Tuesday: REDD & the Private Sector and Carbon Markets

On Tuesday, I attended two very interesting side-events.

The first was a panel hosted by the Asia-Europe Foundation entitled "REDD & the Private Sector." The first speaker was Mr. Andrej Kranjc, Head of the Climate Security Service and the Minister of the Environment and Spatial Planning for the country of Slovenia. He noted that Europe's role was to faciliate the prevention of deforestation in Asia (as well as Latin America and Asia) by buying REDD credits and thus funding the projects, but he expressed worry that a huge influx of a brand new type of carbon credit could flood the European Emissions Trading Scheme (ETS, the EU's cap-&-trade system) and result in a market crash. He also advocated for what's known as a "nested" approach, or a hybrid of public and private funding for REDD projects.

Later, Dr. Renate Christ, the Secretary of the IPCC, gave a background on the Fourth Assessment's (AR4) take on forests and deforestation. She cited data from the IPCC AR4 stating that from 2000-2005, the average annual rate of global deforestation was 1.9 million hectares per year, and that the deforestation was being driven primarily by agriculture. She provided some new information about the Fifth Assessment Report, due out in 2014. In order to reflect the interconnectedness of agriculture and forestry, the IPCC AR5 will combine Agriculture and Forestry into one chapter.

Dr. Christ also noted that the economic and social benefits of forests, and also their environmental benefits, extended beyond just their function as carbon sinks. She stated that over 1.6 billion people depend on forests for their livelihoods, and that forests provide various ecosystem services, such as soil stabilization, protection of biodiversity, and flood control (this last is instrumental to adaptation efforts to counter sea-level rise).

However, Dr. Christ that saving the world's forests could be beyond us if we don't act quickly. Climate change and increased temperatures create positively amplifying feedbacks that accelerate carbon release from forests, as higher temperatures inhibit the forests' ability to store carbon and increased lightning strikes and pest invasions lead to higher rates of forest fires.

Last on the panel was Jozsef Feller, a senior environmental official from Hungary. He argued that the scope of the challenge of combating deforestation, as well as the miniscule window of opportunity we have, means that public money will simply not be enough to get the job done. He said that public money had a supplementary/facilitating role to provide for oversight, technical assistance, and other governance and enforcment issues.

However, he also cautioned about being completely gung-ho about REDD credits. He advocated for phasing REDD credits into the carbon markets so as to not shock the system. And, perhaps most significantly, he quoted the classic Qui custodiet ipsos custodes? (he didn't quote it precisely, but close enough). This was lead-in to expressing the belief that international oversight, as well as sanctions and enforcement, would be necessary for REDD to operate properly. This would require, to some extent, a relinquishing of national sovereignty in a way that certain developing countries (though none were specifically mentioned, China leaps instantly to mind) have been thus far reluctant to agree to.



The second panel I attended was hosted by the Carbon Market Investors Association. The interesting discussiont that took place revolved around the possibility of a U.S. cap-&-trade market (if the main climate legislation proposals actually pass next year) being linked with the EU's ETS. The panelists noted some obstacles, including the fact that the differences in market regulations would have to be resolved. For example, the ETS currently has no price caps or floors for carbon credits, whereas the Senate bill could potentially include both.

Another problem noted was the disparity between the prices in the markets. The EU ETS price on carbon credits currently hovers around 40 euro/ton, whereas U.S. interests have gotten skittish when any price above $20 U.S. dollars (roughly 13 euros at current exchange rates) is mentioned. Thus, for political as well as economic reasons (any linkage would inevitably result in huge transfer of wealth from the E.U. companies to the U.S.), any linkage could be very difficult. Thus, the panelists were skeptical that it could happen any time soon, and most of their projections estimated at least 2020 or later.