“If you wondered whether capitalism could ever produce the perfect weapon of its own destruction, try this heady mix of carbon fuels, the trade in financial derivatives, and more than a dash of neo-colonialism, and boom!”
This is Professor Stefano Harney, University of London, commenting on a new book: “Upsetting the Offset: The Political Economy of Carbon Markets”.
The book, which can be downloaded (or ordered) here, is edited by Steffen Böhm and Siddhartha Dabhi from the University of Essex, UK. The book includes case studies and critiques from around the world, “showing how the scam of carbon markets affects the lives of communities.” It suggests alternatives to carbon markets and includes a chapter by me, looking at some of the problems behind trading forest carbon.
Forests, Carbon Markets and Hot Air: Why the Carbon Stored in Forests Should not be Traded
By Chris Lang, in “Upsetting the Offset: The Political Economy of Carbon Markets”, edited by Steffen Böhm and Siddhartha Dabhi, Mayfly books, December 2009.
Reduced emissions from deforestation and forest degradation (REDD) is, in theory at least, a simple idea. Governments, companies, forest owners, local communities or indigenous peoples in the South should be rewarded for keeping their forests instead of cutting them down. The devil, as always, is in the details. Marc Stuart of EcoSecurities describes REDD as
“the most mind twistingly complex endeavor in the carbon game. The fact is that REDD involves scientific uncertainties, technical challenges, heterogeneous non-contiguous asset classes, multi-decade performance guarantees, local land tenure issues, brutal potential for gaming and the fact that getting it wrong means that scam artists will get unimaginably rich while emissions don’t change a bit.”
None of this prevents Stuart from supporting the trade in carbon stored in forests. This is perhaps not surprising since as a founder of one of the biggest carbon consulting firms in the world, EcoSecurities, he has made his fortune from carbon trading.
What is REDD?
The idea of making payments to discourage deforestation and forest degradation was discussed in the negotiations leading to the 1997 Kyoto Protocol, but it was ultimately rejected in part at least because of the problems that Marc Stuart describes. REDD developed from a proposal in 2005 by a group of countries calling themselves the Coalition for Rainforest Nations (more on them later). Two years later, the proposal was taken up at the Conference of the Parties to the UN Framework Convention on Climate Change in Bali (COP-13). An agreement on REDD is planned to be made at COP-15 which will take place in Copenhagen in December 2009.
The ‘Bali Action Plan’ Calls for:
“Policy approaches and positive incentives on issues relating to reducing emissions from deforestation and forest degradation in developing countries; and the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in developing countries.
The above paragraph (paragraph 1b(iii)) is referred to as ‘REDD-plus’. It is worth reading closely. ‘REDD-plus’ includes activities with potentially extremely serious implications for indigenous people, local communities and forests:
- “conservation” sounds good, but the history of the establishment of national parks includes large scale evictions and loss of rights for indigenous peoples and local communities;
- “sustainable management of forests” could include subsidies to commercial logging operations in old-growth forests, indigenous peoples’ territory or in villagers’ community forests;
- “enhancement of forest carbon stocks” could result in conversion of land (including forests) to industrial tree plantations, with serious implications for biodiversity, forests and local communities.
In order to prevent abuses under REDD, we would hope, as an absolute minimum, to see that the UN is ensuring that international human rights instruments are reaffirmed in any agreement on REDD. Particularly important are the UN Declaration of the Rights of Indigenous Peoples and the concept of Free Prior Informed Consent. Unfortunately, the UN climate change negotiations are going in the opposite direction. In December 2008, at COP-14 in Poznań, the US, Canada, New Zealand and Australia opposed any reference to Indigenous Peoples’ rights in the negotiating text and the draft text was duly weakened.
While there has not yet been any agreement on how REDD is to be financed, a look at some of the main actors involved suggests that there is a serious danger that it will be financed through carbon trading. The role of the World Bank is of particularly concern, given its fondness for carbon trading.
The World Bank’s main mechanism for promoting REDD is a new scheme, launched in Bali in 2007: the Forest Carbon Partnership Facility (FCPF). Under this scheme, the Bank is working with tropical countries to help them achieve ‘readiness’ for REDD. When the World Bank launched the FCPF, Benoit Bosquet, a senior natural resources management specialist at the World Bank, said “The facility’s ultimate goal is to jump-start a forest carbon market that tips the economic balance in favour of conserving forests.” As Marcus Colchester of the Forest Peoples Programme points out, the speed with which the FCPF is going ahead risks undermining REDD. In particular, the “importance of securing rights [for indigenous peoples and local communities] has been played down and [the World Bank’s] safeguards process allowed to drift.”
What’s Wrong with Trading Forest Carbon?
The problem with trading the carbon stored in forests is that we need to reduce greenhouse emissions and stop deforestation. We cannot trade off one against the other.
Trading the carbon stored in forests would mean that one ton of emissions reduced through avoided deforestation or forest degradation would allow emissions in the North to increase by one ton. Offsetting emissions in the North against carbon credits generated through REDD does not by definition, reduce greenhouse gas emissions. This is the model of the clean development mechanism. A recent report by the University of Zurich, Öko-Institut, Perspectives GmbH and Point Carbon explains the problem succinctly:
“A continuation of the CDM as a pure offset mechanism would not directly contribute to the achievement of this goal [of limiting warming to 2°C], since the emission reductions generated under this mechanism in developing countries allow for higher emissions in industrialized countries.”
Another problem is that carbon markets cannot send long term investment signals. During 2008, the global financial and economic crisis led to a slight reduction of emissions of greenhouse gases in the EU. But when New Carbon Finance released a report announcing the fall in emissions in mid-February 2009, the Financial Times described the report as a “blow to the [carbon] market”. The Financial Times explained that
“Falling emissions spell a lower carbon price because fewer permits will be needed by the heavy industries, such as power generation and steel-making, covered by the scheme.”
This is a serious flaw in the carbon market. If the price of carbon goes down due to the economic slowdown, incentives for serious re-investment disappear. As soon as the economy starts to recover, all the old machinery is simply started up again.
On 1 April 2009, thousands of people set up camp in the City of London, outside the European Climate Exchange to protest against carbon trading in Europe. They had good reason to do so, given the record of the EU Emissions Trading Scheme. Kevin Smith of the NGO Carbon Trade Watch sums up the problems:
“Phase 1 of the scheme gave away the right to pollute for free. Bingo! The biggest polluters then made billions in windfall profits. Phase 2 and in the wake of market meltdown, the price of carbon is again at rock-bottom. The EU scheme is providing all manner of opportunities to pollute and make money, which is why companies from e.on to BP to BAA are all supporters. As a mechanism to reduce emissions it has been an out and out failure.”
Innovative Financial Mechanisms or the New Sub-Prime?
The problems with trading forest carbon are not limited to the fact that it will not address runaway climate change. Forest carbon would be one part of the global carbon markets. In 2007, Chris Leeds, then-head of emissions trading at Merrill Lynch told the New York Times that carbon could become “one of the fasting-growing markets ever, with volumes comparable to credit derivatives inside of a decade.” But the similarities between carbon trading and derivatives trading are not limited to predictions of the size of the carbon trade. There are close parallels between the way the carbon markets are developing and the way the markets in derivatives and futures developed, until they crashed spectacularly in 2008. Yet proponents of financing REDD through trading forest carbon talk about “innovative financial instruments” as if the current global financial crisis had never happened.
For example, at a side event at the climate conference in Poznań in December 2008, Ben Vitale of Conservation International spoke positively about the role innovative financing could play in financing forest conservation. During the questions after his presentation, I asked Vitale to say something about the current global financial crisis and in particular to say something about the financial innovations that led to the financial collapse and the billion dollar bailouts. I noted that the carbon market will be extremely complex, not transparent and that it seems ironic to be talking about ‘innovative financing’ at this particular moment in history.
Vitale declined to answer my questions, commenting only that with this financial crisis perhaps it makes sense to have a more stable fund but, he added, the fund would have to be very, very large and it would have to grow over time. He made no mention of the bailout of the banks, the complexity of the carbon market, or what would happen if the carbon market fails.
Derivatives Trading and Carbon Markets
Larry Lohmann of the UK-based research and advocacy organization The Corner House has been investigating the failure of carbon markets to address climate change for several years. In 2006, he edited a book titled Carbon Trading: A Critical Conversation on Climate Change, Privatization and Power. In a summary of a memorandum submitted to a UK Select Committee on carbon trading, Lohmann points out the dangers of carbon trading:
“Carbon markets are characterised by a type of speculative derivatives trading and need to be evaluated as such in the light of the current financial crisis. Like financial derivatives markets, carbon markets are legitimated by (spurious or overblown) claims of efficiency but undermined by their tendency to exacerbate a crisis. Carbon markets are plagued by difficulties of asset valuation parallel to those that have contributed to the financial crisis and are themselves prone to a similar crash. Carbon markets are also characterized by inherent problems of conflicts of interest, regulatory capture and unregulatability familiar from recent analyses of the financial crisis.”
Even people very closely involved in the carbon markets admit that there are similarities with trade in derivatives. “I guess in many ways it’s akin to subprime,” said Marc Stuart of EcoSecurities after the value of the company’s shares crashed in 2008. “You keep layering on crap until you say, ‘We can’t do this anymore’”.
Lohmann lists some of the institutions dealing in derivatives that are involved in carbon markets, including Goldman Sachs, Deutsche Bank, Morgan Stanley, Barclays Capital, Fortis, Rabobank, BNP Paribas, Sumitomo, Kommunalkredit, Lehman Brothers, Merrill Lynch and Cantor Fitzgerald. He points out that “The stupendous complexity of new financial instruments such as collateralized debt obligations is in some ways matched by that of carbon trading, with its reams of additionality calculations, diversity of carbon credits, daunting monitoring and legal requirements and crowd of acronyms.”
Several of the same people who were involved in creating financial derivatives markets are also involved in creating carbon markets. The founder and chairman of the Chicago Climate Exchange is Richard Sandor, who in the 1970s was one of the leading developers of derivatives and futures markets. The Chicago Climate Exchange offers a futures contract based on emissions allowances under a US cap and trade scheme – before such a scheme even exists.
Richard Sandor is, predictably, in favour of trading forest carbon. “The clock is moving. They are slashing and burning and cutting the forests of the world. It may be a quarter of global warming and we can get the rate to two per cent simply by inventing a preservation credit and making that forest have value in other ways. Who loses when we do that?” he said in an interview with The New Yorker last year.
Sandor appears to have little sympathy for local communities and even less knowledge of the complexities of tropical forest politics. The obvious answer to Sandor’s question is that indigenous peoples and forest dependent communities are likely lose when someone in the USA makes their forests more valuable to outsiders. Land grabs are the almost inevitable consequence of increasing the value of forests. Of the many attempts to stop or slow deforestation, the few successful projects have been those that work closely with local communities and actively support Indigenous Peoples’ and local communities’ rights.
“Fleecing Landowners and Indigenous People”
Recent events in Papua New Guinea illustrate some of the problems with Sandor’s simplistic approach to forests. The Office of Climate Change appears to have issued at least 40 REDD ‘credits’, each denoting one million tons of carbon, according to investigations carried out by a journalist with The Economist magazine. One of the REDD carbon ‘credits’ relates to the Kamula Doso REDD project. As the Eco-Forestry Forum, a PNG NGO, points out “In November 2008, the Office of Climate change issued a certificate granting the rights to 1 million tons of carbon from Kamula Doso to a company called Nupan Trading limited. This certificate was issued despite PNG having no laws that allow trading in carbon rights and the Office of Climate Change not having obtained the informed consent of landowners.” The head of the Office of Climate Change, Theo Yasause, denies any wrongdoing and says that the sample credits were created merely “to see what it looked like”. In June 2009, Yasause was suspended while an internal investigation of the Office of Climate Change is carried out.
Meanwhile, conmen are travelling from village to village offering fake carbon trading deals and promising huge returns. Villagers hand over about US$500, for “registration as a shareholder” in a carbon trading company. They receive a receipt and the conman leaves, never to be seen in the village again. Natasha Loder, a journalist with The Economist, comments,
“What is striking about the invention of an avoided forest carbon market is the extent to which it is quickly spawning a variety of imaginative ways of fleecing landowners and indigenous people in the rush for green gold.”
Can Carbon Markets be Regulated?
It is not just out in the bush in Papua New Guinea that trading in forest carbon is unregulated. Carbon markets are riddled with conflicts of interest and revolving doors between public and private institutions as well as between regulators and traders.
Carbon markets were effectively created in 1997, when Al Gore led the USA’s climate negotiators in destroying the Kyoto Protocol, by allowing rich nations to buy their emissions cuts from other countries. Of course Gore’s film ‘An Inconvenient Truth’ has done a great deal to convince large numbers of people that climate change is real and the film has also helped expose the folly of climate denial. But when Gore jets around the world for his extraordinarily well-paid speaking appointments he does not mention the inconvenient truth that he helped to create carbon markets and is now profiting from them. In 2004, Al Gore co-founded Generation Investment Management, together with David Blood, former chief executive of Goldman Sachs Asset Management. In 2008, Gore’s firm bought a 9.6 per cent share in Camco International Ltd, a Jersey-based company which holds one of the world’s largest carbon credit portfolios. In February 2009, Generation Investment Management increased its share in Camco International to 13.74 per cent, making it the largest shareholder in the company. The following month Generation Investment Management increased its share further to 18.94 per cent.
Ken Newcombe is another key player in the development of the trade in forest carbon. As a recent article in Point Carbon’s magazine Trading Carbon notes, “Ken Newcombe has been involved in carbon markets since their inception.” From 1990 to 1996, Newcombe was chief of the global environment division at the World Bank. He led the Bank’s involvement in Forest Market Transformation Initiative, which the Bank describes as a “strategic coalition of conservation NGOs, private sector forest industry leaders, researchers, development practitioners, and financiers, including the World Bank, [that] is working to develop innovative approaches to the adoption of more environmentally friendly forest management and marketing practices in the remaining forest frontiers.” After that, he led the creation of the Bank’s Prototype Carbon Fund.
During a press conference at the Carbon Expo Trade Fair in Cologne in 2004, Newcombe explained the purpose of the Bank’s involvement in carbon markets: “The World Bank is reducing the risk for private investors.” The following year Newcombe left the Bank’s carbon finance unit, by which time the Bank was managing carbon funds with a total value of US$1 billion. Newcombe became senior manager and advisor of the G8 investment framework initiative at the World Bank.
The next year he was on the move again, this time to Climate Change Capital, the largest private sector carbon fund in the world. James Cameron, Vice-Chairman at Climate Change Capital said of Newcombe, “He has a fantastic network and knows about World Bank projects that we can now invest in.” Cameron is an environmental lawyer who helped negotiate the Kyoto Protocol. From Climate Change Capital, Newcombe headed the carbon desk at Goldman Sachs in New York before launching his own company, C-Quest Capital, to profit further from the carbon markets. “We see the voluntary market as a risk hedge strategy,” Newcombe explained to Point Carbon. “We are getting our foot in the door in assets we think might be good for compliance in the future,” he added. He sees international offsets as an “inevitable part of any US scheme”.
Newcombe divides people involved in carbon markets into two groups. “There are those who see it as a way to make money, and see it as the next wave as high risk, high reward businesses,” he told Point Carbon. “Others are wanting to make good money, but by doing good in the process. I like to think I build teams who are the latter camp.”
Newcombe is a director emeritus of Forest Trends, an organization that developed from the World Bank’s Forest Market Transformation Initiative. Michael Jenkins, the president and CEO of Forest Trends also came from the World Bank, where he held a joint appointment as a senior forestry advisor. Given the World Bank’s disastrous record in the forests of the global South, Jenkins might be considered a strange choice to head up an NGO. But Forest Trends is no ordinary NGO. Its board includes representatives from Mitsubishi International, ABN Amro, Sveaskog, The Nature Conservancy, Greenpeace Russia, Rainforest Action Network and Generation Investment Management. One of the board members, David Brand, is head of New Forests, “an investment management and advisory services firm specializing in forestry and land-based environmental markets, such as timber, carbon, biodiversity and water”. Generation Investment Management is one of the four shareholders in New Forests and David Blood, the co-founder of Generation Investment Management, sits on New Forests’ board. Forest Trends publishes Ecosystem Marketplace and helped create the Katoomba Group, the Business and Biodiversity Offsets Program, SpeciesBanking.com, ForestCarbonPortal.com and the Chesapeake Fund, all of which promote market ‘solutions’ to environmental problems. In April 2009, at the tenth anniversary of Forest Trends, Al Gore said “Forest Trends has become widely-regarded as the most comprehensive advocate and resource for anyone who wants to understand and help to further develop markets for ecosystem services.”
Larry Lohmann notes further conflicts of interest in carbon markets. Barclays Capital is a major investor in the carbon markets and at the same time boasts that “One of our team is a member of the Methodology Panel to the UNFCCC CDM Executive Board.” Lex de Jonge is simultaneously head of the carbon offset purchase programme of the Dutch government and vice chair of the Clean Development Mechanism Executive Board. Harald Dovland headed Norway’s climate negotiations team for 12 years. He is vice chair of the Ad Hoc Working Group on Further Commitments for Annex I Parties under the Kyoto Protocol. Dovland states that what is needed now is ‘acceptance of long-term goals on a high political level, further development of markets, and innovative financing solutions’. But at the same time, Dovland is an advisor to Econ Pöyry, a company which profits from carbon trading.
Point Carbon claims to be a “provider of independent news, analysis and consulting services”, but as the Financial Times recently noted Point Carbon is in fact “part-owned by financial and industrial interests”. (Point Carbon is owned by Oak Investments, JP Morgan, J-Power, Mizuho, Schibsted and the employees.)
Caisse des Dépôts is one of the organizations that is pushing to include forests in carbon markets, through reports such as ‘Reducing Emissions from Deforestation and Degradation: What Contribution from Carbon Markets?’. But as well as producing reports promoting expanded carbon markets, Caisse des Dépôts profits from the trade in carbon. It is a 40 per cent shareholder in Paris-based BlueNext, Europe’s main spot EU Allowances (EUAs) exchange. In February 2009, BlueNext was earning over 2 million euros a week on transactions of EUAs.
Kevin Conrad and the Coalition for Rainforest Nations
This discussion of carbon markets and forests would be incomplete without looking at the role of Kevin Conrad, ambassador and special envoy for the environment and climate change for Papua New Guinea. In December 2007, at the UN climate negotiations in Bali, Conrad told the US delegation, “if for some reason you’re not willing to lead, leave it to the rest of us. Please get out of the way.”
To his credit, Conrad remains critical of the US. “President Barack Obama’s current proposal to reduce US emissions to 1990 levels by 2020 and 80 per cent below by 2050 is grossly insufficient in the near term and simply pushes true responsibility on to future US presidents,” he wrote in April 2009. “Why should the greatest emitter in history be granted 12 extra years simply to get to the starting line accepted by other industrialized countries? Is this leadership or laggardship?”
Conrad is executive director of the Coalition for Rainforest Nations (CfRN), a group of tropical countries which tabled the first proposal for REDD at the UNFCCC COP11 in Montreal, in 2005. CfRN has since grown from 11 countries led by Papua New Guinea and Costa Rica, to 40 countries. Conrad and CfRN promote trading of the carbon stored in forests: “The Rainforest Coalition seeks to incorporate certified emissions offsets related to deforestation (in addition to afforestation and reforestation) within global carbon emissions markets by revising the Marrakech Accords, amending the Kyoto Protocol, or developing a linked ‘optional protocol’ under the UNFCCC.”
Conrad is not a forester, nor does he appear to have any experience in managing or protecting forests. His qualifications are business qualifications, most recently a degree from the Columbia Business School. For the final project of his Executive M.B.A. Conrad looked at whether the money from carbon credits could equal the revenue from logging in Papua New Guinea. His supervisor for this project was Professor Geoffrey Heal, Head of Columbia Business School. When the project was completed, Conrad and Heal persuaded Papua New Guinea’s prime minister, Michael Somare, to start the Coalition for Rainforest Nations. In January 2005, Somare called for the formation of the Coalition for Rainforest Nations at the World Leaders Forum held at Columbia University. In May 2005, Somare was back at Columbia University for the Global Roundtable on Climate Change, once again calling for the Coalition for Rainforest Nations:
“I have called for the formation of a ‘Coalition for Rainforest Nations.’ To support that call, my government has held discussions at the United Nations with representatives from Peru, Congo, Costa Rica, Dominican Republic, Mozambique, Tanzania and Zambia – who, together with us, would constitute the largest expanse of rainforest globally under such an issue-specific coalition.”
Speaking in Parliament a month later, Somare referred to the Global Roundtable on Climate Change as a “Carbon Trading Seminar [that] I addressed at the Columbia University”. Perhaps not surprisingly, the secretariat of the CfRN is in Columbia University.
Geoffrey Heal, the co-founder of the CfRN, is Garrett Professor of Public Policy and Corporate Responsibility and Professor of Economics and Finance at Columbia University’s Graduate School of Business, and Professor of Public and International Affairs at the School of International and Public Affairs. He is also on the board of the Union of Concerned Scientists and was a Director of Petromin Holdings PNG Ltd, a state-owned oil, gas and mineral company. Kevin Conrad was also hired as an advisor to Petromin.
Some of Conrad’s business deals are controversial in Papua New Guinea. A recent article in the Australian newspaper, The Age, comments that Conrad “has been linked to a string of failed business dealings in Papua New Guinea.” In 2007, Peter O’Neill, then-opposition leader in PNG accused Conrad (among other things) of “involvement in a failed housing scheme in the 1990s for the Public Officers Superannuation Fund where 17 million kina ($A8million) was paid but not one single house was built.” In an interview with Australian Associated Press, Conrad said, “If you look at PNG every businessman has failed about as often as they have succeeded and the reason is because the government has had too much control.”
Taking the Pressure of Polluters and Subsidizing Logging
In his speech at Columbia University, Michael Somare said “Let me be clear, our intentions are NOT to take the pressure off the fossil-fuel emission reductions necessary within industrialized nations.” But on its website, the CfRN states that it aims to “Slow deforestation internationally through the Clean Development Mechanism (CDM) and other international investments in forest conservation.” Trading the carbon stored in forests inevitably takes the pressure off to reduce fossil-fuel emissions in the North. One example of this is the American Clean Energy and Security Act (ACESA), about which Kevin Conrad is so critical. One of the reasons that the US can get away with such a low target is because of the offsets loophole. A critique by International Rivers and Rainforest Action Network points out that the Act is “is seriously weakened by its heavy reliance on offsets to substitute for actual emissions cuts by large polluters”. Payal Parekh of International Rivers explains that “If polluters indeed use the maximum allowable number of offset credits, domestic emissions in 2012 would increase by 38% rather than decrease by 3%, the reduction that the cap sets. Emissions would not dip below 2005 levels until 2026, 17 years from today.”
The legislation is further weakened by the inclusion of “sustainable forest management”. As International Rivers and Rainforest Action Network explain:
“ACESA envisions offset credits for ‘sustainable forestry practices,’ a widely abused term that is too often a cover for expanded industrial logging into primary tropical rainforests. Unless forest degradation is included, even heavily logging a forest, which would result in large emissions, could still generate offset ‘credits’ because full deforestation was avoided.”
The Coalition for Rainforest Nations’ is also interested in developing ‘Sustainable Forest Markets’. Under this initiative, CfRN’s website explains that
“In cooperation with the International Timber Organization (ITTO), the Rainforest Coalition will facilitate certification of sustainable logging, develop disincentives to illegal logging and support the establishment of businesses within developing countries that can process lumber locally to the standards of, and in partnership with, end users in industrialized markets.”
What this means in reality became more clear in May 2009, at the World Business Summit on Climate Change. Business leaders from around the world flew to Amsterdam to discuss how they could profit from climate change. (The website of the Copenhagen Climate Council, which helped organize the event has the headline, “Turning risks into opportunities”). For industry, REDD “presents ample opportunity for the private sector to engage all along a €50-100 billion value chain”. A report produced by the ClimateWorks Foundation for the Summit explains which companies might benefits from REDD: “Companies in forest management, pulp and paper, or construction could build new businesses around carbon abatement.” In its presentation at the Summit, Project Catalyst, which brings together “climate negotiators, senior government officials . . . and business executives emphasized “the size of the prize for business”.
The assumption underlying sustainable forest management is that by logging less destructively, more trees will be left standing and therefore less carbon will be released to the atmosphere. Here we enter the territory that Dan Welsh, a journalist with Ethical Consumer magazine describes so well: “Offsets are an imaginary commodity, created by deducting what you hope happens from what you guess would have happened.” A recent report by Global Witness, “Vested Interests – industrial logging and carbon in tropical forests”, documents how what the logging industry hopes will happen (or at least says it hopes will happen) in any case releases large amounts of carbon to the atmosphere. Reduced impact logging “kills 5-10 non-target trees for every target tree cut, and releases between 10 and 80 tons of carbon per hectare”. Logging also makes forests more vulnerable to further deforestation and to fire. “During the El Niño events in the late 1990s, 60% of logged forests in Indonesian Borneo went up in smoke compared with 6% of primary forest,” Global Witness notes.
Campaigns Against Trading in Forest Carbon
Several NGOs and networks are campaigning to expose the problems with trading the carbon stored in forests, including FERN, Friends of the Earth, Indigenous Environmental Network, the Durban Group, World Rainforest Movement, Rainforest Action Network, Global Witness, The Wilderness Society, Greenpeace and the Rainforest Foundation. By creating a huge number of carbon credits, the trade would allow business as usual to continue in the North. In an interview with The Guardian in November 2008, Joseph Zacune of Friends of the Earth explains that “there is genuine risk that all of these kinds of proposals would provide a get out of jail free card to rich nations. It would allow them to buy their way out of emissions reductions. It would create the climate regime’s biggest ever loophole and would remove any environmental integrity from a post 2012 deal.”
A Greenpeace report released in March 2009 makes a related point: “Including forest protection measures in carbon markets would crash the price of carbon by up to 75 percent and derail global efforts to tackle global warming.” The report, which was produced by a New Zealand-based economic modelling group called KEA3, found that including REDD credits in carbon markets would reduce investments in clean technologies worldwide, causing a “lock in” effect, leaving high-carbon technologies such as coal-fired power stations in place for many years to come. In addition, the report points out that “significant questions of permanence, leakage, and additionality have been raised about potential REDD credits; as well as the ability of countries to accurately measure, monitor, and report on such emissions.”
Academics such as Alain Karsenty of CIRAD (the Paris-based International Centre for Cooperation on Agroforestry Research and Development) also point out the dangers of trading in forest carbon. In a paper published last year in the International Forestry Review, Karsenty comments on the uncertainties involved in establishing the impact of REDD measures, which would
“essentially force experts to disentangle an embedded array of factors, isolating what can be the net impact of policies and measures effectively taken by the authorities to tackle deforestation (i.e. stringent law enforcement, removal of agricultural subsidies, etc.) and external factors such as (involuntary) changes in market prices for agricultural commodities, drought episodes causing forest fires (as well as abnormally high rainfalls).”
Karsenty concludes his paper with the following statement, “Markets instruments are very effective tools for achieving specific goals, such as improving efficiency of economic agents, but they will probably be unable to change the socio-political context underlying tropical deforestation.”
Conclusion: Forest Carbon should not be Traded
The carbon stored in forests should not be traded. There are several important reasons why not, which I’ve covered in this chapter. To summarize:
- First, we need to reduce greenhouse gas emissions and stop deforestation. We cannot trade off one against the other.
- Second, carbon markets do not send long term investment signals. A volatile carbon price might be great for investors willing to bet on the future price of carbon. If the carbon price drops during a recession industry is given little incentive to invest in the major changes required. When the economy recovers, the old machinery is restarted.
- Third, there are close parallels between the market in derivatives and the market in carbon. Proponents of the trade in forest carbon talk about ‘innovative financial instruments’, in spite of the current financial crisis.
- Fourth, carbon markets are riddled with conflicts of interest. This may not be illegal, but it certainly makes the sector very difficult (or impossible) to regulate.
- Fifth, trading the carbon in forests is bringing calls for ‘sustainable forest management’, from institutions such as the International Timber Trade Organization that have supported destructive forestry operations for decades. Logging of primary forests (including so-called ‘reduced impact logging’) would release huge amounts of carbon to the atmosphere. Offsetting the carbon supposedly stored in forests subjected to ‘reduced impact logging’ would allow emissions to continue in the North, would lead to forest degradation and destruction on a large scale and would provide an enormous subsidy to the timber industry.
- Sixth, trading the carbon stored in forests would create a loophole for the North, allowing industry to write cheques rather than reduce emissions at home.
- Seventh, forests are not just sticks of carbon waiting for an economist to value them correctly so that they will not be cut down. They are home to millions of people. Defending the rights of indigenous peoples, forest dwelling communities and local communities is crucial to preserving tropical forests.
The UN climate negotiations are getting more and more complex, while governments’ proposed emissions reduction targets are less and less likely to address runaway climate change. George Monbiot has developed a simple test to show whether governments are genuinely committed to stopping the climate crisis: “whether they are prepared to impose a limit on the use of the [fossil fuel] reserves already discovered, and a permanent moratorium on prospecting for new reserves. Otherwise it’s all hot air.” Governments proposing to trade the carbon stored in forests fail Monbiot’s test because trading REDD credits allows the continued burning of fossil fuels. Hot air, then.
 Stuart, M. (2009) “REDD – The Basis of a ‘Carbon Federal Reserve’?“, Cleantech Blog, 8 May 2009.
 “Report of the Conference of the Parties on its thirteenth session, held in Bali from 3 to 15 December 2007 Addendum Part Two: Action taken by the Conference of the Parties at its thirteenth session”, FCCC/CP/2007/6/Add.1*, 14 March 2008.
 See, for example, “Protected Areas: Protected against whom?“, Oilwatch and World Rainforest Movement, January 2004.
 The UN definition of ‘forests’ does not differentiate between an old-growth rainforest and a monoculture industrial tree plantation. See REDD-Monitor for a discussion about the problems with the UN’s definition.
 Tauli Corpuz, V. (2008) “International Human Rights Day 2008: A sad day for Indigenous Peoples“, statement by the Chair of the UN Permanent Forum on Indigenous Issues, 10 December 2008.
 “Forest Carbon Partnership Facility Takes Aim at Deforestation“, World Bank press release, 11 December 2007.
 Colchester, M. (2009) “Safeguarding Rights in the FCPF“, presentation at the Forests, Governance and Climate Change meeting organised by the Rights and Resources Initiative and Chatham House at the Royal Society, London, 8 July 2009.
 Butzengeiger-Geyer, S., P. Castro, R. Harthan, D. Hayashi, S. Healy, K. Magnus, Maribu, A. Michaelowa, Y. Okubo, L. Schneider, and I. Storrø, (2009) ‘Options for utilizing the CDM for global emission reductions’, Report to the German Federal Environment Agency , 4 June 2009, p. 3.
 Harvey, F. (2009) “EU carbon prices plummet as emissions continue to fall“, Financial Times, 17 February 2009.
 Kevin Smith (2009) “The Climate Camp vs the Carbon Market“, Transnational Institute, 26 February 2009.
 Kanter, J. (2007) “In London’s Financial World, Carbon Trading Is the New Big Thing“, New York Times, 6 July 2007.
 Lang, C. (2008) “Day one in Poznan: UN doesn’t discuss REDD, Conservation International does“, REDD-Monitor, 1 December 2008.
 Lohmann, L. (2006) “Carbon Trading: A Critical Conversation on Climate Change, Privatisation and Power“, Uppsala: Dag Hammarskjold Foundation.
 “Memorandum submitted by The Corner House” to the UK Parliament select committee on the role of carbon markets in preventing dangerous climate change, 1 March 2009.
 Ball, J. (2008) “Up In Smoke: Two Carbon-Market Millionaires Take a Hit as UN Clamps Down – EcoSecurities Sees Shares Slide 70 Per Cent“, Wall Street Journal, 14 April 2008.
 “Memorandum submitted by The Corner House“.
 Goodell, J. (2006) “Capital Pollution Solution?“, New York Times, 30 July 2006.
 Specter, M. (2008) “Big foot“, The New Yorker, 25 February 2008.
 “Money grows on trees“, The Economist, 6 June 2009.
I wrote a summary of research carried out by two journalists about carbon trading in Papua New Guinea here: Lang, C. (2009) “PNG update: Yasause suspended, dodgy carbon credits and carbon ripoffs“, REDD-Monitor, 2 July 2009.
 Gridneff, I. (2009) “‘Sample’ documents blamed for PNG carbon deals“, Australian Associated Press, 15 June 2009.
 Gridneff I. (2009) “PNG climate office director suspended“, 9 News, 1 July 2009.
 Loder, N. (2009) “The carbon rip-off“, Overmatter blog, 11 June 2009.
 Monbiot, G. (2007) “Hurrah! We’re Going Backwards!“, The Guardian, 17 December 2007.
 According to an article in Klima magazine, Gore pockets US$300,000 for each of public speeches. Plus expenses. “Wie sich der Klima-Guru mit alten Vorträgen immer aufs Neue die eigenen Taschen füllt“, Klima Magazin, Nr. 01, 11 January 2009.
 Tucker, S. (2004) “Blood and Gore launch firm with a difference“, Financial Times, 8 November 2004.
 “Green firm Camco gets Blood and Gore investment“, Reuters, 4 June 2009.
 “Key Developments For Camco International Limited“, Reuters, accessed 20 June 2009.
 Twidale, S. (2009) “Ken Newcombe”, Trading Carbon, 3(3): 16.
 Twidale, S. (2009) “Ken Newcombe”, p. 16.
 “Major World Bank Programs: NGO participation“, World Bank Annual Report 1997.
 Lang, C. (2004) “The carbon spin doctors: How the World Bank explains emissions trading to journalists“, World Rainforest Movement Bulletin, 84, July 2004.
 Desai, P. (2006) “Carbon Emissions Market Comes of Age“, Reuters, 31 March 2006.
 Twidale, S. (2009) “Ken Newcombe”, p. 16.
 Twidale, S. (2009) “Ken Newcombe”, p. 16.
 “Forest Trends’ History“, Forest Trends website.
 See, for example, “Broken Promises: How World Bank Group policies and practice fail to protect forests and forest peoples rights“, World Rainforest Movement, 2005.
 “Board Members, Forest Trends website, accessed 20 June 2009.
 New Forests website.
Correction (12 June 2010): The Australia-based New Forests Pty Limited is not to be confused with a UK-based company with a similar name: New Forests Company. Ricardo Carrere’s chapter in this book refers to the activities of the UK-based New Forests Company in Uganda. I have therefore deleted a parenthetical sentence referring to Ricardo Carrere’s chapter from the text above. New Forests (Australia) asked me to clarify that “David Brand and the Australia-based New Forests are not affiliated with New Forests Company, whose activities in Uganda are discussed in the chapter by Ricardo Carrere.”
 “Board Members“, New Forests website.
 Zwick, S. (2009) “Environmentalists, Financiers Commemorate Decade of Forest Trends“, Ecosystem Marketplace, 22 May 2009.
 Lohmann, L. (2008) “Climate Crisis: Social Science Crisis“, a chapter for Der Klimawandel: Sozialwissenschaftliche Perspektiven, VS-Verlag.
 “Emissions Trading“, Barclays Capital website.
 “AWG-KP 8 Officers“, UNFCCC website.
 Bullard, N. (2008) “Who is Harald?“, New Internationalist, 412, June 2008.
See also, Lang, C. (2008) “Pöyry: The economic hit men of the pulp industry“, in Plantations, Poverty and Power: Europe’s role in the expansion of the pulp industry in the South, World Rainforest Movement, December 2008.
 Harvey, F. (2009) “Carbon trading poised to decline“, Financial Times, 24 February 2009.
I made this comment in a draft article I wrote for Point Carbon’s magazine Trading Carbon. Perhaps not surprisingly the comment was not published in Trading Carbon. “Your comments on Point Carbon may be valid in a wider context, but were irrelevant in a feature on why REDD shouldn’t be in the carbon market. Those criticisms could be made of any number of companies in a wide range of fields”, the editor of the magazine, Robin Lancaster explained (in an email dated 1 April 2009). Lancaster also deleted all reference to Al Gore, Ken Newcome and Richard Sandor from my article on the grounds that in the eyes of the law they haven’t done anything wrong. I agree. I’m not accusing them of having broken any laws. Lancaster added that “all of the edits and decisions on the piece were made by me as editor as is the case with every word of editorial in the magazine.” The same issue of Trading Carbon included a profile of Ken Newcombe written by Susanne Twidale.
 Bellassen, V., R. Crassous, L. Dietzsch, and S. Schwartzman (2008) “Reducing emissions from deforestation and degradation: what contribution from carbon markets?”, Mission Climat of Caisse des Dépôts, Climate Report No 14, September.
 Szabo, M. (2009) “Carbon exchanges cashing in amid EU slowdown“, Reuters, 17 February 2009.
 “PNG’s Kevin Conrad in Bali: US, Get out of the Way!“, CNN – YouTube.
 Conrad, K. (2009) “Moving to the environmental age”, Trading Carbon, 3(3): 24.
 The Coalition for Rainforest Nations’ website lists the following countries as participants: Bangladesh, Belize, Central African Republic, Cameroon, Congo, Colombia, Costa Rica, DR Congo, Dominican Republic, Ecuador, Equatorial Guinea, El Salvador, Fiji, Gabon, Ghana, Guatemala, Guyana, Honduras, Indonesia, Kenya, Lesotho, Liberia, Madagascar, Malaysia, Nicaragua, Nigeria, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Samoa, Sierra Leone, Solomon Islands, Suriname, Thailand, Uruguay, Uganda,Vanuatu and Viet Nam.
 “Initiatives: Carbon Emissions“, Coalition for Rainforest Nations website.
 Sessions, E. (2005) “Using the Tools of Business to Inform Environmental Policy“, The Record, Columbia University, 31(6), 28 November 2005.
 “Highlighted Events: World Leaders Forum, Columbia University (Jan. 15, 2005)“, Coalition for Rainforest Nations website.
 “Climate Science: What Do We Know?“, Global Roundtable on Climate Change Spring 2005, The Earth Institute at Columbia University.
Somare’s powerpoint presentation, Rainforests and Climate Change, is available here, and his speech is available here.
 “Answers to questions without notice – from Member for Markham, Hon. Andrew Baing“, Parliament House, Monday, 20 June 2005.
 “About the Coalition“, Coalition for Rainforest Nations website.
 “Geoffrey Heal“, Coalition for Rainforest Nations website.
 The Union of Concerned Scientists website states that Heal is a Director of Petromin. He is not included in a list of Directors on the Petromin website. However, he is listed as a Director on an undated “Information Brochure for the Media” on Petromin’s website. Heal’s Curriculum Vitae, dated February 2008 states “Director, Petromin Holdings PNG Ltd. (The national oil, gas and mineral company of Papua New Guinea) 2007 on.”
 “MPs in uproar over Petromin“, Post Courier, 1 March 2007.
 Gridnef, I. (2009) “Climate hero under fire in PNG“, The Age, 8 May 2009.
 Gridnef, I. (2009) “Climate hero under fire in PNG“.
 Statement by Sir Michael T. Somare, GCMG KSt.J CH, Prime Minister of Papua New Guinea, Global Roundtable on Climate Change, Columbia University, New York, 12 May 2005.
 “Context: Recognizing Forests’ Role in Climate Change“, Coalition for Rainforest Nations website.
 Parekh, P. (2009) “Waxman-Markey Bill: No Cuts until 2026!“, International Rivers website, 15 April 2009.
 “Analysis of the Waxman-Markey Draft“, International Rivers and Rainforest Action Network, 15 April 2009.
 “Initiatives: Sustainable Forest Markets“, Coalition for Rainforest Nations website.
 Copenhagen Climate Council website.
 “The Business Case for a Strong Global Deal“, prepared for the World Business Summit on Climate Change by the ClimateWorks Foundation, 2009.
 The Business Case for a Strong Global Deal“.
 Reyes, O. (2009) “Carbon trading and cash values on forests cannot curb carbon emissions“, The Guardian, 28 May 2009.
 “Debate – Carbon Offsetting“, Together Works, 11 June 2007.
 “Vested interests – Industrial logging and carbon in tropical forests“, Global Witness, 4 June 2009.
 “Deforestation: ‘Genuine risk of biggest ever loophole’“, The Guardian website, 25 November 2008.
 “REDD and the effort to limit global warming to 2°C: Implications for including REDD credits in the international carbon market“, prepared for Greenpeace by KEA3, 30 March 2009.
 Karsenty, A. (2008) “The architecture of proposed REDD schemes after Bali: facing critical choices“, International Forestry Review, 10(3).
 Monbiot, G. (2009) “How Much Should We Leave in the Ground?“, The Guardian, 6 May 2009.