Regulatory vacuum threatens forestry carbon offsets

January 26, 2010

Ruth Williams

Sunday Morning Herald, Sydney

When Melbourne company Greenfleet won the right to display the Federal Government's Greenhouse Friendly logo in early 2008, the non-profit tree-planting organisation was congratulated by the Climate Change Minister, Penny Wong.

"Greenfleet's biodiversity forest projects will not only result in a reduction of greenhouse gases, they will also provide valuable habitat for native fauna and assist in the regeneration of the Australian landscape," Senator Wong said.

Greenfleet was the first non-profit organisation to achieve Greenhouse Friendly accreditation as an ''approved abatement provider'', a title it won after a long and expensive process, its chief executive, Sara Gipton, says.

However, for an operation trading in Australia's fledgling voluntary carbon offsets market, one that relies on its reputation to convince supporters to buy its offsets, the credibility bestowed by Federal Government accreditation was worth the time and expense.

But a year after Greenfleet was accredited, Senator Wong announced that the Greenhouse Friendly program would be dumped. It would be superseded by the Government's centrepiece green policy, the Carbon Pollution Reduction Scheme and replaced by a new national carbon offset standard.

It has meant Greenfleet's return on its substantial investment in Greenhouse Friendly is much less than it should have been. But that is not its only problem.

Under the Government's timetable, Greenhouse Friendly will cease to exist on June 30, at which point the carbon offset standard, which was released with little fanfare at the start of December, will come into force. The standard is designed to complement the reduction scheme, but it is uncertain whether the scheme will be passed by Parliament by June 30.

No scheme means no carbon offset standard and no Greenhouse Friendly - a situation that creates a regulatory vacuum for Greenfleet and its peers.

Meanwhile, regulations governing forestry are unlikely to be released until after the scheme's legislation is put to the Senate next week. So when Greenhouse Friendly goes, so will any national, Government-backed method of accrediting forestry carbon offsets.

''At the moment we have massive regulatory uncertainty,'' Ms Gipton says. ''If the legislation doesn't pass, and Greenhouse Friendly is still being shut down on the 30th of June, we have a problem because we don't have a standard which we can tell our supporters, with certainty, that we operate to. It's very important that we have that; people want to be assured that we are operating credibly.''

But the regulatory tangle doesn't end there. Greenfleet offsets emissions with forestry, an abatement method covered by the Kyoto protocol. Were Greenfleet to do nothing, its forestry projects would be lumped in as counting towards Australia's overall emission reduction target - its so-called cap.

This means there would be less incentive for Greenfleet's supporters to offset their emissions, because the offsets generated would not be ''additional'' to the emission cuts Australia has committed to. In effect, they would simply be aiding the pollution of big emitters.

The solution is for Greenfleet to ''opt in'' to the scheme and ''retire'' its permits on a yet-to-be-established registry so they cannot be counted towards the national target and can be considered truly additional. This is Greenfleet's plan. But, unfortunately, Greenfleet can't participate in something that doesn't exist.

The conundrum is an example of how the Government's repeatedly delayed reduction scheme has created confusion among participants in the voluntary carbon market.

'Regardless of what happens in Canberra, Greenfleet will continue to plant trees, and those trees will continue to pull carbon dioxide from the air no matter what form of scheme passes Parliament - if one passes..

''The longer we wait on climate change, the harder the task, and climate change… isn't going to wait for a political solution.'' Ms Gipton says.

A spokeswoman for Senator Wong said: ''The Government is working through the implementation of the national carbon offset standard with stakeholders.''

Environmental group sues California to halt logging

Will clear-cutting forests increase global warming? That's a contentious issue as California, which is seeking to slash its carbon footprint, wrestles over rules to manage the state's private forests.

The Center for Biological Diversity, a Tucson-based environmental group, this week filed lawsuits against the California Department of Forestry and Fire Protection in seven California counties to halt logging plans for 5,000 acres across the Sierra Nevada and Cascade regions. The group contends that the agency approved the projects without properly analyzing carbon emissions and climate consequences under the California Environmental Quality Act.

"Clear-cutting is an abysmal practice that should have been banned long ago due to its impacts on wildlife and water quality," said Brian Nowicki, the group's California climate policy director. "Now, in an era when all land-management decisions need to be fully carbon-conscious, there is no excuse to continue to allow clear-cutting."

Sierra Pacific Industries, the timber company that is proposing the logging, responded that its harvesting would result "in a net sequestration rate of carbon dioxide that far exceeds any emissions that might occur." California requires that clear-cut areas be replanted, so that although logging results in emissions of some of the carbon stored in those trees, replanted areas would eventually compensate.

"This out-of-state organization . . . won't be happy until they have taken away every forest-related job in California," said Mark Pawlicki, director of corporate affairs and sustainability for Sierra Pacific. "The plaintiffs do not understand forestry, and they do not understand carbon sequestration."

Dave Bischel, president of the California Forestry Assn., an industry trade group, said that the logging plans "provide significant data on the carbon sequestration benefits," adding that 40% of the state's sawmills have closed since January 2000, boosting rural unemployment.

Forests act as carbon sinks, absorbing carbon dioxide from the atmosphere through photosynthesis and storing it in the trunks and leaves of trees and in shrubs and soil. Forestry experts say the state's 14 million acres of private timberland could be managed to sequester twice as much carbon as they do now. But the technicalities of how to accomplish that are a matter of bitter dispute between environmental groups, state agencies and the timber industry.

California is poised to adopt a cap-and-trade plan this year that would allow timber companies to calculate the extra carbon they obtain through changing their management practices, and then sell carbon credits or "offsets" to polluting industries, such as utilities and refineries, which are required to cut their carbon dioxide output. Several environmental groups, including the Environmental Defense Fund and the Natural Resources Defense Council, worked with the industry to fashion the rules adopted by the California Air Resources Board to govern forest offsets. But the environmental community is split, and the Center for Biological Diversity is demanding that the board rescind the rules for failing to account for their environmental effects.

The lawsuits were filed in superior courts in Amador, Calaveras, El Dorado, Modoc, Shasta, Tehama and Trinity counties. "By continuing to rubber-stamp Sierra Pacific Industries' clear-cutting plans, the Department of Forestry is chopping a gigantic hole in the credibility of California's climate policy," Nowicki said.

He added that in August, Sierra Pacific withdrew plans to log more than 1,600 acres after the Center for Biological Diversity filed lawsuits over the greenhouse gas effect. Several dozen new Sierra Pacific plans are pending.

margot.roosevelt @latimes.com

Copyright © 2010, The Los Angeles Times

Guardian takes another major step to meeting the 10:10 challenge

Hydro-electric power the key to reducing carbon footprint of the paper supply chain

• Comments (2)

• Jo Confino
• guardian.co.uk, Monday 25 January 2010 14.08 GMT

A roll of newsprint at the Guardian Print Centre

The Guardian's commitment to the 10:10 campaign has received a welcome boost with news that it is expected to cut the carbon footprint of its paper supply by at least 10% this year.

This is particularly significant given that newsprint and magazine paper accounts for more than two-thirds of traditional media companies' overall direct and indirect CO2 emissions.

Guardian News & Media (GNM), which owns the Guardian and Observer, had already committed to seeking to reduce the CO2 emissions of its directly-controlled operations, including its offices and print sites, by a tenth this calendar year.

This is in line with the aims of the 10:10 campaign, which is seeking to unite every sector of British society behind one simple idea: to achieve a 10% cut in the UK's carbon emissions in 2010

GNM's parent company Guardian Media Group will be achieving the reduction in paper emissions by switching some of its newsprint supply to a low carbon Norwegian mill which emits a tiny 9.45 kilogrammes of CO2 per tonne of paper.

This compares with the previous supplier, a UK recycled mill, which produced more than 100 times that amount; 976 kilogrammes per tonne.

The fibre source for the Norwegian Mill is 56% recycled and 44% certified virgin.

The vast majority of the difference in the CO2 emissions is down to the fact that the Norwegian company uses hydro-electricricity, while UK paper manufacturers use the national grid, which is largely powered by fossil fuels.

In recent years, GMG, which buys paper for all the businesses in the group ranging from the Manchester Evening News to Autotrader, has been increasing the recycled content of its paper and setting targets to raise the proportion of virgin paper that is covered by certification programmes, which ensure the pulp comes from well managed forests.

More recently it has been concentrating its efforts on measuring the carbon intensity of its paper suppliers and recently changed its paper purchasing policy to ensure that CO2 emissions are taken into account in contract decisions.

The switch of suppliers was necessitated by a 30% drop in demand for newsprint in GMG in 2009, which meant it made sense to reduce the number of core suppliers from six to five; three UK recycled mills and and one each from Norway and Canada.

The fibre source for the Norwegian mill is 56% recycled and 44% certified virgin.

While the paper will be travelling further, research has shown that the carbon impacts of transporting paper is much smaller than the emissions from its production.

The hoped-for 10% plus drop in emissions from GMG's paper supply is on a like-for-like basis and does not take into account a drop in the volume of paper being used, which was caused by continuing declines in demand for printed products as well as reduced pagination and the grammage of paper used.

Steve Gould, GMG's paper purchaser, said: "We have increasingly been integrating environmental considerations into our paper purchasing plans, whereas in years gone by the key criteria had been purely around economic factors such as price, quality and security of supply.

"In this particular case, we needed to re-arrange our portfolio of suppliers and having good quality CO2 data meant that there was a clear advantage in letting go of one of our UK recycled suppliers and switching to Scandanavian paper.

"This means that we should be able to reduce the carbon footprint in line with our 10:10 commitment.

"We recognise the importance in maintaining a high level of recycled paper and in fact last year GMG's recycled content was 78%. But we also need virgin paper to be entering the supply chain as the paper fibres wear out after they have been recycled about six times."

For a broader look at our journey towards sustainable paper supply, please read our latest blog on the issue.

Changes in household consumption could help tackle climate change

Source: Science for Environment Policy - European Commission DG Environment News Alert Service

Jan. 21, 2010

A new analysis of greenhouse gas (GHG) emissions from Swiss household consumption reveals a large difference between the best and worst households - which range between the equivalent of 5 to 17 tons of CO2 per capita per year. It suggests GHG reductions are possible if more households adopt similar consumption patterns to those with the lowest emissions.

The Kyoto Protocol requires the EU (consisting of the 15 Member States before May 2004) to reduce GHG emissions by 8 per cent below 1990 levels by 2008-20121. The IPCC has stated that changes in lifestyle and behaviour patterns can mitigate climate change but there are few details as to what these changes would be.

The study examined the consumption patterns of Swiss households and estimated the GHG emissions associated with different lifestyle areas, such as food, mobility, leisure and housing. Data were collected from the Swiss income and expenditure surveys from 2000-2003 and covered 14,300 households. The researchers compared the 10 per cent of households with the highest emissions per capita and the 10 per cent of households with the lowest emissions.

The results demonstrated the total GHG emissions of households varied considerably. Differences between the two groups stemmed mainly from heating, car use, air travel and electricity, which together account for 80 to 90 per cent of the range in GHG emissions.

Closer analysis revealed that low emitters do not just consume fewer products, but tend to consume products which emit low levels of GHGs. For example, they tend to spend less on mobility and consume less meat and electronic appliances. They also spend more time on leisure activities, such as cinema, theatre or sport, which have relatively low GHG emissions and more money on high-cost, quality items (with therefore less expenditure available for other energy intensive activities, such as mobility). They tend to live in urban areas where leisure, high quality items and public transport are more accessible.

The research indicated a number of consumption patterns that describe the so-called green consumer with low GHG emissions. However, although households show certain tendencies, there was no clear indicator that always identified green consumers. For example, there were high emitters who bought organic food, lived in car-free households and were vegetarian.

Nevertheless, the study suggested that a shift towards best-practice consumption could lower GHG emissions. For example, the Swiss Kyoto target of reducing GHG emissions by 8 per cent by 2010 could be reached if the share of households demonstrating best-practice consumption increased from 10 per cent to 26 per cent. The same would be true if 9 per cent of the worst practice households could change their consumption pattern so they produced the average amount of emissions. The researchers suggest that similar shifts could produce similar results in other OECD countries.

Greenhouse Gas Protocol - Product Life and Scope 3Standards

WASHINGTON DC, January 20, 2010 (World Resources Institute) – Sixty corporations today begin measuring the greenhouse gas emissions of their products and supply chains by road testing a new global framework that is part of the Greenhouse Gas Protocol Initiative.

Developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), the two new GHG Protocol standards – the Product Life Cycle Accounting and Reporting Standard and the Scope 3 (Corporate Value Chain) Accounting and Reporting Standard – provide methods to account for emissions associated with individual products across their life-cycles and of corporations across their value chains.

Jonathan Lash, president of WRI, said, “We are encouraged by the overwhelming response from the private sector seeking to road test the new standards. There were more than 120 applications across a broad array of sectors and regions worldwide. The road testing will provide critical input in ensuring that the standards generate credible and meaningful data for business and government decision makers, while considering the practical challenges that businesses and programs will face during implementation.”

“Increasingly, companies are looking beyond their own boundaries and developing strategies to reduce GHG emissions in their supply chains and in the products they make and sell,” added Bjorn Stigson, president of WBCSD. “By taking a comprehensive approach to GHG measurement and management, businesses and policymakers can focus attention on the greatest opportunities to reduce emissions within the full value chain, leading to more sustainable decisions about the products companies buy, sell, and produce.”

While many companies have been measuring the emissions from their own operations and electricity use, the Scope 3 Standard will, for the first time, allow companies to look comprehensively at the impact of their corporate value chains, including outsourced activities, supplier manufacturing, and the use of the products they sell. Road testers of the Product Standard will measure the climate change impact of products ranging from magazines, food and jeans to computers, wind turbines and steel.

Ashley Crepiat, environmental footprint and economics manager for road-testing company Airbus, said, “Managing the transition towards a low-carbon economy is now a true concern for corporations. Airbus understands that beyond reducing its direct GHG emissions from its operations, evaluating emissions throughout the whole value chain is also a major challenge. By road testing GHG Protocol’s Scope 3 Accounting and Reporting Standard, we believe this will help establish harmonized international guidelines enabling a common and robust framework for Scope 3 accounting.”

Michael Kobori, Levi Strauss & Co.’s vice president of Social and Environmental Sustainability, said: “Levi Strauss & Co. is thrilled to be road-testing the GHG Protocol Product Life Cycle Accounting and Reporting Standard. If this method becomes widely accepted, it will enable us to better calculate and share the climate change impact of our products. Being able to credibly measure and communicate that product impact to consumers can unleash the power of the market to address climate change on a global scale.”

The draft standards were developed over the last year through a global, collaborative multi-stakeholder process, with participation from over 1,000 volunteer representatives from industry, government, academia and non-governmental organizations. The road testing process will provide real-world feedback to ensure the standards can be practically implemented by companies and organizations from a variety of sectors, sizes, and geographic areas around the world. The final standards are scheduled to be published in December 2010.

Companies participating in the road testing represent 17 countries from every continent and more than 20 industry sectors. The companies include: 3M Company; Acer Inc.; Airbus S.A.S.; AkzoNobel; Alcan Packaging; Alcoa; Autodesk, Inc.; Baoshan Iron & Steel Co. Ltd.; BASF SE; Belkin International; Bloomberg LP; BT Plc; CA, Inc.; Coca-Cola Erfrishungsgetränke AG; Colors Fruit SA (Pty) Ltd.; Deutsche Post AG; DuPont; Eclipse Networks (Pty) Ltd.; Ecolab; The Estee Lauder Company; Ford Motor Company; General Electric; U.S. General Services Administration; Gold’n Plump Poultry LLC; Highways Agency (UK); Hydro Tasmania; IBM; IKEA; Italcementi Group; JohnsonDiversey, Inc.; Kraft Foods; Lenovo Corporation; Levi Strauss & Co.; Mitsubishi Chemical Corporation; National Grid; Natura Cosméticos; New Belgium Brewing Co.; Otarian; Pinchin Environmental Ltd.; PricewaterhouseCoopers (Hong Kong); Procter & Gamble Eurocor; Public Service Enterprise Group, Inc.; Rogers Communications, Inc.; SC Johnson; Shanghai Zidan Food Packaging & Printing Co., Ltd.; Shell International Petroleum Company Ltd; Swire Beverages (Coca-Cola Bottling Partner); TAL Apparel Limited; Tech-Front (Shanghai) Computer Co., Ltd./Quanta Shanghai Manufacturing City; Tennant Company; Veolia Water; VT Group Plc; Webcor Builders; Weyerhaeuser Company and WorldAutoSteel.

McDonald's Studies U.K. Cow Emissions

By ClimateBiz Staff

Published January 12, 2010

Tags: Reduce Emissions, Supply Chain

McDonald's U.K. is starting a three-year investigation into its cows' methane emissions and the best methods for lowering their impacts.

The Guardian reports that the E-CO2 Project, a consultancy that provides energy and carbon assessments for farmers and growers, will study the methane emissions from cows at 350 British farms.

The E-CO2 Project will use a greenhouse gas calculator accredited by the Carbon Trust to monitor emissions and provide suggestions on ways to reduce emissions.

If the study in the U.K., where McDonald's sources beef from some 350,000 cows, is successful, the company will roll it out in Europe.

Taiwan to promote carbon footprint labeling system

Central News Agency 2010-01-18 05:26 PM
Taipei, Jan. 18 (CNA) The Cabinet-level Environmental Protection Administration (EPA) is working on a system to label the carbon footprints of consumption products as part of efforts to reduce greenhouse gas emissions, EPA Deputy Minister Chiu Wen-yen said Monday. Chiu disclosed that the planned labeling system will be first applied to products such as PET-bottled beverages, cookies, candies and CDs, on a trial basis. He announced the plan at an international forum on "carbon footprints, " which is used to measure the "total set of greenhouse gas emissions caused by an organization, event or product," according to the U.K.-based Carbon Trust. Carbon Trust is a not-profit company tasked with accelerating the move to a low-carbon economy. Chiu revealed that the carbon footprint labeling system will be accompanied by a set of carbon footprint calculation criteria targeting Taiwanese products, a set of measures to assist local manufacturers in checking the carbon footprints of their products and applying for carbon labels, a carbon label certification system, and strategies to promote products with carbon labels. Such work will have a "profound influence" on Taiwan because it is a country that survives on exports, Chiu said. There will be an increasing demand for carbon labeling on commodities in the future amid a rising global trend for greenhouse house gas emissions reduction, and if Taiwan cannot meet the demand, it could lose many trade opportunities, Chiu warned. Taking the world's largest chain retailer -- Walmart -- as an example, Chiu said the company has begun asking its suppliers to provide information of the life cycles of their products since last July and will print the information on the price label to tell consumers how much greenhouse gas was emitted during the production. The move is expected to affect 100,000 Walmart suppliers, he added. Meanwhile, British chain retailer Tesco has been marking carbon emission volumes on some of it products since the spring of 2008. The two-day forum, titled "Following Carbon Footprints -- A New Road to Carbon Reduction, " was organized by the EPA and opened Monday with the participation of Robin Dickinson, the development and project manager at the Carbon Trust, Atsushi Inaba, chairman of Japan's Committee for International Standardization of the Carbon Footprint System under the Ministry of Economy, Trade and Industry, World Resources Institute senior researcher Laura Drauker and Gyusoo Joe, the carbon management team manager at the Korea Environmental Industry and Technology Institute. (By Lee Hsien-feng and Elizabeth Hsu)

Reducing Carbon Along The Supply Chain

A case study of Catalyst's Cooled paper analyzed carbon emissions in the supply chain -- from forest to printer.

By: Chris Elliot And Gary Bull

In 2007, Catalyst Paper Corporation approached Wenner Media Group, publisher of Rolling Stone, with a proposal to print the magazine on paper that adds no carbon dioxide to the atmosphere through the manufacturing process.

After conducting its own research and working with WWF Canada and other parties to examine the benefits of the new product, Wenner agreed.

As researchers interested in the link between forest products and climate change, we were intrigued by the story of Catalyst Cooled paper. We decided to measure carbon emissions along its supply chain -- from harvesting the fibre to printing the magazine.

But once we started, we soon realized quantitative data was only part of the picture. There was much more to be gained from a broader look at how the companies along this particular supply chain were addressing the issue of carbon, and the potential this has to reshape business today.

The data showed basically what we had expected -- 41% of the total carbon emissions came from the actual paper manufacturing process. The rest is associated with harvesting the fibre on northern Vancouver Island and moving it to the sawmill (12%); sawmilling (10%); trucking the chips to the paper mill in Port Alberni (2%); transporting the paper to the print facility in California (28%); and printing the magazine (8%).

We then interviewed senior managers in the six companies along this supply chain and found agreement that carbon is a cost, a potential risk, and an opportunity.

Carbon is a convergence point

That's not a surprise when you consider that carbon has emerged as a convergence point in sustainability, in business operations, and in supply chain collaboration. Unlike any other measure, carbon exists in all three realms of sustainability. It is synonymous with the cost of energy so it can be economically sustainable. It has a direct impact on climate change so it can be environmentally sustainable. Its increasing value gives forest users another choice in land-use decisions so it can be socially sustainable.

There are two ways carbon efficiency may manifest along supply chains: companies that are energy efficient may become preferred suppliers, and supply chains themselves may reorient around minimizing carbon emissions. We saw both with the Catalyst case study.

Wenner chose Catalyst Cooled paper because of its environmental attributes. Catalyst was able to offer a manufactured carbon neutral paper because it has done a lot to lighten its environmental footprint; since 1990, it has reduced its greenhouse gas emissions by 70%.

The other companies along the supply chain clearly saw opportunities for their own businesses. Washington Marine Group began carbon management planning when it learned Catalyst -- its largest customer -- was exploring carbon-light products. It recognizes the potential strength of sea-based shipping, and is looking for ways to reduce its emissions, such as lowering vessel speeds to burn less fuel.

The same is true for Burlington Northern Santa Fe. This rail company has close to 50,000 kilometres of track in the United States, and sees a low-carbon economy as a prime opportunity to enhance its share of the shipping business. One tonne of freight shipped by rail uses one tenth as much fuel as a truck.

Adapting to carbon markets

As companies start to consider the carbon implications along their entire supply chain, we may start to see a change in practices. Emphasis may shift from delivery time and delivery costs to carbon-efficient delivery.

Also, location considerations differ. Here's an example: A client who wants to reduce the carbon footprint associated with printing a book can choose between a facility powered by hydroelectric power that is far from key markets or one powered by coal that is near key markets. Since the printing uses less energy than the transportation, the coal-powered facility's total carbon footprint is lighter and it represents the preferred choice.

As carbon management along the supply chain grows, third-party auditing and verification may become widespread. This additional layer of measurement and monitoring may be costly at first but it will add value both in building stronger relationships between supply chain collaborators and in identifying areas where further improvements can be made.

Carbon, given its current prevalence, could emerge as criteria in market access and consumer choice. A jurisdiction could introduce a trade policy that places a levy on products requiring carbon-intensive energy, such as coal, or requires disclosure of the carbon footprint. Consumers may show a preference for goods that have lower environmental and social impacts, as well as being cost competitive.

Finding common ground on carbon

The common cause of carbon is apparent. Less clear is how this will induce change -- in purchasing decisions, in the design of supply chains, and in the definition of sustainability. Our interviews helped to show how the sustainability agenda -- which often has conflicting environmental, economic, and social goals -- has found common ground in carbon.

Current trends in carbon management, such as reducing employee travel, offer limited returns. More sophisticated policies are needed that look at suppliers, logistics, and operations -- in other words, the supply chain. Businesses have identified carbon as a means for progress in balancing short-term costs, long-term profitability, and the maintenance of a corporate brand. Supply chains have aligned corporate strategies around it. Some prioritize operational excellence, others anticipate the need for regulatory compliance, others respond to consumer demand. All are able to use efforts to manage and reduce their carbon emissions to further these goals.

Carbon may change the structure of businesses in fundamental ways. Even today, when carbon is without a price, companies are finding that reducing their carbon footprint reduces their fuel costs, offering significant savings. As carbon gains a price, these companies will derive multiple benefits from their advances -- both fuel and emissions will cost less.

Businesses already market their products on the basis of the carbon footprint; this trend is expected to continue. New opportunities, new markets and new collaborators may emerge.

Evolving businesses inexorably lead to evolving supply chains.

To be slow on carbon is risky business these days. Its role in climate change is having a direct impact on performance, profitability, regulatory compliance, and market access. It has the potential to transform the supply chain, making it stronger and more resilient.

Dr. Gary Bull, associate professor, Forest Resources Management Department, University of British Columbia, and Dr. Chris Elliot, director of WWF's Global Forest Programme, worked with Graham Kissack, R.A. Kozak and Justin Bull. The full report, Toward a Common Cause: the Embrace of Carbon Along a Supply Chain is posted atwww.naturallywood.com.

Why it is important to put a price on nature

Price fixing

Jan 18th 2010
From Economist.com

Why it is important to put a price on nature

THE insight that nature provides services to mankind is not a new one. In 360BC Plato remarked on the helpful role that forests play in preserving fertile soil; in their absence, he noted, the land was turned into desert, like the bones of a wasted body. The idea that the value provided by such “ecosystem services” can be represented by ecologists in a way that economists can get to grips with, though, is rather newer. A number of the thinkers who have made it a hot topic in the past decade gathered at a meeting on biodiversity and ecosystem services held by theRoyal Society, in London, on January 13th and 14th. They looked at the progress and prospects of their attempts to argue for the preservation of nature by better capturing the value of the things – such as pollination, air quality and carbon storage – that it seemingly does for free.

Environmental valuations aim to solve a problem that troubles both economists and ecologists: the misallocation of resources. Take mangrove swamps. Over the past two decades around a third of the world’s mangrove swamps have been converted for human use, with many turned into valuable shrimp farms. In 2007 an economic study of such shrimp farms in Thailand showed that the commercial profits per hectare were $9,632. If that were the only factor, conversion would seem an excellent idea.

However, proper accounting shows that for each hectare government subsidies formed $8,412 of this figure and there were costs, too: $1,000 for pollution and $12,392 for losses to ecosystem services. These comprised damage to the supply of foods and medicines that people had taken from the forest, the loss of habitats for fish, and less buffering against storms. And because a given shrimp farm only stays productive for three or four years, there was the additional cost of restoring them afterwards: if you do so with mangroves themselves, add another $9,318 per hectare. The overall lesson is that what looks beneficial only does so because the profits are retained by the private sector, while the problems are spread out across society at large, appearing on no specific balance sheet.

Ecosystem-services researchers are now providing such balance sheets in more and more of the world. Poor countries such as South Africa and Tanzania have realised that if they study the provision of such services sensibly, they can make more rational decisions and avoid some of the costly mistakes made by those places that have already developed. To this end, the Natural Capital Project, a group based at Stanford University, California, has developed a suite of computer programs called InVEST, which will analyse and map ecosystem services. InVEST allows farmers, landowners and government officials to make better-informed decisions about the current and future costs of an activity.

In the Eastern Arc mountains in Tanzania, for example, deforestation is reducing river flows, which leaves the people and industries of Dar es Salaam, the country’s largest city, short of both water and hydroelectricity. InVEST is being used to find the least bad places for further upstream development, and to pinpoint those areas where paying the locals to maintain the environment will yield the greatest dividends downstream. Meanwhile, in Colombia, funds have been created by water users, particularly the thirsty sugarcane industry, to pay for investment in watershed conservation and restoration. Again, the priority areas for such funds are being discovered by mapping the ecosystem services.

The move to put a price on nature has its critics. Some think the notion is an affront to those who place cultural, spiritual or aesthetic value on biodiversity for its own sake. It would be a mistake to look at things this way. In valuing a particular service – such as the cost of erosion to Greek hillsides – which can be quantified with a reasonable degree of certainty, you do not exhaust the reasons for preserving the groves where the dryads play.

The other concern, among nature lovers, is that valuations may not always give the answers that they want. Humans are fond of pandas and elephants: yet the species that provide the greatest utility may turn out to be dung beetles, bacteria and trees. To others, though, including many who come from economics, this is a feature, not a bug (or a beetle). It means that the service approach really is trying to measure something useful, rather than confirming prejudices about what needs saving.

Partha Dasgupta, an economist at Cambridge University who gave the Royal Society meeting’s opening address, stressed that the ecosystem approach has still more to offer: it can go beyond being a decision tool to becoming a key part of macroeconomic thinking. Dr Dasgupta wants a new measure of national wealth that captures the state of a country’s environment in ways that GDP cannot, a measure he calls “Inclusive Wealth”. Pavan Sukhdev, an economist at the United Nations Environment Programme, agreed. By way of example, he offered the observation that although GDP incorporates increases in medical spending on respiratory diseases, it does not incorporate the value of reducing air pollution. GDP, he concludes, is an imperfect measure of progress.

Ecologists, then, need to remember that the ultimate prize in ecological economics is not just an increase in the extent to which the environment is a factor in decision-making, but to find ways of weaving it into the fabric of economic thinking. If that results in a better and fuller approximation of the truth, economists should be pleased, too

Exporters warned of carbon standards

Published: 14/01/2010 at 12:00 AM

• Newspaper section: Business

Thai exporters must act to be ready to comply with upcoming stringent carbon standards to be imposed by the United States and Japan, a United Nations agency warns.The politicised concept of Border Carbon Adjustments (BCA) was proposed as a tool for policymakers in Thailand's major export markets to regulate carbon emissions between countries of unequal environmental standards.

BCA allows countries to apply a penalty in the form of a tariff or an obligation to purchase carbon credits on imports from countries which practice less stringent emission standards, according to the United Nations Industrial Development Organisation (Unido).

BCA could be quite expensive for Thai companies, especially SMEs (small and medium-sized enterprises), said Ayumi Fujino, head of the Unido regional office in Bangkok.

Technical capacity is another critical issue that needs to be taken into account for exporters to comply with such measures.

While the legality of BCA under the World Trade Organisation remains doubtful, the measure has been endorsed in Japan while it awaits legislative approval in the US. The European Union is also working on it, she added.

By increasing costs in imported materials for developing nations, the measure would force these nations lose a measure of their competitiveness in overseas markets.

The Thailand Greenhouse Gas Management Organisation (TGO) has called on Thai manufacturers to be aware of more intensified measures regarding carbon emissions following the UN's climate change summit in Copenhagen last December.

So far, 25 products have been approved to carry carbon footprint labels that detail carbon emissions for the life cycle of the items, including Thai Namthip soft drinks, Charoen Pokphand frozen foods, and Thai Airways International's in-flight menus, according to the TGO executive director, Sirithan Pairoj-Boriboon.

The agency has also granted 56 products a carbon reduction label, covering a wide range of goods such as cement, cans, vegetable oil, rice and condoms, he added.

The TGO and Unido have joined with the Federation of Thai Industries (FTI) to arrange a one-day seminar on Jan 20 to provide critical input for the Thai private sector and government agencies on policy responses to BCA.

The forum aims to raise awareness among the Thai export community and increase understanding of preparatory measures that must be taken to remain competitive in the changing global market.

Graft threatens Indonesia's carbon offset billions: report

By Sunanda Creagh

JAKARTA (Reuters) - Billions of dollars set to flood into Indonesia under a U.N.-backed forest protection scheme are at risk because of graft unless the country puts strong oversight mechanisms in place, a report released on Tuesday warned.

Indonesia has the world's third largest area of tropical forest and stands to gain billions of dollars every year from a proposed greenhouse gas offset scheme called reduced emissions from deforestation and degradation (REDD) that was formalized at recent global climate talks in Copenhagen.

REDD allows polluters to earn tradeable carbon credits by paying developing nations not to chop down their trees.

However, a two-year study by the West Java-based Center for International Forestry Research (CIFOR) warned that past and recent cases of corruption and financial mismanagement in Indonesia's forestry sector revealed systemic weaknesses that could scuttle REDD.

"Investors should be looking very carefully at the financial governance conditions in the countries where they will be investing their funds. Like Indonesia, many tropical forest countries have long track records of mismanaging public financial resources, particularly in the forestry sector," said the report's co-author, Christopher Barr.

A spokesman from the Forestry Department said the government was committed to transparency.

"Everything is now transparent, measured and monitored. Not just in the REDD sector but in all our financial management, it's now very tight," said spokesman Masyhud.

"It's not possible to play around. Every institution has an inspector general and we also now have the Supreme Audit Agency and the Corruption Eradication Commission," two agencies which are involved in the fight against corruption.

PAST PROBLEMS COULD RETURN

Indonesia last year set up a legal framework for REDD. Several pilot projects are under way and the governments of Norway, Australia, Germany and the U.S. have promised millions of dollars in funding for REDD demonstration activities.

The CIFOR report recommended Indonesia set up new mechanisms to monitor the money flowing into the country for REDD projects and to strengthen existing oversight bodies such as the Corruption Eradication Commission, known as the KPK.

The report exposed details of mismanagement of the Reforestation Fund, which was established in 1989 under former president Suharto and which collected billions of dollars in levies from timber concessionaires to pay for reforestation.

The CIFOR study was partly based on a previously unpublished 1999 audit by Ernst and Young, seen by Reuters, which found $5.252 billion was lost from the fund through systemic financial mismanagement and fraud between 1993/94 and 1997/98.

Control of the Reforestation Fund has now been transferred to the Ministry of Finance and institutions such as the KPK and Supreme Audit Agency have helped improve the situation since the fall of Suharto in 1998, said Barr.

"But significant problems have continued through the post-Suharto period, many of which raise fundamental questions about how future REDD payment schemes will be managed," he said.

KPK spokesman Johan Budi said the agency is now investigating senior forestry ministry officials and lawmakers suspected of taking bribes for a radio communications system contract.

"The problems that have plagued the Reforestation Fund over the last 20 years are likely to reoccur" without further strengthening of oversight systems, Barr said.

Indonesia last week revealed an ambitious plan to create an extra 21.15 million hectares (52.26 acres) of forest by 2020.

(Editing by Sara Webb and Sanjeev Miglani)