Are third-world carbon credits a scam? by mattsteinglass
May 17, 2009, 9:13 pm
Filed under: Environment

Responding to my point that if we implemented a carbon tax rather than cap-and-trade, there would be no third-world programs to create emissions credits by reducing atmospheric carbon (switching to cleaner cookstoves etc.), Megan McArdle says this is “a feature, not a bug”:

Everything I’ve read, heard, and studied about offsets indicates that the audit problem is essentially insurmountable.  Favorite private projects like planting trees really don’t work at all, because you can’t just plant a tree–you have to certify that the land you have planted with trees will contain at least that much tree-mass forever, because as soon as a tree dies, its carbon returns to the atmosphere.  This is not really feasible in other than trivially small doses, and the larger plots tend to be in places where you really can’t make that sort of committment, because it’s too dependent on the continued goodwill of the government in an area where governments are historically very unstable…The problem is, it’s very hard to certify the alternative world-state.  I don’t mean this as a demand for some impossible proof, but with things like paying manufacturers not to pollute, there’s very good reason to think that this might not work–indeed, have the opposite of the intended effect.  

I think this is a very serious point. But I still think the cap-and-trade system, and the “Clean Development Mechanism” (CDM) system of credits for “certified emissions reductions” (CERs) in developing nations, is worthwhile. There are powerful critiques of cap-and-trade and CDM out there, notably this 2007 paper by OpenEurope researchers Hugo Robinson and Neill O’Brien, which argues that Europe is expecting 2/3 of carbon reductions in the “second stage” (2008-2012) of its Kyoto reduction efforts to come from projects in the developing world, and that many or most such reductions are bogus.

But then there are also other (more recent) papers saying the EU cap-and-trade system is a success, like this 2008 study by Denny Ellerman and Paul Joskow of MIT. Ellerman and Joskow point out that the EU has fixed the problem of excessive CERs from developing countries by limiting them to 13% of expected reductions in the Kyoto second stage (2008-2012). While the problem of “anyway credits” for greenhouse gas reductions that would have happened anyway remains real, the EU is addressing this by making it clear that countries that want to continue to earn CERs after 2012, in whatever succeeds Kyoto, will have to set greenhouse gas emissions limits of their own within the new system or sign bilateral greenhouse reduction agreements with EU states; the current system where greenhouse reductions may be fictive because they’re produced in emitting states that have no overall limits of their own is not going to last long. This means that CERs become a way of coaxing developing nations into the world greenhouse emissions limits system — the profits they can earn from CERs start to become real and concrete, but they have to set limits on their own emissions soon to continue earning them.

There are a couple of other minor issues which I think don’t work quite the way Megan phrases them. She writes: “Favorite private projects like planting trees really don’t work at all, because you can’t just plant a tree–you have to certify that the land you have planted with trees will contain at least that much tree-mass forever, because as soon as a tree dies, its carbon returns to the atmosphere.” As I understand it this has been addressed by making CERs for such projects depreciate to 0 over time; you have to go back and re-inspect the project for the CERs to retain their worth. This combined with modern satellite monitoring can go a long way towards reducing the problem, even in developing nations with unreliable governments. However, because of these complexities, polluters haven’t been very interested in buying such CERs, so this is a genuine problem.

Of the cookstoves problem, Megan writes that “all the stuff that gets burned in the cookstoves would have decomposed and released its carbon in another, longer-lasting form.” I just don’t think this is accurate. A forest that’s not being harvested or that’s being harvested sustainably has a net carbon output of 0; the fact that billions in Asia and Africa are using wood- or charcoal-burning cookstoves contributes to the fact that their forests are disappearing rather than sitting at equilibrium. When forests are shrinking, every reduction in wood demand moves them closer towards sustainability, meaning you will see more carbon stored as trees and less in the atmosphere.

Finally, a lot of the problems in the EU cap-and-trade market right now are tied to the fact that Kyoto expires in 2012 and nobody knows what will replace it. That creates lots of uncertainty in the market. It has to be solved with a permanent or at least long-term treaty for the next stage. But it’s not fair to take problems that stem from the impermanence of the treaty and say they prove that cap-and-trade (or the CDM mechanism) doesn’t work.

The central point I think is that the quantitative limit to use of CERs from developing nations solves most of Megan’s concerns. Some emissions reduction projects in developing countries will doubtless produce “anyway credits”. (Though even when they do, they can have beneficial effects. CERs for a wind farm in Vietnam that was going to get built anyway still make wind a more attractive option than coal plants, and will encourage the country to shift in that direction.) The main danger with CERs from developing countries is that they would allow Europe to meet its emissions targets with mainly fictive reductions in external countries. As long as those reductions are limited to 13%, that’s not possible.

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