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DGL 2008: The Science of Carbon Trading
Meeting report by Leo Salter
ECG Committee Member
ECG Bulletin July 2008
ECG Committee Member
ECG Bulletin July 2008
The 35th RSC Environmental Chemistry Group Distinguished Guest Lecture and Symposium took place in the Council Room of Burlington House on Wednesday March 12th 2008. An enthusiastic and well-informed audience heard four talks on carbon trading and related topics. The quality of the presentations was matched by the range of questions from those attending, reflecting the scientific, political, commercial, and economic aspects of this year’s chosen subject.
Jon Lovett (University of York and University of Twente) commenced the symposium by discussing the key environmental milestones which have influenced policy responses to deforestation and degradation:
It is in this context that the 2003 European Parliament Biofuels Directive 2003/30/EC was formulated to ensure EC support and compliance for Kyoto. However, its policy thrust was layered first by the inclusion of collateral economic policy statements about supporting sustainable, harmonised, rural development (e.g. in Bulgaria and Rumania) and secondly by including statements about the policy’s support for European energy security.
In spite of the policy focus on GHG emission reduction and the introduction of support for biofuel use, there was and is little recognition of the need for a policy response to deal with the 20-25% of global GHG emissions which are consequent on tropical deforestation. Reducing deforestation-linked emissions is a demonstrably cost-effective mitigation option with the added collateral advantages of targeting poverty alleviation for a billion people in the tropics and protection for forest biodiversity.
The Kyoto Protocol offers some support for afforestation/reforestation (new forests as carbon sinks) but this support is heavily restrained. It applies only to areas not covered by forests in 1990, only to the planting of new trees, has high transaction costs and in no way acts to counter deforestation.
A new policy (Reduced Emissions from Deforestation in Developing Countries (REDD)) was first proposed by Costa Rica and Papua New Guinea in 2005 and its adoption would imply the creation of a reference scenario for the national rate of deforestation for each country – for each country, any future improvements in lowering the deforestation rate are compensated via carbon credit funding.
What is important for the effectiveness of REDD compensation is that the income to the sovereign government should be targeted for the local communities who manage the forest resource – 17% of the world’s forests are under community control and this is increasingly managed in a sustainable fashion (www.communitycarbonforestry.org).
Jon Lovett’s lecture discussed the ways in which the difficulties in engendering local community action can be overcome by identifying local communities as the financial beneficiaries of REDD income and by developing their role as custodians of forests.
Matthew Owen (Cornwall College) continued this theme in his paper “REDD Bull: What can rainforest protection do to halt climate change?” Matthew argued that the problems inhibiting the universal success of schemes such as those funded via REDD are often linked to issues within the community (e.g. tenancy). Such issues need to be reconciled before the creation of a community asset class associated with communal forestry management.
Matthew also argued that deforestation is easy to monitor (as shown by the satellite mages in his talk) and much cheaper than other carbon reduction interventions. However, the global requirement to bring 3.8 million hectares of land into production each year (a response to ‘Appetite Growth’) and the high value of timber as an asset class compete against REDD targets – and governance and transaction costs for REDD (e.g. establishing clear legal ownership of the land) are high.
As with many foresight environmental programmes difficulties arise with the implementation of REDD because associated market systems are not in place. For instance, although the carbon market itself seems to be shifting from a nascent to a fledgling state, it is still the least significant financial market.
It is still true for instance that most transactions are linked to companies alleviating their corporate-social responsibilities rather than genuine demand for carbon as an asset class. Additionally REDD is excluded from the market (but aforestation and reforestation are not).
Even though deforestation accounts for 25% of carbon emissions globally, there is no scope for its inclusion in the market prior to 2012 (and probably not until 2010 when it will be traded in a segregated market). Coincidentally, the March 13th edition of Nature (Issue Number 7184) has two articles on precisely the themes promulgated in Jon and Matthew’s talks - albeit with slightly different points of view: “Race against time to save the Amazon rainforest” pp 134-138).
Nigel Mortimer (North Energy Associates Ltd) followed these two presentations with a discussion on the accounting of biofuels. His paper focused on the ways in which Life Cycle Analysis (LCA) could bring a perspective to the current differing views around biofuels. These range from ‘ . . . there is no such thing as a sustainable biofuel’ (George Monbiot) to ‘assess each biofuel on its own merits ‘ (Sustainable Biofuels: Prospects and Challenges” The Royal Society, January 2008).
When LCA is applied to biofuels for GHGs, co-product allocations (all biofuels have side and waste products) and land use has considered and there are competing accounting methodologies by which these can be evaluated. The Renewable Fuels Agency Technical Guidance, BSI PAS2050 and the European Commission Renewable Energy Directive all use different approaches to accounting for land use and GHG consequences. Harmonisation of accounting processes is needed, GHG emission savings need to be accurately calculated (as do displaced foods and carbon store destruction), and good (and new) technological choices have to be made.
The ECG 2008 Distinguished Guest Lecture examined the way in which carbon trading could achieve the EU 2 ºC target. Dr Terry Barker (4CMR, Dept. of Land Economy, University of Cambridge) began by noting the 70% increase in greenhouse gas (GHG) emissions which occurred between 1970 and 2004. He suggested that the existence of good fossil fuel reserves combined with strong demands for energy security will further increase GHG emissions; as will the long term trends in grassland and virgin forest removal – generally consequent on the desire for private gain at the expense of public loss.
The 2 ºC (above pre-industrial) target is set by the EU as one for which serious anthropological climate change can be avoided and it is recognised that GHG emissions have to start being reduced as soon as possible (the 2 ºC target is effectively equivalent to stabilising carbon dioxide in the range 445-490 ppm (cf. Stern: 450-550 ppm)). All countries and sectors will have to decarbonise to restrain climate change even though it is the industrialised countries which are currently responsible for the forcing inputs.
Having identified a scenario target, Terry Barker went on to develop the symposium theme that the achievement of the target depended on the critical policy instruments which drive decarbonisation and GHG removal technologies. The EU Emissions Trading scheme is the largest mitigation policy action and carbon ‘taxation’ is its driver. And he cautioned that simple increases in energy efficiency tend to lead to increased energy use unless the carbon price remains high enough to act as an incentive for decarbonisation.
In order for the policy instruments to act effectively carbon trading has to have credibility and currently its credibility resides in its creation as a government policy instrument with two strands: a carbon tax and an emission permit scheme. Such schemes are open to collusion and transaction costs are high, but
“Policies that provide a real or implicit price of carbon could create incentives for producers and consumers to invest significantly in low-GHG products and technologies.”
There are difficulties in policy implementation:
However, although the symposium did pose many unanswered questions it does seem certain that there is little time left for continued inaction. If putting into practice the various forms of carbon trading is indeed the only viable solution, then it’s time the market began in earnest.
Jon Lovett (University of York and University of Twente) commenced the symposium by discussing the key environmental milestones which have influenced policy responses to deforestation and degradation:
- The 1992 UN Framework convention on Climate Change (which recognised the need to stabilise greenhouse gas (GHG) concentrations);
- The oppositional 1997 Byrd-Hagel Resolution (which states the US position of not ratifying the Kyoto Protocol until developing countries also did and until it was clear that no serious harm would come to the US economy).
It is in this context that the 2003 European Parliament Biofuels Directive 2003/30/EC was formulated to ensure EC support and compliance for Kyoto. However, its policy thrust was layered first by the inclusion of collateral economic policy statements about supporting sustainable, harmonised, rural development (e.g. in Bulgaria and Rumania) and secondly by including statements about the policy’s support for European energy security.
In spite of the policy focus on GHG emission reduction and the introduction of support for biofuel use, there was and is little recognition of the need for a policy response to deal with the 20-25% of global GHG emissions which are consequent on tropical deforestation. Reducing deforestation-linked emissions is a demonstrably cost-effective mitigation option with the added collateral advantages of targeting poverty alleviation for a billion people in the tropics and protection for forest biodiversity.
The Kyoto Protocol offers some support for afforestation/reforestation (new forests as carbon sinks) but this support is heavily restrained. It applies only to areas not covered by forests in 1990, only to the planting of new trees, has high transaction costs and in no way acts to counter deforestation.
A new policy (Reduced Emissions from Deforestation in Developing Countries (REDD)) was first proposed by Costa Rica and Papua New Guinea in 2005 and its adoption would imply the creation of a reference scenario for the national rate of deforestation for each country – for each country, any future improvements in lowering the deforestation rate are compensated via carbon credit funding.
What is important for the effectiveness of REDD compensation is that the income to the sovereign government should be targeted for the local communities who manage the forest resource – 17% of the world’s forests are under community control and this is increasingly managed in a sustainable fashion (www.communitycarbonforestry.org).
Jon Lovett’s lecture discussed the ways in which the difficulties in engendering local community action can be overcome by identifying local communities as the financial beneficiaries of REDD income and by developing their role as custodians of forests.
Matthew Owen (Cornwall College) continued this theme in his paper “REDD Bull: What can rainforest protection do to halt climate change?” Matthew argued that the problems inhibiting the universal success of schemes such as those funded via REDD are often linked to issues within the community (e.g. tenancy). Such issues need to be reconciled before the creation of a community asset class associated with communal forestry management.
Matthew also argued that deforestation is easy to monitor (as shown by the satellite mages in his talk) and much cheaper than other carbon reduction interventions. However, the global requirement to bring 3.8 million hectares of land into production each year (a response to ‘Appetite Growth’) and the high value of timber as an asset class compete against REDD targets – and governance and transaction costs for REDD (e.g. establishing clear legal ownership of the land) are high.
As with many foresight environmental programmes difficulties arise with the implementation of REDD because associated market systems are not in place. For instance, although the carbon market itself seems to be shifting from a nascent to a fledgling state, it is still the least significant financial market.
It is still true for instance that most transactions are linked to companies alleviating their corporate-social responsibilities rather than genuine demand for carbon as an asset class. Additionally REDD is excluded from the market (but aforestation and reforestation are not).
Even though deforestation accounts for 25% of carbon emissions globally, there is no scope for its inclusion in the market prior to 2012 (and probably not until 2010 when it will be traded in a segregated market). Coincidentally, the March 13th edition of Nature (Issue Number 7184) has two articles on precisely the themes promulgated in Jon and Matthew’s talks - albeit with slightly different points of view: “Race against time to save the Amazon rainforest” pp 134-138).
Nigel Mortimer (North Energy Associates Ltd) followed these two presentations with a discussion on the accounting of biofuels. His paper focused on the ways in which Life Cycle Analysis (LCA) could bring a perspective to the current differing views around biofuels. These range from ‘ . . . there is no such thing as a sustainable biofuel’ (George Monbiot) to ‘assess each biofuel on its own merits ‘ (Sustainable Biofuels: Prospects and Challenges” The Royal Society, January 2008).
When LCA is applied to biofuels for GHGs, co-product allocations (all biofuels have side and waste products) and land use has considered and there are competing accounting methodologies by which these can be evaluated. The Renewable Fuels Agency Technical Guidance, BSI PAS2050 and the European Commission Renewable Energy Directive all use different approaches to accounting for land use and GHG consequences. Harmonisation of accounting processes is needed, GHG emission savings need to be accurately calculated (as do displaced foods and carbon store destruction), and good (and new) technological choices have to be made.
The ECG 2008 Distinguished Guest Lecture examined the way in which carbon trading could achieve the EU 2 ºC target. Dr Terry Barker (4CMR, Dept. of Land Economy, University of Cambridge) began by noting the 70% increase in greenhouse gas (GHG) emissions which occurred between 1970 and 2004. He suggested that the existence of good fossil fuel reserves combined with strong demands for energy security will further increase GHG emissions; as will the long term trends in grassland and virgin forest removal – generally consequent on the desire for private gain at the expense of public loss.
The 2 ºC (above pre-industrial) target is set by the EU as one for which serious anthropological climate change can be avoided and it is recognised that GHG emissions have to start being reduced as soon as possible (the 2 ºC target is effectively equivalent to stabilising carbon dioxide in the range 445-490 ppm (cf. Stern: 450-550 ppm)). All countries and sectors will have to decarbonise to restrain climate change even though it is the industrialised countries which are currently responsible for the forcing inputs.
Having identified a scenario target, Terry Barker went on to develop the symposium theme that the achievement of the target depended on the critical policy instruments which drive decarbonisation and GHG removal technologies. The EU Emissions Trading scheme is the largest mitigation policy action and carbon ‘taxation’ is its driver. And he cautioned that simple increases in energy efficiency tend to lead to increased energy use unless the carbon price remains high enough to act as an incentive for decarbonisation.
In order for the policy instruments to act effectively carbon trading has to have credibility and currently its credibility resides in its creation as a government policy instrument with two strands: a carbon tax and an emission permit scheme. Such schemes are open to collusion and transaction costs are high, but
“Policies that provide a real or implicit price of carbon could create incentives for producers and consumers to invest significantly in low-GHG products and technologies.”
There are difficulties in policy implementation:
- How can the market potential be estimated in relation to private costs?
- How can the economic potential be weighed against the social costs?
- And how can the discrepancies between the government target carbon dioxide price ($30 per tonne) be balanced against that obtained by projecting current prices to 2010 ($70 per tonne)?
- But data show that the cost of stringent mitigation measures introduced now (i.e. sufficient to achieve the 2 ºC target) would have a 3% impact on global GDP by 2030 (for the US, -0.7% by 2010 and zero % by 2020) – a negligible macro-economic cost for global GDP.
- In the UK an effective policy needs several strands:
- A rising real carbon price ($100 per tonne by 2030) guaranteed by government to reduce the risks of investment in low GHG technology
- The introduction of supporting policies (regulation, eco-taxes, reform etc.).
- And the use of fiscal instruments to encourage all sectors to progress the planned phasing out of GHG emissions and decarbonisation.
However, although the symposium did pose many unanswered questions it does seem certain that there is little time left for continued inaction. If putting into practice the various forms of carbon trading is indeed the only viable solution, then it’s time the market began in earnest.
