CSE- Climate Change Briefing Paper Section

Costa Rica: swapping forest for emissions

The Costa Rican government has recently agreed to swap its tropical rainforest with a Nebraska based power company, Tenaska Inc. The deal would mean that the US power utility would pay the Costa Rican government US$ 0.5 million and help raise another US$ 0.5 million to buy 5000 acres of rainforest in Piedras Blancas National Park. This deal would compensate Tenaska Inc for the carbon dioxide that will be emitted by a new plant in the state of Washington. Called, "Ecoland" the project, is proudly presented as a cheaper way for Tenaska to reduce carbon dioxide buildup than installing expensive pollution control equipment back home. Tenaska pays US$ 200 for an acre of tropical rainforest.

Costa Rica also sold 1,000 emission permits — each costing US$ 3 for a tonne of carbon dioxide to a Chicago based financial company called Centre Financial Products brought together by the Earth Council. These were sold in January 1997. It has since then sold the Certified Tradable offsets (CTOs) to the Norwegian government and a consortium of 3 Norwegian companies, including ABB, Kvaener Energy and Eeg-Henriksen Anlegg, a contruction company. These purchases represent sequestration of over 200,000 metric tonnes of carbon, priced at US$ 10 per tonne. And have raised more than US$ 2 million for the Costa Rican government, which uses the money for sustainable forestry projects on private land — 3,000 farmers who collectively own 150,000 hectares of land have been funded to plant trees to cut greenhouse gas emissions. The carbon credits have been independently certified by third party inspection. The CTO project allow the buyer of the certificates the right to a specific amount of carbon that has been sequested⁵.

C. Voluntary (sic) commitments
Yet another innovative method of tightening the noose around the necks of the developing world is to hold out the threat of some countries "voluntarily acceding" to join the Kyoto protocol and to take on commitments. This divide and rule would break the ranks and would force a "ratchet" effect to go into place. The model set out by the World Trade Organisation and its protracted haggling about membership to China is being cited as the way ahead.

Yet another innovative method of tightening the noose around the necks of the developing world is to hold out the threat of some countries "voluntarily acceding" to join the Kyoto protocol and to take on commitments

In fact, the Basel Convention conference of parties which met in early 1998 in Kuching, Malaysia, found the "voluntary acceding" model very useful in negotiations. Annex VII of the Basel Convention has been created to include European countries that were not in OECD but among countries prohibited to export hazardous wastes. It was not meant as an open annex or a trading bloc within the convention. At the recent CoP it was increasingly suggested that this should become a "voluntary club" and any country which has the capacity to manage hazardous wastes could join Annex VII and become part of global waste traders⁶.

At Kyoto, Argentina had already set an example, by agreeing "voluntarily" to take on emission cut commitments. The proposal has once again been revived and is up for discussion at the next CoP in Buenos Aires. New Zealand had also put forward its proposal for commitments by all parties. This will also be discussed in the coming months.

More recently, British environment minister, Michael Meacher, speaking at the Globe International Launch of "Contraction and Convergence" has called for ways "for engaging developing countries in the process." The first, says Meacher, is to "allow developing countries to take on voluntary reduction targets. Although this wasn’t a part of the final agreement in Kyoto, it is possible that it may be revived. We would have no difficulty with such a proposal (emphasis ours)".

And even more recently, the G8 Final Communique signed in Birmingham states, "We look forward to increasing the participation from developing countries, which are likely to be most affected by climate change and whose share of emissions is growing. We will work together with developing countries to achieve voluntary efforts and commitments, appropriate to their national circumstances and development needs."⁷

The second way of engaging developing countries, says Meacher, "would be for a review under UNFCCC of the commitments of ALL parties to it. Such a review would need to consider what extra commitments would be necessary in the longer term. Meacher also says that the EU — the British hold the EU Presidency currently — favours the second approach⁸.

3. Swaps, deals and much more (or is it much more for much less)?
A lot of heat is being generated after Kyoto as nations try to operationalise the emission cut targets, and make quick profit in the process. The Kyoto protocol and its "flexibility mechanisms" help the North to maximise its options:

It can reduce emissions by taking domestic action (priority: low and only if not painful);

It can reduce emissions by trading its emissions with another country in Annex 1 which is underutilizing its share of emissions (priority: not clear as rules still not formulated); and,

It can reduce emissions by buying emission units — investing in carbon-efficient projects — of other countries in Annex 1 which are able to sell emission units. In other words enter into a joint implementation project (priority medium: better option than domestic action but not as good a Joint Implementation project or CDM in developing countries, where the price paid would be lower or just peanuts).

The best option is clearly spelt out in the US estimate of its own domestic costs of meeting Kyoto obligations. Under the Kyoto protocol, the US has agreed to cut its carbon dioxide emissions at 7 per cent in the period 2008-2012 measured against the base year 1990. Because the US economy has grown since 1990, the real cut required would be much higher at the current levels of emissions.

Janet Yellen, chairperson of the White House Council of Economic Advisers while speaking to the House subcommittee on energy and power said compliance with the Kyoto Protocol would mean an emission price range of US$ 14-23 per tonne of carbon equivalent. "This increase in energy prices at the household level would raise the average household energy bill in 10 years by US$ 70-110 per year." The Yellen calculation is based on one important assumption — that the US will reduce its domestic annual emissions only by 3 per cent during 2008-2012 and would make up the most of the rest of its commitments by paying other countries to reduce their emissions through a system of tradable emission credits. And to keep the costs low the maximum trading would be with developing countries.⁹

The Yellen estimates are as follows;

cost of domestic action in the US: US$ 125 per tonne of carbon equivalent;

cost of trading with other industrialised countries including Russia and Eastern Europe: US$ 30-50 per tonne of carbon equivalent;

cost of trading with developing countries: US$ 14-23 per tonne of carbon equivalent.

"Hot air"
It is in this context that a cap — a limit — is being suggested on the non-domestic mechanisms used to curtail emissions. This is being suggested so that industrialised countries are forced to engage in expensive action at home. But it is being contested. British environment minister, Michael Meacher says that EU will oppose in Bonn, a limit to the amount of emission reductions that can be achieved through flexible mechanisms.

But at the same time and in the very next sentence, Meacher talks about the issue of hot air. Which he defines is a problem "where some countries under the protocol have targets significantly less demanding than their business and usual projections. If these countries sell this surplus (or hot air) there is an overall environmental loss since the two countries involved (the buyer and seller) do not take any action to reduce actual emissions."

Meacher goes on to say, "there is a real concern here — that "hot air" would set an unwelcome precedent for developing countries, many would invariably end up with less than challenging targets which would undermine both the overall aim of the protocol and the system of trading in emission permits."

What Mr Meacher is saying is fairly muddled.

One, EU should be allowed to use all flexibility mechanism with no limits on the quantum of change needed domestically. It can therefore, make no change domestically — similar to the US plan and only concentrate on buying emission units from other industrialised countries such as Russia or even cheaper emission units from developing countries.

Two, developing countries would end up with less than challenging targets which would undermine the aim of the protocol. And all because of the trading between Russia and the US.