The political ‘debate’ over climate change can be tiresome, Kyoto or not-Kyoto. But perhaps Bush is at least honest: many people and certainly most politicians are environmental hypocrites, begrudgingly accepting in principle the need for action but still resisting eco-chastity for themselves. The UN and EU give plenty of cover for government inaction. The main movers are likely to be self-interested big business. Which is all the more reason to work on rights and livelihood issues with forest communities, and help developing countries work out and negotiate their own programmes for forestry carbon credits.
- The Stern report called for the stabilisation of greenhouse gas concentrations at a level of between 450 and 550 parts per million by 2050 – implying that global emissions would have to be at least 25 per cent below current levels. The political challenge is how to reduce emissions to such an extent, not least as world economic growth is needed to tackle poverty. The economic challenge is to correct a market failure by creating and managing emissions markets, i.e. by pricing carbon and other greenhouse gases.
- Politically the present US-government stance – a preference for a loose global agreement within which countries set their own non-binding emissions targets (“pledge and review”), contrasts with the UN and EU stance which supports support mandatory reduction commitments on carbon emissions (“cap and trade”). The former voluntary approach would seem to favour newly industrialising countries, the latter richer industrialised countries. The apparent enthusiasm for multilateral solutions probably masks the reluctance of individual countries to risk short-term economic competitiveness by going it alone.
- What is needed in practice is an agreement between those countries responsible for 90% of global emissions (Australia, Britain, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, South Africa and the US), plus the involvement of the major transnational energy and manufacturing companies that actually produce the much of the emissions. The communications revolution and deepening globalisation are pushing business into ethical markets and products. Many businesses see that their own longer-term self-interest lies in the regulation of emissions and have become both leading advocates for government action on climate change and principle investors in new technologies and environmental markets. Businesses are in seeking greater standardisation in emissions markets and regulations.
- At present carbon markets are immature, exhibiting wide price fluctuations. There are two types: first, voluntary carbon offsets, with companies or individuals paying for carbon reducing projects in order to ‘offset’ their own carbon emissions; and second, carbon trading, by which companies are allocated or purchase carbon emission credits. Neither is without its problems. Voluntary schemes are poorly regulated, and both the UN’s clean development mechanism and the EU’s carbon credits trading scheme have been beset by over-supply and misallocation of credits, and uncertainty whether many of the credits issued to date will deliver the expected reductions in emissions. Public and political trust in both these markets is low. Expanding the cap-and-trade approach requires better control on the quantity of emission credits, in order to minimise leakages, and improvements in the right to emit through tradable permits markets, so that prices better reflect risk.
- Setting targets can be problematic. Prescribing objectives and targets by supranational bodies is unlikely to work well – they will be beset by political compromise and their impact on behaviour will often be low (look at the experience of the Soviet Union and more recently the European Union); equally targets often result in regulatory capture. The carbon market cannot be entirely commercial, but it requires a degree of separation from political control or interference.
- What can be done? First, there is a need to recognise that governments are best held to account for their own immediate commitments and policies rather than future outcomes that they cannot guarantee. Second, national targets – whether negotiated within an international framework or not – or need to be accompanied by concrete measures (e.g. introducing tax breaks to encourage technology adoption, subsidising clean energy, providing research funds, etc.). The leading industrialised countries can assist poorer developing countries by providing financial and technical assistance. Third, markets are social institutions, and need regulation: improving governance – not least with tropical forestry initiatives – requires national and local participation to ensure commitment to new policies and programmes, i.e. beneficiaries see that their own interests are at stake.
- The creation of viable carbon markets for avoided deforestation can learn much from the experiences of forest certification over the past years as well as more recent work on extractive industries. The principles, criteria and indicators of forest certification at a national and local level provide an instrument to measure and regulate performance against an agreed standard, and to market an internationally recognised product (forest certification has been a vehicle for new investment). Likewise full disclosure of performance, taxes and incentives paid to and by governments and the international community, is essential information for investors, civil society, and local people when making management decisions about forest conservation, forest management and forestland use. Disclosure is essential for trust; trust in the carbon market, the regulatory system and in the governments themselves.
- New principles, criteria and indicators for avoided deforestation can be drafted with amongst others the “Forestry Eight” (Brazil, Malaysia, Papua New Guinea, Gabon, Cameroon, Costa Rica, Congo and Indonesia), plus countries such as Bolivia and Liberia that between them contain the lion’s of the world’s tropical forest cover. The level of forest cover and governance will provide a country risk rating for carbon investors, and will determine the carbon price received: progress on improving governance (including the distribution of benefits) and avoiding deforestation (the extent of impact) can be assessed by stakeholders and audited externally within such a framework.