Any excessive dependence on the sale of forest carbon credits could turn out to be problematic

Dear Editor,

Some interesting questions are raised as one looks at the news reports surrounding the new 300 page report ‘Climate Cure’ released by Norway on February 17. It’s targeting emission cuts of 30% by 2020 from 1990 levels. The current emission levels are around 54 million tons v about 50 million tons in 1990, and the report is looking at ways to reduce emissions by 15-17 million tons/ year by 2020.

Herein lie some interesting bits of information and this might all be still evolving, but it does give some insight into the ways they will reduce their carbon footprint. They don’t want to buy more than ⅓ of credits from the likes of Amazon rainforests and other foreign carbon credit purchases, and that category would include Guyana, Brazil, Indonesia and the many other rainforests. It would also include credits via CDM projects, etc, and even the ones bought from the carbon markets. That would further limit forest credits. Even if we assume 100% of their less than ⅓ carbon credit purchases are from rainforests and that Norway buys 0 credits from other sources including 0 from carbon markets, and also assuming that they only buy them from Guyana-like rainforests, that amounts to around 5 million credits per year. At the current carbon pricing, that amount is around US$90 million with credits trading around 13 euros. But then they recognize that forest credits are the lowest cost entry, and most likely these credits are not going to be bought on the carbon markets but in bilateral arrangements as with Guyana, Brazil and others. What share of 5 million carbon credits does Guyana believe it will secure in mutual agreements and what is the current implied carbon pricing per ton?

The document talks about 3 million tons or so absorbed by pine forests, which are most likely to be additional pine plantations, etc, besides current pine tree holdings. And the rest and bulk of the emission cuts will be done locally as well as via carbon capture and storage; reducing oil and gas production related emissions; clean, renewable fuels; electric cars; energy efficiency in buildings, etc, etc − a big list of technologies, energy conservation, etc, and the costs being assigned are as high as 200-250$/ton.

One possibility is that forest carbon credits will keep going up over time, but it would matter little if the country has secured long-term credits at fixed, low prices. If they want to lower emissions and fine emitters locally, there is bound to be a disconnect with the forest credits as that market will only fill part of the emission reduction needs. My guess is that most countries will follow similar routes, and that some, including China, India and to some extent even the US, are already talking about focusing on local solutions, local renewable technologies, local reforestation, etc, etc. Some are calling the Copenhagen agreement dead already, so where does it leave the forest credit markets and plans that rely heavily on them?

There is bound to be a market for them, as over time, these markets will grow, but any excessive dependence on the sale of forest carbon credits can turn out to be problematic.

And one more thing. A comment from the Norwegian Environment Minister quoted by Reuters referred to the 0.25% cut in the projected size of their oil-dependent economy by 2020:  “It means we’d be as rich by Easter in 2020 than we would otherwise be at Christmas” in 2019, Environment Minister Erik Solheim said of the small cut.

Some of the miners, local farmers, Amerindian communities and others who are being told to start adjusting may take objection to this. If it affects Norway’s economy only 0.25%, we all do hope it doesn’t affect them more than 0.25% as they sell their credits and get into arrangements that require a lot of local adjustments.

Situations in the carbon markets and each country’s adoption of climate-change solutions, etc,  are in flux right now, so it’s almost impossible to project the long-term future, but Norway is for sure providing some guidance as to what paths are emerging, and some of those do affect Guyana and its people.

Yours faithfully,
Sanjiv Khosla

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