So far I have addressed several basic features of carbon-trading markets. Last week I focused on some of the nuts and bolts of global climate exchanges. I have done this in the firm belief that informed readers ought to be fully appreciative of these, if only as I have pointed out repeatedly, the long-term goal of the LCDS is to supply forest-carbon credits/offsets derived from Guyana’s pristine forests for sale on global climate exchanges. Not unexpectedly therefore, the segment of the global carbon market which I believe Guyanese need to be most concerned about is trading in carbon credits or offsets generated under the Kyoto Protocol’s Clean Development Mechanism (CDM).
Variety of projects
There are already at last count over 200 different types of projects falling into this segment of the carbon market under the CDM. For readers’ convenience, these can be grouped into five very broad categories, as follows: 1) projects concerned with renewable energy (for example solar, wind, hydro and bio fuels alternative energy projects); 2) projects focusing on the abatement of methane gases; 3) projects concentrating on improved energy efficiency; 4) reforestation projects; and 5) fuel-switching ones.
What is not widely appreciated is that in the early stages of the development of the global carbon-trading market in the 1990s, forestry projects were the most prominent ones. This had come about because much of the early initiative in the development of the REDD mechanism under the Kyoto Protocol devoted a great deal of time and effort towards forging an incipient alliance between, on the one hand, environmental NGOs and CBOs, and on the other, industrial enterprises. The interests of both happened to converge on conserving the carbon to be found in plant forests and reducing noxious greenhouse gas emissions from the atmosphere. Fortunately at the time, several European governments were quick to bless this emerging partnership and therefore cooperated in whatever manner they could to ensure its orderly development.
Sidelined
However, despite this very early lead in the global carbon-trading market place, forestry-based projects were rather quickly sidelined. Indeed, as it has turned out so far only a narrow range of forest-carbon offsets has been recognised and developed under the Kyoto Protocol. The reason for this is that it soon became apparent that a principal drawback in the marketplace was the serious practical difficulty encountered in satisfactorily measuring, monitoring, certifying, verifying, and transparently reporting (MRV) on the carbon that was intended to be sequestrated in the forests.
Recently, this situation has improved somewhat. Indeed so much so that this improvement along with a number of other advances have stimulated recent growth and optimism for the role of forest-based projects in combating global warming and climate change. These advances now include 1) enhanced methods for measuring, monitoring and certifying the amount of carbon captured in trees (as noted above); 2) a growing political accord between governments of the major atmospheric polluters in rich countries and a number of poor rainforest countries. This is exemplified by the Memorandum of Understanding (MOU) between the Government of Guyana and the Government of the Kingdom of Norway, and 3) the improved price/cost for forest-carbon credits/offsets. This has given incentives to further development.
REDD expansion
At the present stage of this development, most experts believe that the Reduced Emissions from Deforestation and Degradation (REDD) initiative designed to generate payments to rainforest countries in return for their active preservation of existing forests would certainly have been expanded at the Copenhagen Climate Summit last December. This certainty has its roots in expectations coming out of the Bali Action Plan and the REDD plus initiative being urged by the United Nations Framework Convention on Climate Change (UNFCCC).
The proposed expansion of REDD now under current international negotiations at the UNFCCC goes somewhat beyond the addition of reducing greenhouse gas emissions from deforestation and forest degradation, to a rather extended REDD plus regime. At a minimum this is now aimed at including savings in greenhouse gas emissions from 1) sustainable forest management; 2) afforestation and reforestation (planting of trees on unforested land) in developing countries; and 3) land clearing and agriculture, in so far as this latter contributes to, or reduces carbon dioxide emissions into the atmosphere. The technical term commonly used to cover these activities is ‘land use, land use change and forestry’ (LULUCF).
Conclusion
By way of conclusion I offer three brief observations. First, the wide variety of offset projects noted above either 1) sequestrate/trap carbon in the forests; 2) destroy noxious greenhouse gases like nitrous oxide converting them into benign products; or 3) are energy related. At the moment the market consensus is that by 2012, under the Clean Development Mechanism (CDM), these projects would be distributed as follows 1) energy and energy related projects, 45 per cent (made up as follows, hydroelectric, 17 per cent, electricity from waste gases/energy, 10 per cent, energy from landfill sites, 9 per cent, wind energy 9 per cent) and 2) greenhouse gases destruction, 26 per cent (chiefly, the destruction of nitrous oxide, 9 per cent, and hydro chlorofluorocar bons, 17 per cent).
Second, it should also be appreciated that while the REDD/REDD plus mechanism is seeking to broaden the range of offsets projects based on forest carbon; in fairness the effort is to broaden more generally its sectoral coverage. Thus, for example, REDD plus is seeking to include nuclear power projects in its portfolio of activities.
Thirdly, it would be useful for readers to note that a recent survey of individuals and companies engaged in forest-carbon trading reveals that a very large majority of buyers of these forest-carbon credits (88 per cent) under the REDD/REDD plus mechanism have rated them favourably or very favourably. It is not surprising therefore to observe, as we shall see in coming weeks, that the overall growth of carbon markets has been truly explosive. And, I might add more specifically, the market for forest carbon appears to be on the cusp of a truly remarkable expansion.
Next week I shall continue from this observation.