Counting the cost of carbon

The Phnom Penh Post
Thursday, 05 November 2009 15:01 Tom Evans

A new biodiversity reserve in Mondulkiri will enable Cambodia to exploit the nascent international market for carbon credits.
Photo by: PHOTO SUPPLIED
The newly designated Seima Protected Forest in Mondulkiri, viewed from the O’Rang station, could allow Cambodia to generate millions of dollars by selling carbon credits.
Recently, the Post reported the Cambodian government’s decision to create a large new reserve in Mondulkiri.

The Seima Protection Forest will safeguard threatened species and vulnerable indigenous communities, but the new twist was that this is also the first reserve Cambodia has created with the explicit aim of conserving carbon stocks.

New economic opportunities from carbon-offset trading almost certainly helped to convince the Council of Ministers to add another to Cambodia’s already long list of reserves and sanctuaries. It comes hot on the heels of a decision to try carbon-trading from community forests in Oddar Meanchey.

Trading in forest carbon is still in its early days but may well become a multi-billion-dollar sector worldwide, creating strong positive incentives to keep forests standing and bringing new hope to embattled conservationists in sites like Seima all around the world.

However, dealing in this new financial arena raises many questions for the practice of conservation and brings risks as well. Learning by doing at Seima will help the government and its NGO and donor partners prepare for national-scale implementation and also feedback into the development of the still-embryonic global carbon-governance systems.

The concept of trading in “avoided deforestation” is not new. It was shelved during negotiation of the Kyoto Protocol a decade ago, but key technical issues have now been overcome, and, just as importantly, most decision makers now believe that it is right.

Some vocal critics still hold that paying for carbon offsets overseas lets polluters in the developed world off the hook, but the centre position is now that this either/or distinction is irrelevant, and deep cuts will be needed in both deforestation and industrial emissions if runaway climate change is to be averted. Tonne for tonne, emissions from deforestation are cheaper to deal with than many others, so it makes little sense to focus only on the more expensive solutions.

World leaders decided back in 2007 that forest carbon would be included in the successor to Kyoto, but with only a few weeks to go until the decisive Copenhagen summit, major political wrangles continue. While we await clarity, a voluntary market in carbon credits has grown up, driven by organisations wishing to demonstrate their green credentials now and perhaps reap the benefits of being early adopters in the future compliance market.

A carbon credit is a seemingly insubstantial thing, a document certifying that something that could have happened did not, so great pains are being taken to raise the confidence of buyers that they represent something concrete. Seima and the Oddar Meanchey project will be audited against the Voluntary Carbon Standard, a globally accepted framework for proving that avoided deforestation claims are real. The requirements are complex, expensive and onerous, since the authors were anxious to avoid the loopholes that have reduced trust in other forms of carbon offset trading. Accurate measurement is mandatory. For the past six months, survey teams from the Cambodian Forestry Administration and the Wildlife Conservation Society (WCS) have crisscrossed Seima, measuring trees, bamboo and dead wood on hundreds of forest plots, then felled and weighed several entire trees to determine total carbon content. At the same time, analysts have studied a decade of recent satellite images to allow prediction of future deforestation rates in the absence of the carbon project. This provides a baseline against which we can, in future, compare the real results of the project and calculate what damage was avoided – and so can be claimed in credit. It is as counterintuitive as it sounds, but the alternative – simply paying for standing stocks of carbon – would mean paying for protection of large areas under no risk of deforestation; a questionable use of funds.

Additionality and permanence are two other key requirements. Additionality means proof that the emission reductions would not otherwise have occurred. In Seima, deforestation rates have been reined in but continue to rise, despite the best efforts of a conservation team limited in part by funds and in part by some doubt regarding the long-term legal future of the forest. The latter has been resolved with the declaration of the protection forest, and carbon funds will soon enable patrolling, community outreach, titling of indigenous lands and direct incentives to villagers to be implemented fully across the whole reserve for the first time. To back our arguments showing the permanence and durability of project design, the Voluntary Carbon Standard will also require Seima to place a large percentage of its credits, unsold, into a buffer reserve, pooled across many projects globally, which acts as an insurance policy if any sites should fail through mismanagement or misfortune.

Although this certification is hard, in a sense it is the easy part. Trading the resulting credits will take the government of Cambodia and partner organisations into uncharted waters where millions of dollars are at stake. WCS has useful prior experience to share, since it assisted the government of Madagascar to set up the Makira Protected Area as a carbon project in 2004 and has since helped to broker sales of 140,000 tonnes of credits. Many of the buyers are major financial institutions accustomed to driving hard bargains, and there are difficult choices to be made between holding out for the best prices and forming long-term agreements with for-profit brokers or buyers who offer the investment capital needed to get a project started. The greatest risks are perhaps on the upside, since speculators might make high profits that could have accrued to the country if currently low forest-carbon prices soar when large compliance markets open.

After sales, there will be a new series of challenges to overcome. To ensure a flow of fresh credits and sustain investor confidence, the state needs to ensure that enough of the revenues are spent on permanent forest protection and community incentives, and that the net revenue is spent in a transparent way. Environmental and social safeguards also come into play.

For its part, Cambodia has signalled through its choice of pilots that community protection and benefits will remain a top priority. There are concerns, however, that in countries where no such commitments have been made, unscrupulous governments and private companies will wrongly displace poor forest dwellers to generate easy credits. While the Voluntary Standard guards against this, compliance markets might not. It is a positive sign that price premiums already exist for credits that go beyond carbon to include net benefits for community and wildlife; the Cambodian pilots will aim to certify this added value under the standard of the Climate, Community and Biodiversity Alliance, so helping Cambodia to leverage the greatest possible benefits from its finest forests.

Cambodia stands to benefit significantly from forest-carbon markets. If they work as planned over the coming decades, the country will be able to develop and industrialise without having to liquidate most of its forest for capital, as today’s industrialised countries once did. To make it happen, government and other stakeholders are going to need to learn quickly, keep learning as policies evolve and, above all, cooperate in forest protection and revenue management in as transparent a manner as possible. The first key steps have been taken on this road, but there is a long way to go.