OK, this is essentially just raw conversation, drawn down from Linkedin. I’ve just done a scant edit for flow and added references to clarify terminology. Chat’s still ongoing – I’ve not joined in yet! But it’s skirting around a lot of crucial, ongoing topics and is an excellent follow on – as it stands – to my earlier pieces complaining of the carbon market’s abject failings and inevitable failures. So, take it away Michael:
Carbon is at a historic low, with a CER below 1 euro.
Shouldn’t we just move away from carbon and look for other ecosystem values?
Which also means, moving away from offsetting and into a purely voluntary market without additionality and baseline requirements, but with reliable MRV – measurement, reporting and verification.
Are consumers ripe for it?
It is certainly an interesting idea. I wonder though, having moved away from carbon, what exactly we would be measuring, reporting and verifying. Compliance or voluntary, both markets are dependent on carbon. Beyond market use, carbon is appealing because we can assign GWP [Global warming potential] values for direct comparisons with other GHG’s[Greenhouse gases]. Removing baseline requirements gives no consideration for a comparison to be made. We must have reference levels to judge reductions against. What would our new reference levels be?
Additionality is essential for both the voluntary and the compliance markets to operate.
How else can you justify “carbon funding” on either an institutional or financial level? I am not sure “consumers” would even know what they were purchasing without the strict carbon related requirements we currently have. I believe the carbon market will recover as we move through the 2nd “Committment Period”, CP2,
we just need to stabilise the quantity of credits in the market, restrict some types of UN-Offset and get out of this economic downturn. Simple.
MRV means, we still monitor, most likely carbon. There absolutely needs to be accountability. Let me be more specific: My main argument is directed towards Avoided Deforestation (AD). Carbon-smart Agriculture and Sustainable Forest Management [give] an increase in carbon efficiency above business as usual [BAU] levels, while sustaining or even increasing yields over the long term. This can actually be compared to industrial activities and may be included in an emissions trading system, ETS.
But is it worth while going through all the trouble of a baseline study and validation at the ridiculous carbon price levels we have reached?
However, I [can] now see a substantial difference between “higher efficiency fuel use” and “just doing nothing” on a predetermined piece of land in the case of Avoided Deforestation which relates to everything involved: capacity, technology, and “efficiency” – of what? – , not to mention baselines or “leakage” risks.
Why then trade one against the other?
The current carbon crisis should allow us to take a step back and think anew: there is growing awareness about the fact that all land users have a common responsibility towards the maintenance of our common natural resources they take advantage of.
Any land-consuming activity (mining, construction, agriculture, cattle farming) could well pay a fee (per hectare, per year) with which the overall landscape functions are maintained, and part of which may even flow back, if this activity increases carbon stocks. This can be best achieved through a localized mechanism within an international framework.
Prices of primary goods would implicitly include this fee.
On voluntary markets, I estimate that roughly half are not serving any compliance scheme. It’s consumers like you and me that want to feel better about our consumption patterns. Alternatively to buying offsets, wouldn’t it feel better if instead of an abstract amount of CO2 fixed, you knew your money is helping Mexican peasants to implement agroforestry, or assisting to protect the habitat of a tiger in Bangladesh?
This is not to say that I do not believe in carbon markets any longer. I do sincerely hope for a CP2 target that reestablishes the needed market narrowness for GHGs. But internationally this is at least 5 years down the road, and it will include new players, many of whom are currently involved in deforestation.
The 1992 division between Annex I and non-Annex and the 1997 market model will no longer apply. Additionality and baselines are Clean Developement Mechanism, CDM [http://en.wikipedia.org/wiki/Clean_Development_Mechanism], methodologies for otherwise non-committed players.
Let’s start a transitional phase of subnational, national and bilateral mechanisms and question our old beliefs from the carbon market.
I see your point. The title strap for this discussion was “shouldn’t we move away from carbon.” I think we have established we both think we shouldn’t. The answer to should we bother with a baseline is still, in my opinion, yes. It is the only way to conclusively prove that progress is being made, in any sector.
Standardisation of baselines, now there is an area that I agree needs some work, especially with regard to forestry re article 3.3 and 3.4 of the KP, Kyoto Protocol. It is an interesting Malthusian approach in your 2nd paragraph. It smacks of the tragedy of the commons (Hardin). [I'm sure] Arne Naess and the deep ecologists are all on board!
On a more serious note, there is certainly an argument to be made from your point of view. Which voluntary markets have you found that serve a compliance scheme? Is this not an oxymoron?
I am not sure I agree with the idea of lumping the greenhouse gas problems we face in with the plight of the tigers. As linked as they are, I am not sure why I would attempt to off-set and organisation’s emissions (on a voluntary basis) by protecting the habitat of a Bangladesh tiger.
I would want to use my corporate social responsibility report, CSR, to reflect how I have directly compensated for my emissions. A by product of that may be increased habitat but I did it to off-set my emissions. If I want to sponsor a tiger I will go to the WWF. I think it is very important that we continue to deal in the “ghg currency” we have created. It is important not to muddy the water further by not talking about the carbon (when we are talking about carbon!).
Having said that, perhaps there is room to do both. It should not, though, detract from the challenge at hand of reducing atmospheric ghg levels. An optimal “market narrowness” for GHG’s may be 5 years down the road but its 5 years closer than anything else.
I am not sure why the developed/developing models will not apply in 5 years? The majority of the “developing world” will still be very under-developed.
Additionality and baselines are not born of CDMs. They are used in almost all carbon mechanisms not just those introduced through Kyoto. It is imperative that they remain - the challenge lies in getting the non-committed players onto the field.
([I] may need a little more detail on the “transitional phase of subnational, national and bilateral mechanisms” in order to understand your way forward.)
Thanks for your views. Additionality & baseline were first introduced under the hardly significant “activities implemented jointly”, AIJ, phase started after COP1 in Berlin, 1995 [http://unfccc.int/cop7/issues/aij.html].
Another appendix: Voluntary markets are split between “purely voluntary” and “pre-compliance”.
A little more detail, as requested: I do not see any significant movement on a follow-up international climate agreement before 2020. At best, we can keep Kyoto restrictions in place. REDD+ will not become a compliance mechanism before that time.
On the other hand, there is a lot of progress at national and subnational levels in advanced developing countries, including domestic trading systems. In 2020, and in terms of commitment, why should Greece be an Annex I country, while Malaysia or Korea remain non-Annex developing countries? [http://en.wikipedia.org/wiki/Kyoto_Protocol]
Look at the Governors’ Climate and Forests Task Force, for example: http://www.gcftaskforce.org/ and ask “Where’s the divide between developed and under-developed?”. How can one maintain 1992 [parameters] when these systems are already [overlapping] between each other?
The world is becoming more complex every day. While mandatory carbon markets are so sluggish, let’s develop alternative and add-on environmental services. Willingness to pay for the environment is not as volatile as the carbon markets. Let’s take advantage of investors’ and consumers’ awareness and offer them credible alternatives to pure carbon dioxide emission reductions that no longer tell a good story.
That makes a lot of sense. Carbon from fossil fuels is only 3%of the total carbon flux. Trying to balance atmospheric carbon dioxide needs to consider all sources and sinks.
I disagree. Carbon pricing in the CDM and ETS, is low because European capped entities were able to get their emissions below the (arguably too lax) cap. This arose from a combination of factors, but I have not seen any that invalidate the concept of Cap and Trade.
What must be done is to tighten the cap. That will make prices go back up and continue their role of incentivising emissions reduction. This is exactly the mechanism considered in the creation of this system, and shows broadly that the system is working.
Note: most of the European Union,EU, is negotiating for a “credit holdback”, to shrink the supply of credits and so increase prices. I believe it is solely Poland that is opposing this move.
“Make new friends, but keep the old, one is silver and the other gold”. Add ecosystem services to the equation, robustly. But don’t toss the carbon market out with the bathwater. If you discard the system rather than fix it, you’ll only find yourself in the same position with an ecosystem market in the future.
Javier de Vicente
Too many issues for an apparently single subject – “the carbon market”. Voluntary and compliance markets are really different whether in buyer motivation or most sought methodologies and standards, as well as prices and tendencies.
I agree with Joseph, the problem in EU Market is based on a supply and demand mismatch and can be redressed with a slight shift in the rules: maybe more sectors being involved or lower cap levels.
Bu,t having said that, I’m closer to Michael’s arguments – above all when we speak about voluntary markets.
Buyers are more willing to pay for a carbon credit coming from a forest than coming from industry as they are more reliable for the consumer (note: I guess all of us agree on the convenience of “ghg currency”, as Rob said). Moreover, the latest forest-trends report identifies a tendency of buyers moving towards national or subnational markets and standards which have a higher credibility.
Clients and [their] customers relate to forest with a bunch of environmental services rather than only carbon, although the commodity is carbon. [However] the problem with local carbon markets could be in the additionality and baseline [assessments].
I think the final goal of both is the reliability and credibility of the issued credits, but they seem to be designed for clean energies and other methodologies instead of forest projects.
Indeed the mechanisms of the Kyoto Protocol discourage [one] to carry out these offset projects ( [issues of] amounts, baseline and additionality conditions, permanence…) In the end, baseline and additionality are only a market agreement so as to get credibility and MRV, but [anyway] every arrangement can be changed.
What about a “zero baseline” for sustainable forest management projects? Why not? Why not [simply] pay for every ton of carbon sunk? They exist and they can be Measured, Reported and Verified.
Why are we rewarding people without trees if they plant… and doing nothing about people who have always taken care of their forests?
In the beginnings of the “payment for environmental services”,PES, program in Costa Rica, they had to implement a specific program for existing forests, because the risk was more deforestation in order to become a part of this PES program… Are we doing the same with forest carbon markets?
Maybe the forest carbon project’s strength relies on people perceiving not only the carbon fixing but the other benefits (biodiversity, weather…). It wouldn’t be necessary to change the project’s focus on carbon, just to build a new standard – more open but still reliable.
(“International agreements”, “compliance markets”, “green taxes”, “REDD+ challenges”, “high complexity of methods”… as I said, there are too many aspects of the same stuff!)
I, like Javier, have no problem with the concept that Michael is suggesting. However I am cautious when we talk of removing baselines and additionality. In my opinion both are important for forest carbon to continue to be recognised as a quantifiable contributor to global emissions reductions. Regardless of whether there are credits being generated or not.
The baseline has to exist in order to be able to prove that progress is being made.
Additionality has to exist in order to prevent the system being preyed upon by opportunistic, fraudulent “carbon cowboys”.
In order to be seen as a contribution to carbon reduction a forestry project has to be able to prove that it contributes to an increase in forest cover (compared against a baseline) and that it is additional.
Having said that, I think the baseline is less of a threat and more useful than additionality. In many cases additionality is already being ignored.
In Scotland, for example, the government have pledged to reduce emissions by X. As part of this reduction they will ensure that a certain number of trees will be planted each year (approx 10,000 hectares). This means that until this level of planting has been reached nothing can really be classed as being additional (because the government are legally bound to do it anyway, or face the associated fines).
Theoretically additionality is being ignored. It is debatable whether this is financial additionality or institutional additionality, either way it is being ignored. Does this mean it should be scrapped or clarified?
I like the reactions my [question] is provoking. I have been working on flexible mechanisms for 15 years and am fully aware that additionality and baseline are necessary in any dealings between a compliance system and the “non-complied” world, like in the case of CDM and also in voluntary emission offsetting.
Additionality works as long as the non-complied government does not take legal action to reduce emissions or increase sinks (which would be institutional additionality). But is this the way we want the world to work?
Do we really want to set this perverse political incentive? We want developing country governments to actively pursue climate and biodiversity friendly forest policies.
The Scottish example looks convincing to me. Let the developing world on national or sub-national levels take up calculable increasing compromises against which their additional achievements can be measured and [then] fund over-achievements via the markets for carbon and [through]other PES [schemes].
But, most importantly, PES can just be a starter. In the long run, land-based activity must become economically profitable (i.e. financially non-additional).