Why trading the carbon stored in forests will not help address runaway climate change.
By Chris Lang. Published in WRM Bulletin 139, February 2009
In 2008, the value of the carbon market increased by 84 per cent, with total transactions increasing from US$64 billion in 2007 to US$118 billion in 2008.[1] Surely, with all that money changing hands, there must be some good news to report about the amount of carbon dioxide in the atmosphere?
Unfortunately not. The US government’s National Oceanic and Atmospheric Administration (NOAA) reports that in 2008 global concentrations of carbon dioxide increased by 2.28 parts per million.[2]
Carbon traders are now looking at trading the carbon stored in the world’s forests. They hope that reduced emissions from deforestation and forest degradation (REDD) will generate large quantities of carbon to be traded. But there are three major problems with this.
First it would drive down the price of carbon, perhaps even making the carbon market crash. Recently, carbon prices have fallen dramatically, making investments in renewable energy less attractive. As the Financial Times notes, “The price of carbon dioxide in the European Union has fallen so low it no longer provides an incentive to low-carbon development, and seems unlikely to do so in the near future.”[3]
The second problem with trading the carbon stored in forests is that it would create an enormous loophole for the world’s worst greenhouse gas polluters.[4] We need to reduce the amount of greenhouse gases in the atmosphere. This means that we need to dramatically reduce emissions of greenhouse gases, not find new ways of allowing continued emissions.
Underlying this is a common misunderstanding about climate change. In order to prevent runaway climate change, we need to reduce the concentration of greenhouse gases in the atmosphere. This means cutting emissions radically – it is not enough to stabilise emissions.
Currently the concentration of carbon dioxide in the atmosphere is 386 parts per million.[5] The Intergovernmental Panel on Climate Change’s Fourth Assessment Report states that to prevent global warming exceeding 2°C, emissions need to be reduced globally by 85 per cent (compared to 2000) by 2050.[6] The IPCC’s target is 450 ppm, but according to James Hansen of NASA the target has to be 350 ppm.[7]
Perhaps the best way of understanding the difference between concentrations and emissions is the “bathtub analogy” put forward by John Sterman, at the Massachusetts Institute of Technology, and Linda Booth Sweeney at Harvard Graduate School of Education.[8] They explain that the atmosphere is like a bathtub: the running tap represents greenhouse gas emissions; the plughole represents absorption by plants and the ocean; and the water in the bath represents the concentration of greenhouse gases in the atmosphere. With the current rate of greenhouse gas emissions, the amount of water coming out of the tap is more than double that going down the plughole. So, the level of water in the bath is increasing. To make matters worse, we keep turning the tap a bit further, increasing the amount of water going in. To prevent the bath from overflowing, it is not enough just to leave the tap alone (the equivalent of stabilising emissions), we have to turn it right down, so that less water is going into the bath than is going out through the plughole.[9]
Reducing deforestation is the equivalent of unblocking the plughole. But trading the carbon stored in forests is the equivalent of cranking open the tap at the same time.
The third problem with trading carbon stored in forests is that in terms of the climate, the carbon stored in forests is not the same as the carbon stored in fossil fuels. The carbon stored in fossil fuels is stable and will not enter the atmosphere unless it is dug out and burned. Carbon stored in forests is unstable and can easily be released back to the atmosphere. The recent fires in Australia illustrate the point well. Such fires are likely to increase with climate change. To quote the IPCC Fourth Assessment Report: “An increase in fire danger in Australia is likely to be associated with a reduced interval between fires, increased fire intensity, a decrease in fire extinguishments and faster fire spread.”[10]
The fires in Australia were a tragedy, killing more than 200 people and destroying 1,800 homes. They also resulted in the release of millions of tonnes of carbon dioxide to the atmosphere – more than one-third of Australia’s annual CO2 emissions.[11]
But what would have happened if the carbon that had been stored in Australia’s burnt forests had been traded? By allowing emissions elsewhere to continue, the amount of carbon dioxide emitted to the atmosphere would have been doubled.
Certainly, deforestation needs to be stopped. But trading the carbon stored in forests guarantees that greenhouse gas emissions continue elsewhere. Carbon trading does not reduce emissions. Trading the carbon that is stored in forests will only make matters worse.
References
[1] “Carbon market surges 84% in 2008“, Mongabay, 12 February 2009.
[2] “World carbon dioxide levels jump 2.3 ppm in 2008 to highest in 650,000 — if not 20 million — years“, Climate Progress, 13 February 2009.
[3] Fiona Harvey (2009) “Carbon price fall bad for green investment“, Financial Times, 1 February 2009.
[4] See, for example, “Forest carbon trading exposed in new FoEI report“, REDD-Monitor, 27 November 2008.
[5] CO2now.org.
[6] George Monbiot (2007) “What is Progress?“, The Guardian, 4 December 2007. His source is Intergovernmental Panel on Climate Change (2007) Fourth Assessment Report. Climate Change 2007: Synthesis Report. Summary for Policymakers, Table SPM.6.
[7] 350.org.
[8] John Sterman and Linda Booth Sweeney (2007) “Understanding Public Complacency About Climate Change: Adults’ Mental Models of Climate Change Violate Conservation of Matter“, Climatic Change 80(3-4): 213-238.
[9] Andrew C. Revkin (2009) “The Greenhouse Effect and the Bathtub Effect“, Dot Earth, New York Times, 28 January 2009.
[10] David Karoly (2009) “Bushfires and extreme heat in south-east Australia“, Real Climate, 16 February 2009.
[11] Alok Jha (2009) “Australian bushfires pump out millions of tonnes of carbon“, The Guardian, 13 February 2009.
chrislang.org 
I’m on a break between lessons (I think they’ve forgotten) – quick comment: the bath tub analogy doesn’t work; you can’t have more water going out through the plug hole than water coming in via the tap. The emissions tap is always going to be running as long as we inhabit this earth so, yes, let’s turn it right down (shit, hypocrisy rules – we’ve just bought a tumble dryer). Speak later.
The bath tub analogy works as long as you don’t think of a bath like the one in your bathroom, i.e. empty most of the time and with the tap off except when you want to fill the bath. Instead you have to image a bath which always has some water in it. The tap is always on and the plug is never in. So there is always water coming into the bath and there is always water going out. In order to reduce the amount of water in the bath (which is analogous to the concentration of carbon dioxide in the atmosphere) we have to make sure that the amount of water coming in from the tap is less than the amount going out through the plughole. So we don’t have to turn the tap off completely but we do have to reduce the amount of water coming in pretty dramatically. There’s a simulation of it here – which unfortunately stabilises at 450 ppm when we need to aim for 350 ppm.
Your arguments against carbon markets and forests are largely outdated and out of touch with REDD negotiations. Basically, your case against REDD is both flawed and false.
Such fear-mongering is irresponsible.
First, REDD countries are asking that new demand be created to meet the new supply from REDD — meaning deeper targets by rich countries. There are clear proposals on how to balance supply and demand to avoid market crashes.
Second, REDD countries are not asking for ‘off-sets’ but that REDD is additional. No REDD country, all facing serious adaptation risks due to climate change, wants those responsible for climate change to use REDD as an escape clause. In this way, REDD countries are requesting that AAUs be deducted from the accounts of rich countries to make room for REDD.
Third, your argument is also flawed. First, not providing incentives to stop deforestation through REDD only increases the odds that the climate gets worse as a significant emissions source continues. Further, Australia is largely a dessert, but obviously you have not been there. Healthy tropical forests do not burn — unless seriously degraded. So, the carbon in healthy tropical forests is more secure than fossil fuels in a world addicted to their use.
Therefore, in summary, each of your arguments against REDD baseless and fundamentally flawed.
Thanks Hap for your comment. You make three points, which I’ll answer in turn.
1. REDD countries may well be asking for deeper targets by rich countries. Unfortunately rich countries are completely ignoring these requests. The Potsdam Institute on Climate Impact Research has been looking at the targets that governments are currently setting. See this presentation by Joeri Rogelj at a side event at the recent climate negotiations in Bonn. IPCC 4 suggests a target of between 25% and 40% below 1990 levels by 2020 for annex I countries – to limit GHG concentrations to 445-495 ppm. Current targets are somewhere between -8.2% and -14.9%.
One of the reasons that annex I countries can get away with such weak targets is that they include offsets in their targets – one example being the USA, which includes up to 2.5 billion tonnes a year as offsets.
You say that there are “clear proposals on how to balance supply and demand to avoid market crashes”. Unfortunately, the reality of the carbon markets is that they are extremely volatile, unregulated and pretty much unregulatable – much like the markets in derivatives which led to the current financial crisis. Some of the people who created derivatives markets are now working in the carbon markets – Richard Sandor, for example.
2. Some “REDD countries” are in fact very interested in offsets and want to see carbon credits issued to finance REDD projects in their countries (Indonesia, Papua New Guinea, Guyana, to name three). The reality is that annex I countries are attempting to use REDD to create the biggest loophole in the climate negotiations. Australia is perhaps the most extreme example of this, as Guy Pearse demonstrates (see also this post on REDD-Monitor about the loophole that Australia wants to create through REDD).
3. I agree that stopping deforestation is important, for the climate, for Indigenous Peoples and for local communities who are dependent on forests. The point I am making is that if the carbon stored in forests is traded what is guaranteed is that emissions elsewhere will take place. This is in itself a problem because we need to reduce emissions and stop deforestation. We cannot trade the one off against the other.
I agree that healthy tropical forests do not burn. But several institutions are pushing to include “sustainable forest management” in REDD, whereby logging companies would be subsidised through REDD payments for logging forests slightly less destructively. As Global Witness points out in a recent report, “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. In fact, the increase in forest fires caused by logging can be more devastating and release more carbon than the logging operations themselves.”
The problem, as I stated in the article, is that “Carbon trading does not reduce emissions.” No matter how “outdated and out of touch with REDD negotiations” this statement may be, it remains true.
Chris,
Thanks for the reply, but again there are many unsubstantiated biases, intellectual gaps and factual errors in your response.
Time is short, but let me highlight just a few:
1. Deeper Targets: Both the EU and Australia, for example, have proposed deeper targets in response to action be developing countries. This approach needs to be encouraged, not derided. But, there are other ways to secure deeper targets that are being proposed — like I stated clearly in my last post — such as voluntary deductions from AAU accounts. Your data is regarding the first commitment period, but REDD will be included in the 2nd. The time to make corrections is now. Your simplistic position appears to be due to an intellectual gap, or clear bias.
2. Balancing Supply and Demand: Again, in your educational background or professional experience it is clear that you skipped basic economics nor have you developed an understanding of the basic market functions and governance. For example, derivatives and carbon trading are two totally different financial platforms. Secondly, there are numerous examples of regulated markets. You are simply waving bogus red flags with no understanding of the fundamentals. Again, a clear demonstration of intellectual gaps, unsubstantiated bias, and factual errors.
3. Off-Sets: Again, it appears that you do not even follow the negotiations for which you claim expertise. For example, both PNG and Guyana have specifically made submissions against REDD as an offset. Rather, they have asked that AAUs be voluntary subtracted to make room for REDD actions. This way REDD is additional, not an offset. Do you understand the difference? Again, a clear intellectual gap that seems to be driven by personal biases or a malicious distortion of the facts.
4. Carbon Markets: To say that carbon trading does not reduce emissions is fundamentally false. Try to understand: the target setting process sets the level of emission reductions. A carbon market is designed simply to achieve the most efficiently reductions after the target are set. These are two separate processes that you are comingling and confusing. And again demonstrates your intellectual shortcomings.
Really, my friend, you should expound on other issues. As in this space, you are clearly a biased novice.
Cheers!
Sorry, Chris. In rereading, the above is correct but a bit too harsh. Please, your efforts can provide value, even if your understanding of the issue is limited. To be clear, REDD will advance into a post-2012 agreement and it will include both non-market and market elements. That battle is over. So energy should be focused on improving both, not continuing to allow biases and intellectual shortcomings to drive your present misinformation campaign.
All the best!
Thanks Hap – don’t worry about sounding too harsh, but thanks for apologising anyway!
1. The current targets are not deep enough. Do you accept that point? Neither the EU nor Australia are suggesting deep enough targets.
Deeper targets are meaningless if they do not involve deep reductions in emissions of fossil fuels at home. The problem is that a coal fired power plant built today will continue to emit for 50 years or so. I agree with you that the time to make corrections is now. So we need to put a system in place that will stop the construction of new coal-fired power plants not one that will allow them to be built.
You suggest that “Voluntary deductions from AAU accounts” as a way of securing deeper targets. Two things: First, why voluntary? And what if the country concerned decides not to do this? Second, one country would effectively be claiming for itself emissions reductions that are to take place in another country as its own reductions. This brings in the issues of additionality and permanence. The emissions have to be avoided for 100 years, at least (since CO2 is in the atmosphere for so long). So far, no one has come up with a reliable way of predicting the future. Watch this interview with Kevin Anderson, Research Director at the Tyndall Centre for Climate Change Research, for his suggestion of an additionality test:
“If you can imagine Marconi and the Wright brothers getting together to discuss whether actually in 2009 Easyjet and the Internet will be facilitating each other through internet booking, that’s the level of additionality certainty you’d have to have over that period. You cannot have that. Society is inherently complex. The CO2 is there [in the atmosphere] for that long. So additionality is a meaningless concept in a complex system, which society is over that sort of time frame.”
2. “Balancing supply and demand”. You’re right, I studied architecture and forestry (both of which included bits of economics, but I wouldn’t call myself an economist – any more than I’d call myself an architect or a forester for that matter). However, I think it’s worth looking at the surge in oil prices last year (for example) and asking yourself whether that had anything to do with supply and demand.
You say that derivatives and carbon trading are “two totally different financial platforms”. Other people disagree. Larry Lohmann, for example: “One lesson the current financial crisis teaches us is: beware of the new carbon markets that constitute today’s main official response to climate change. These markets are startlingly similar to the financial derivatives markets that have thrown banking systems into chaos and the world economy into a tailspin.”
You can read Lohmann’s “Financialization, Quantism and Carbon Markets” here.
On “regulated markets”, you might want to read “The Great American Bubble Machine“, an article by Matt Taibbi about Goldman Sachs in this month’s Rolling Stone magazine. The final paragraph is particularly interesting:
“Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm’s co-head of finance.) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits — a booming trillion- dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an “environmental plan,” called cap-and-trade. The new carbon-credit market is a virtual repeat of the commodities-market casino that’s been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won’t even have to rig the game. It will be rigged in advance.”
3. For several weeks PNG has been embroiled in a scandal over the issuance of a series of REDD “credits”. In none of the documents that I’ve seen is there any mention of voluntary deductions from AAU accounts.
4. Thanks for clarifying my point about carbon markets. I’ll repeat it: “Carbon trading does not reduce emissions.” As you point out, “the target setting process sets the level of emission reductions”. I agree, the problem being that the current targets that we have are woefully inadequate.
Meanwhile, you say “A carbon market is designed simply to achieve the most efficiently reductions after the target are set.” If it’s cheaper to buy credits than it is to close down a coal-fired power plant, then that’s what industry will do. Carbon markets are a way of making money – included in the Kyoto Protocol by the US in Kyoto, under the leadership of Al Gore. Global carbon markets already exist, despite the fact that there is no global cap. Please listen to the interview with Kevin Anderson, linked above.
Just out of curiosity, what is your interest in carbon trading and REDD? Who do you work for?
1. Deeper targets at home mean nothing if emissions rise in developing countries. So, deep targets must be linked to emission reductions in developing countries. We lose the battle against climate change otherwise. Is this hard to understand?
2. Regulated carbon markets and unregulated derivative markets are two totally different things. Again, your lack of economic understanding is provides a gaping hole in your analysis! Get educated before pretending to be an expert.
3. Not familiar with these specifics, but looking at the posts, it seems the OCC was not following government policy.
4. Again, you totally do not understand the role of carbon trading. It is difficult speaking to someone so uneducated. I explained the role between target setting and carbon trading last time. Please read and try real hard to understand.
No, I work for a university (having no direct interest in forests carbon markets) and actually do know something about policy, markets and forests. But, I do not run a web-page PRETENDING to know something about REDD, like you do. So, the questions should be about you, not me.
Hap, I feel we’re going round in circles.
1. We need to massively reduce emissions. And we need to stop deforestation. Currently the targets for emissions reductions are not deep enough. One of the reasons they are not deep enough is because countries are attempting to trade off avoided deforestation against continued emissions.
2. You keep saying that carbon markets and derivatives markets are not the same thing. But you provide no evidence to back up this point. Friends of the Earth also sees similarities between carbon markets and derivatives trading. You can read their report: “Subprime Carbon? Re-thinking the world’s largest new derivatives market“. “This new report finds that existing financial regulations, as well as those in major cap-and-trade bills, are inadequate to govern carbon trading, creating a potentially huge regulatory gap.”
3. So PNG may say one thing, but it is doing another. Should we pay attention to what the government says or what the OCC does?
4. Carbon trading is undermining target setting. It creates a loophole in any targets set.
As you are aware, REDD-Monitor monitors and comments on the REDD negotiations. Obviously, I have a different opinion than you about carbon trading. Do you tell students who hold different opinions to “get educated” or ask them to “try real hard to understand”, while repeating the same statements over and over again, without providing any evidence, sources or references for the statements?
Before replying to this, could you please read George Monbiot’s most recent article, which gives “the simple mathematical reason why large scale carbon offsets can’t work”. Whether you like it or not, if REDD is to be funded by carbon trading it is an offset mechanism. The article concludes as follows:
Hap, perhaps you could read this one as well: “Could Cap and Trade Cause Another Market Meltdown?“: