn that farmers are planting illegally even though they no longer own the land. Much of the island is a jumble of goldenrod and amorpha fruticosa - a tree-like weed that grows like wildfire.
The plant "doesn't sequester much, and it is not stable since it has little biodiversity since it is mostly two or three species," said Gergely Torda, a plant biologist from the Hungarian Academy of Sciences, who is consulting on the project. "It is deforested enough that you pretty much have to start from scratch to restore the native forest."
He scans the land as a blank canvas, describing plans for what will be planted where.
Later this year, Klimafa will begin clearing the weeds, using local labor, and then start environmentally sensitive planting of saplings that are native and will thrive in the local environment. These include willows, beeches, ash, certain poplars and oaks. The growing forest will absorb 10 times the carbon that the land currently absorbs, and will be self-sustaining, Torda said.
Klimafa has been given the right to restore the land by the Bukk National Park, which owns it; costs will be covered by carbon credit purchases.
Torda notes that it will take 50 to 150 years to produce a mature forest. Once that happens it will be less effective, since mature forests contain decaying trees that release CO2, as well as growing trees that absorb it. Also, there are pitfalls that will need to be avoided. Too much plowing, for example, releases carbon from the soil, which reduces the beneficial effect.
In some carbon credit projects, for example in Indonesia, the draining and plowing of peatland to make way for tree planting released so much carbon (peat is rich in the element) that it canceled the effect of the later planting of palm trees, according to Wetlands International. But the soil on the Hungarian island now is dry and low in carbon.
The world of carbon credits is filled with untested projects. For example, Planktos, Klimafa's San Francisco-based parent company, plans to seed an area in the Pacific with iron to stimulate the growth of carbon-eating algae.
After the Vatican agreement was announced, Monsignor Melchor Sánchez de Toca Alameda, an official at the Vatican's Council for Culture, told the Catholic News Service that buying credits was like doing penance: "One can emit less CO2 by not using heating and not driving a car or one can do penance by intervening to offset emissions, in this case by planting trees," he said.
But some critics derided the Vatican for planting trees rather than trying to rein in energy use in Rome. The Vatican did not have to pay anything for the Klimafa program, although the donation is only for 2007, and does not cover air travel.
Just last week, the Vatican began sponsoring low-cost flights for pilgrims from Rome to holy sites like Lourdes ("More convenient than a 22-hour train ride!" one priest said on Italian television.) Plane travel is hugely polluting.
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