Carbon trading for sustainable forest management in Bangladesh

Carbon trading for sustainable forest management: guiding principles

A carbon trade is a voluntary transaction. A CDM-type forestry project will only be implemented if both parties - the buyer and the supplier of carbon emission reductions - feel that the project is in their interest. This has important implications for designing implementation guidelines for such projects. From the point of view of the buyer, containing illegal logging and waste from log production are the most promising actions to reduce carbon emissions from forestry. These actions are not necessarily in the interest of the supplier. For example, in many developing countries illegal logging is a major source of income for people living in and around forest areas, as well as for corrupt government officials who tacitly allow such practices. Poor government also raises the question how buyers and supplier groups with limited political influence can ensure that their goods (reduced carbon emissions and compensation) are indeed delivered. An additional complication is that carbon trade agreements are complex and that little information is available on how to structure such arrangements. Three key elements in the design of a carbon trade arrangement are therefore:

• Ensure proper compensation of adversely affected groups. Without adequate compensation, carbon trading will harm the interests of certain supplier groups. A carbon trade agreement must therefore be supported by an analysis of the possible impacts of the agreement on supplier groups, a proposal for compensation to adversely affected groups and a mechanism to deliver the proposed compensation.

• Promote and maintain transparency. The suppliers of reduced carbon emissions from forest lands consist of local communities, forestry companies and local governments. All these groups should be involved in the preparation and implementation of a CDM-type forestry project. To ensure that the objectives of the buyer are met, an independent audit is required to verify actual CO2 reductions.

·        Promote and maintain public awareness. Experience with carbon trade arrangements is limited and in many countries even non-existent. To build commitment for CDM-type forestry projects, all supplier groups should be informed about the proposed project in early stage.

Carbon trading for sustainable forestry: implementation guidelines

Implementation guidelines should ensure that the intended benefits of a CDM-type forestry project are indeed realized, without harming the interests of supplier groups. The major phases in a CDM-type forestry project are preparation, implementation and monitoring and evaluation. Fig-5 shows proposed implementation guidelines and required actions for each of these phases.

Fig-5: Implementation guidelines and required actions for a CDM-type forestry project

Phase or guideline	Action required
Project preparation
Compensation	Assess environmental impacts of proposed project Assess social impacts of proposed project Assess impacts of proposed projects on local economy Prepare compensation plan (including delivery mechanism)
Transparency	Set up an SFO/a SFO to prepare a project implementation plan
Public awareness	Consult with local community groups Make all project documents available to the public
Project implementation
Compensation	Compensate affected parties conform project implementation plan
Transparency	Appoint steering committee from SFO to manage implementation Prepare periodic reports on project progress
Public awareness	Make project progress reports available to the public
Project monitoring & evaluation
Compensation	Link compensation to performance
Transparency	Appoint independent auditor to verify performance annually
Public awareness	Make project progress reports available to the public

 

Some Problems:

 Two obstacles need to be overcome before an effective offset system can be put in place. First, the problem of “leakage” needs to be adequately addressed. Leakage is a situation where a carbon-sequestering activity in one place results in partially or wholly offsetting activities elsewhere. For example, if when government forest planting for carbon-sequestering purposes discourages private forest planting, the offset would be termed a leakage. This could occur, for example, if large government tree-planting activities were viewed by the private sector as likely to depress timber prices at some future time or if large planting in some areas induced increased land conversion out of forests in another area. In that environment, it would be quite reasonable for private timber growers to reduce the area that they plant in trees. Possible approaches to address the leakage problem might involve a countrywide forest inventory to ensure that carbon-induced planting is additive or some policy to ensure that the carbon forests are not made available for timber purposes, e.g., planting in a very inaccessible area. Another approach would be to require some adjustment in the amount of carbon required for sequestration to account for average leakages, e.g., one-and-one-half tons of carbon might need to be sequestered in a project to generate one ton of carbon credit, with the discount based on estimates of leakage. A third possibility might be that carbon credits could be generated in a country only for total carbon countrywide sequestration above some baseline level. Elements of all three approaches might be required. Second, there would need to be a market for permits. Note that the regulations of the New York state power authority provide the basis for a limited carbon market. However, recognition by the international community that some types of carbon offsets are efficacious for countries to meet international carbon reduction commitments is probably required before a fully functioning market would develop. The Kyoto Protocol offers the possibility of such recognition. Certified offset credits could then be made available either to specific companies or traded on national or international markets like emission credits. The optimism for forestry-based carbon offsets from tropical countries is yet to be substantiated by actual investment flows, and will require agreement on a series of politically and technically complex issues. While some demand estimates have reached tens of billions of dollars a year (Ellerman et al., 1998), Pearce et al. (1998) estimate that the size of the market, at least for carbon offset trading through the CDM, may be smaller than previously thought. There are two ways of looking at the motives of industrialised countries to engage in carbon offset trading. Is it investment in SFM and biodiversity conservation, or merely a way of avoiding their environmental responsibilities? Less economically developed countries (LEDCs) point out that carbon trading would act as a disincentive to the North to improve its pollution control, and represent another form of 'waste dumping' in the South - resulting in little reduction in carbon release at source.

A number of other concerns have been voiced by developing countries:

• The best carbon reduction opportunities in the South are likely to be captured by Northern countries through the CDM, so it will become more difficult and expensive for tropical countries to pursue their own carbon reduction program’s if and when needed
• The fear that aid could become linked to performance on emission reductions, or that development aid would simply be substituted by 'emission reduction aid', thereby compromising a country's development priorities
• The concern that a country may sell the carbon sequestration services of state-owned forest, to the cost of local users more in need of extractive products
• The concern that welfare benefits will be secondary at best to the environmental gains from carbon offset deals, and thus the carbon market may offer little opportunities for sustainable development or livelihood enhancement
• Low or zero profit margins for producers of carbon offsets due to the use (to date) of a supply price based on the marginal cost of supplying carbon sequestration services
• The high transaction costs of organizing carbon offsets involving small farmers or communities means that purchasers are likely to prefer industrial forestry operations