Carbon Trading. The Writer Examines

¶ … carbon trading. The writer examines whether corporate carbon trading can effectively save the rainforest. Within that context the author explores current environmental law and argues that they will lead to a demand on businesses to reduce or offset their co2 emissions. The writer discusses the difficulty that many businesses will have complying with the law and restrictions. In addition the environmental damage will increase which will in turn make for stricter laws. The final argument in this paper is that it will be more cost effective to save the rainforest as a co2 offset than for the rainforest to be taken down for their wood use.

Using Corporate Trading to Save the Rainforest

Why the rainforest is more valuable as a constant asset than a temporary wood supply"

Introduction

As the world continues to globalize, attention turns to the planet's rainforests and their future. Ecological groups have pitted themselves against large corporations for years regarding the forest and its value to the planet. Corporations are busily cutting down trees for commercial purposes while ecological groups are fighting to get it stopped because of the value the forests give the world by way of protection of wildlife. In recent years a new development has made the argument about conservation more valuable than ever. Carbon trading is a growing topic of debate when it comes to rainforest issues worldwide.

Providing the ability carbon trade between nations, and putting that responsibility on businesses world wide will alleviate future ecological issues currently being faced. Carbon trading is a more efficient and long lasting answer when it comes to the future of the rain forest. It has a longer and more deep rooted value than wood cutting does because carbon trading does not involve the immediate destruction of wildlife and animal life.

History

Before one can begin to analyze the value of carbon trading, one must first have an understanding about the rainforests.

Rainforests provide cover and home for more than 50% of the world's living species. No other natural resource can claim such high numbers for the purpose of providing a living environment.

Other facts surrounding the rainforest controversy include:

More than 50% of the Earth's species live in tropical rainforests. (10) typical four-square-mile patch of tropical rainforest contains up to 1,500 species of flowering plants, 750 tree species, 125 mammal species, 400 bird species, 100 reptile species, 60 amphibian species, and 150 butterfly species. (3)

At least 25% of all modern drugs came originally from rainforests. (7)

Over two thousand tropical plants have been identified by scientists as having anti-cancer properties (Rainforests (http://www.rainforestweb.org/Rainforest_Information/Rainforest_Data_and_Research/?state=more).

Global deforestation is becoming a growing problem in the world. Statistically more than half of the world wood consumption is done by only 22% of the world population. Nations in Europe, America and Japan are responsible for the exploding growth that has been seen in wood consumption.

Worldwide, industrialized countries consume more than twelve times more wood products per person than non-industrialized countries.

Industrial logging is one of the primary causes of global deforestation. According to the World Resources Institute, 78% of the world's original frontier forests have already been destroyed or degraded, much within the past three decades. Industrial logging poses the greatest danger to the world's remaining old growth forests. Not only does logging convert ancient ecosystems to pulp, wood and paper products at an alarming rate, but industrial logging also creates indirect but damaging impacts (Rainforests (http://www.rainforestweb.org/Rainforest_Information/Rainforest_Data_and_Research/?state=more)."

The Amazon rainforest alone is currently experiencing the fastest rate of destruction in its history. Brazil's economic recovery and agricultural boom are contributing factors to the increased demand for wood and the increased destruction ratio of the rainforest.

An estimated 26,130 sq km of forest were destroyed - an area almost the size of Belgium - in the 12 months to August last year, according to data issued this week by the ministry of environment. That is a 6 per cent increase over the previous period and the second-highest rate in the Amazon since measurements began in 1988.

The results are likely to refocus international attention on the government's efforts to curb destruction of the world's largest source of fresh water, carbon absorption and biodiversity (Amazon rainforest destruction at 10-year high

By Raymond Colitt in Sao Paulo Published: May 20, 2005 03:00 | Last updated: May 20, 2005 03:00 (http://news.ft.com/cms/s/4ea07b74-c8cd-11d9-87c9-00000e2511c8.html)."

Rain forests cover less than two percent of the Earth's surface, yet they are home to some 50 to 70% of all life forms on our planet. The rain forests are quite simply, the richest, oldest, most productive and most complex ecosystems on Earth (Rainforest (http://earthrenewal.org/rainless.htm)."

Experts agree that 90% of the rainforests will be destroyed by 2011 if something is not done to slow the destruction.

According to projections by James Alcock, a professor of environmental sciences at the Abington campus of Penn State, Amazonian rain forests could reach a "point of no return" by 2011-2016 if deforestation continues at the present rate of about one percent a year. The model further shows that rain forest in Brazil could be wiped out entirely within 40 to 50 years (Rainforest (http://earthrenewal.org/rainless.htm)."

Some facts that must be considered include:

Forest destruction from 1995 to 2000 averaged almost two million hectares a year, equivalent to seven football field a minute, and is comparable to the 1970s and 1980s, when forest loss in the Amazon was catastrophic. See: "Smithsonian Researchers Show Amazonian Deforestation Accelerating."

6-9 million indigenous people inhabited the Brazilian rainforest in 1500. In 1992, less than 200,000 remain.

In a four mile by four mile square of Brazilian tropical forest there are over 750 species of trees, 125 species of mammals, 400 species of birds and 100 species of reptiles. Most of these species are found nowhere else in the world. There are as many species of ants in a single Peruvian tree than in the entire British Isles (43).

Distinguished scientists estimate an average of 137 species of life forms are driven into extinction every day, or 50,000 each year (Rainforest (http://earthrenewal.org/rainless.htm).

In the time it takes to read the above statistics, approximately 150 acres of rainforest were destroyed. Within the next hour approximately six species will become extinct. While extinction is a natural process, the alarming rate of extinction today, comparable only to the extinction of the dinosaurs, is specifically human-induced and unprecedented. Experts agree that the number-one cause of extinction is habitat destruction. Quite simply, when habitat is reduced, species disappear. In the rainforests, logging, cattle ranching, mining, oil extraction, hydroelectric dams and subsistence farming are the leading causes of habitat destruction. Indirectly, the leading threats to rainforest ecosystems are unbridled development, funded by international aid-lending institutions such as the World Bank, and the voracious consumer appetites of industrialized nations. If deforestation continues at current rates, scientists estimate nearly 80-90% of tropical rainforest ecosystems will be destroyed by the year 2020(Rainforest (http://earthrenewal.org/rainless.htm)."

One of the concerns globally when it comes to the future of the world and its environment is the greenhouse effect. The CO2 levels have increased dramatically over the past few years (Nagle, 2003).

The build-up of greenhouse gases is a major concern in terms of global warming. CO2 levels have risen from about 315 parts per million (ppm) in 1950 to about 360 ppm in 2000 and are expected to reach 600 ppm by 2050. The increase is a result of human activities such as burning fossil fuels (coal, oil, and natural gas) and deforestation (Nagle, 2003).

Deforestation of the tropical rainforest is a double blow. Not only does it increase atmospheric CO2 levels, but it also removes the trees that convert CO2 into oxygen (Nagle, 2003)."

Recent studies have determined that the rainforests' ability to convert CO2 is diminishing through the deforestation process and that the decreased ability to convert is the cause of the increasing carbon dioxide levels that the world is experiencing (Scientists, 2004).

SOLUTIONS

There are several potential options that are being argued worldwide to save the rainforests. One of those is to put severe limits and penalties/costs on the deforestation that is currently occurring worldwide.

If the world has to pay premium penalties for using more wood than allotted with strict new guidelines it will be encouraged to locate alternate sources of help for the wood need.

While this sounds like an excellent idea initially one must consider the laws and how those laws will impact small business worldwide. With emission laws becoming more strict than ever before many small companies are finding that they cannot keep up financially and are being choked out of business because of it.

Another option to look into is carbon trading. As the laws become more strict and small business as well as large business try to comply it will be important to locate a new avenue of relief. Carbon trading allows all parties involved to benefit. Trading emissions appears to be a win solution regarding the rainforest future.

This carbon trading is a Europe-wide effort to use supply-and-demand to control emissions and protect the climate, in the spirit of the Kyoto Protocol.

But the supply far outstrips demand, Europeans are finding. The climate of this marketplace itself is decidedly cloudy. Advance prices have plunged by half.

At this point, one shouldn't portray it as a liquid, vibrant market," said Atle C. Christiansen of PointCarbon, a Norway-based research firm (Climate, 2004).

More than six years after governments negotiated the historic climate accord in Kyoto, Japan, the world is taking only halting steps _ not always forward, never in unison _ to follow through (Climate, 2004).

In fact, the Kyoto treaty itself is not yet in force, since it hasn't been ratified, as required, by industrial countries emitting a total of 55% of "greenhouse gases," such as carbon dioxide, that trap heat in the atmosphere that Earth otherwise would give off.

Russia's expected accession later this year would clear the 55% hurdle. But even a functioning Kyoto agreement would have little impact: Its limited reductions would barely slow the greenhouse buildup, and the biggest emitter, the United States, would remain outside the treaty (Climate, 2004)."

In the meantime scientists keep a watchful, wary eye to the future of carbon trading in the hopes that it will provide much needed relief.

If carbon dioxide had a color, if people saw the sky getting darker, people would have no problem recognizing what's going on," said climatologist David Pierce of San Diego's Scripps Institution of Oceanography.

What's going on is that the world's daily output of man-made carbon dioxide, from burning coal, oil and other fossil fuels, is 11% greater today than a decade ago. Under Kyoto, industrial nations were actually supposed to be cutting back greenhouse gas discharges, to 8% below 1990 levels by the year 2012.

The planet, meanwhile, is warming. Global temperatures rose almost 1 F (almost 0.5 C) from 1981 to 1998, NASA scientists report.

If greenhouse emissions aren't cut back soon, temperatures could rise many degrees more, expanding oceans, causing drought, intensifying storms and altering climate in other predictable and unpredictable ways, say scientists of the U.N.-organized Intergovernmental Panel on Climate Change (Climate, 2004).

As the mercury rose in recent years, so did U.S. political opposition to reducing power-plant and car-exhaust emissions, imposing energy taxes or taking other steps to try to stabilize the atmosphere. Higher energy and other costs would seriously damage the economy, it was said.

Economic analyses ranged widely, from a projected annual cost of $112 per U.S. family to comply with Kyoto, to $2,700 a family, with heavy U.S. job losses. Environmentalists said dire projections didn't factor in the costs _ to coastal states, agriculture and other sectors _ of doing nothing, or the job growth in new energy industries (Climate, 2004).

It is hard to think of a public policy issue that is harder than this one," said American economist Jeffrey D. Sachs, who has studied climate's complexities.

But he and others say any ultimate plan must include "cap-and-trade" _ schemes whereby emissions caps are imposed, and companies that emit less gas than allowed can sell unused allotments to others who overshoot the target. The profit motive is expected to drive efforts and technology to rein in emissions."

Europe put laws into effect that allowed the EU nations to trade carbon through a plan called KYOTO Protocol (Climate, 2004).

Now, whether the treaty takes effect elsewhere or not, Europe must reduce greenhouse emissions overall to 8% below 1990 levels by 2012, via formulas distributing the burden to individual countries. It has made progress, but slowly: Emissions are 2% less than in 1990, thanks largely to big reductions in Germany and Britain (Climate, 2004).

To kick off trading, national governments are allocating carbon dioxide quotas to some 12,000 plants across the continent _ from power plants and oil refineries to paper and cement factories (Climate, 2004).

Those permits and the ability to trade them, as of next Jan. 1, are what will draw company reps and technology salesmen, legal experts and would-be dealers to Cologne for CarbonExpo (Climate, 2004).

As national allocation plans were announced, however, the "hot air" market lost some of its bounce.

Germany's pacesetting plan, in particular, deflated expectations: In its first round, Berlin shaved just 2 million tons off current annual output of 505 million tons of carbon dioxide gas. Following the German lead, other EU governments also drafted lax emissions plans (Climate, 2004).

With hundreds of millions of tons of quotas issued, but relatively little need for anyone to buy them, speculative prices on the carbon market slid by nearly half, from about $16 per ton of CO-2 in January (Climate, 2004)."

As for carbon trading's future, "we have to move one step at a time." And some "encouraging" steps are being taken even on the other side of the Atlantic, she pointed out (Climate, 2004).

Quietly, with the support of both Democratic and Republican governors, 10 states in the U.S. Northeast are developing their own regional "cap-and-trade" plan for power plants and carbon dioxide, to be unveiled in April 2005.

Some see it as a potential "backdoor Kyoto," a seed for U.S. national action _ even for carbon trading between Europe and American states _ in defiance of the Bush administration (Climate, 2004).

In Washington, meanwhile, a frontdoor Kyoto has been offered on the floor of the Senate, where Sens. Joseph Lieberman, D-Conn., and John McCain, R-Ariz., have proposed legislation to cap U.S. greenhouse emissions at 2000 levels by 2010, and create an emissions trading system (Climate, 2004).

Making it a corporate issue

Carbon trading can offer solutions that are longer lasting and more permanent than other options when it comes to saving and preserving world resources.

A potentially controversial report concludes that deals to counteract the carbon emissions of the smokestack industry could benefit more than the environment. It reveals that carbon-trading deals in forestry could sharply reduce poverty among the rural poor, while also providing businesses with an inexpensive way to "off-set" their carbon emissions. The research counters the view that most carbon-trading deals between industry and tree growers in developing countries will have negative environmental and social consequences.

Carbon trading has major benefits to the corporations that participate in the trading. Carbon trading allows the industries in the developed nations that are causing the worldwide emission issues to off set those emissions of carbon dioxide by investing in reforestation projects in underdeveloped nations worldwide.

A recent study concluded that carbon trading is a vital tool in the rebuilding of the forests and their resources. The report argues that carbon projects could potentially recover habitat on millions of hectares of heavily populated forest and farmlands. "This would bring social, economic, and local environmental benefits to hundreds of thousands, and potentially millions, of poor rural people in the developing world," said David Kaimowitz, Director General of CIFOR. "Our report shows for the first time that deals between industry and community tree growers may be one of the least expensive ways for companies to off-set their carbon emissions," said Sara Scherr, Senior Policy Analyst at the Washington, D.C.-based Forest Trends and co-author of the report. "If companies invested in such deals, this could mean a huge number of private sector dollars being invested in poor rural areas."

Experts warn that carbon trading efforts cannot succeed without the efforts of world businesses.

In addition worldwide efforts to allow corporate carbon trading will provide many avenues of environmental protection. These will include:

Make all types of forestry and agroforestry projects with significant benefits for local communities eligible for the Clean Development Mechanism (as long as they also meet rigorous requirements for carbon benefits). For example, draft rules omit forest rehabilitation as an approved activity despite its enormous social benefits and significant carbon-sequestration potential.

Reduce risks for local communities. The rules should require assessments of the social impact of projects to ascertain how local people have benefited or been harmed. National governments will need to protect and formalize land tenure rights of communities, or carbon deals will be riddled with conflict, increasing their financial risk for investors.

Reduce the cost of managing community projects. Private businesses and NGOs can act as intermediaries to combine the carbon offsets produced by multiple farmers or communities and sell them jointly to buyers. For example, in Mexico, a local environmental organization helped to organize 400 small-scale farmers in 20 communities to sequester carbon by planting trees around their crop fields. With the NGO acting as the intermediary, the farmers sold carbon credits equal to 17,000 tons of carbon to the International Federation of Automobiles for between U.S.$10 and $12 per ton of carbon. The CDM rules should make all community-based forestry projects eligible for the low-cost "fast-track" approval process.

Reduce risks and costs for investors. The report notes that there are new players in the carbon-trading field who can simplify deal making and reduce the costs of organizing and marketing community tree-growing projects. For example, industry buyers are now able to purchase carbon offsets from investors who have portfolios of projects, which spreads risk. The independent, non-profit Face Foundation has developed a portfolio of five projects in five countries, affecting 135,000 hectares (333,450 acres) that sequester 21 million tons of carbon.

Laws on an international level are being implemented regarding carbon trading.

The European Union put together a plan that will allow buying and selling rights to emit carbon from industrial facilities.

The new program has emerged out of a directive adopted by all the EU countries. They decided to set up an approach that would meet the Kyoto targets, independent of whether the agreement is ratified internationally. For Kyoto to take effect, either the United States or Russia must agree to its terms, in addition to the nations that already have done so. President George W. Bush has said his administration will not agree to it and the Russian response is pending and uncertain.

Emissions trading, which is included in the treaty as a mechanism to reach the Kyoto targets, is an attempt to internalize the costs of pollution -- to avoid the so-called tragedy of the commons, as coined by philosopher Garrett Hardin in 1968.

With the trading scheme, emitting carbon -- in the form of carbon dioxide, the chief greenhouse gas -- becomes a cost of doing business, instead of a free byproduct. Essentially, each nation sets a cap on its carbon emissions, and each emitter is given a permit to put a specified amount of carbon into the atmosphere.

To initiate a new emitting facility, individual companies either must find a way to reduce existing emissions when they hit their cap -- by closing inefficient plants or installing new technology -- or by buying the right to emit CO2 from another company that has cut its own emissions or otherwise has excess rights.