In addition to CCS, pricing carbon has been a hot topic at this year’s COP. For those of you new to the climate change world, putting a price on carbon – whether through a tax or cap and trade system – aims to internalize the externality of emitting the greenhouse gas CO2 by making emitting organizations literally pay for their impact on the atmosphere and environment. Europe, which instituted a cap and trade program – the EU ETS – has seen the price of carbon drop significantly below anticipated levels as the economy has slowed and government mandated use of renewable energy has grown. Although it is great that emissions have been curbed, without a higher price on carbon, the incentive to invest in lower carbon technologies (or as Vijai mentioned, CCS) is dramatically reduced.
At the IETA side events, I had the opportunity to sit in on two panels related to the REDD+ program. The United Nation’s Reducing Emissions from Deforestation and Forest Degradation program seeks to reduce emissions in the developing world that result from impact to forests. This may occur in Brazil, as the rainforest is chopped down to make room for cattle farms, or in Indonesia as ancient hardwoods are harvested for luxury furniture in the developed world. Through establishing a REDD+ program, the goal is that public or private sector players in the developed world will buy up the carbon rights to these forests – in this way developed world carbon emissions are “offset” by preventing emissions from forest impact elsewhere; in turn, it provides a competing economic incentive to *not* degrade the forest in the developing world.
The first panel I attended focused on how the private sector has been involved in REDD+. The private sector is critical to the success of the program, and some of the major players’ motivations and some corresponding challenges were discussed:
– One hope coming out of REDD+ would be that these offset carbon credits would be seen as investment vehicles that would be traded in markets, but with the price of carbon currently so volatile, and the true enforceability of “carbon rights” so unclear, there is seen to be too much risk associated with these assets. As such, major financial institutions that initially showed much enthusiasm around the program, such as JP Morgan, have begun to drop off.
– Private companies’ Corporate Social Responsibility (CSR) and voluntary offsetting programs have become a major sources of REDD+ carbon offset purchases. In order to prevent a Greenwashing image, companies will often choose the lowest risk region to invest in deforestation credits. Hoowever, it is the author’s view that this also leads to a potentially lower real impact, as those regions with the lowest risk of deforestation are also probably the least likely to deforest regardless – whether because forests are protected or economically less viable – thereby lessening the actual amount of carbon emissions that has truly been offset.
Considering the ongoing questions around international climate agreements, combined with uncertain land tenure in the developing regions, I have a hard time believing that REDD+ credits are going to find much of a place outside of CSR and personal offsetting. Given that, I doubt that a high enough price to actually have a real impact on forest preservation will be achieved, at least in the short term.