IUCN Commission on Environmental Law Conference on Climate Change Law and Governance in South Asia – BRICs Law and Policy Dialogue on Climate Change, Sustainable Energy & Biodiversity

Venue: Auditorium, India International Centre Annex, Lodhi Estate New Delhi August 20-21 st, 2010

Carbon offsets and carbon market implications for private sector: Scientific and ethical perspectives on risk

assessment for carbon offset investments

Prof Brendan Mackey, PhDFenner School of Environment & Society

College of Medicine, Biology and Environment

Source of images: http://cdm.unfccc.int/contest/09/pc09_top25.html

Four sources of carbon offset financing

1. Clean Development Mechanism (CDM)

2. Reducing Emissions from Deforestation and Degradation (REDD)

3. Voluntary Carbon Offset Schemes

4. National (Regional) Mitigation Policies (e.g. cape & trade scheme)

e.g. The CDM allows emission-reduction (or emission removal) projects in developing countries to earn certified emission reduction (CER) credits, each equivalent to one tonne of CO2. These CERs can be traded and sold, and used by industrialized countries to a meet a part of their emission reduction targets under the Kyoto Protocol.

The justification for ‘offsetting is that it stimulates sustainable development and emission reductions, while giving industrialized countries (or coorporations) some flexibility in how they meet their emission reduction limitation targets

CDM (LULUCF), & REDD provide opportunities for public and private, formal and informal carbon offset investments in ‘AFOLU’ projects

Source: Karan Capoor and Philippe Ambrosi (2009) STATE AND TRENDS OF THE CARBON MARKET 2009. The World Bank, Washington DC

So far, China has lion share of CDM investment…

Source: Karan Capoor and Philippe Ambrosi (2009) STATE AND TRENDS OF THE CARBON MARKET 2009. The World Bank, Washington DC

…and only 0.1% CDM investments in AFOLU

…Because risks are considered high

1. Risks of mitigation perverse outcomes‘…concerns about permanence of reductions, accuracy of monitoring and about “flooding the market” continued to keep LULUCF assets outside the EU ETS, as well as the proposed AU ETS and NZ ETS. Meanwhile, even governments, which have the ability to use a limited amount of LULUCF, have barely acquired any of these assets…’ (Capoor and Ambrosi 2009)

2. Risks of sustainable livelihoods perverse outcomese.g. where carbon offset projects harm local communities e.g. through loss of ecosystem services from land conversion or water diversion

3. Risks of biodiversity perverse outcomes e.g. where carbon offset projects result in loss of wildlife habitat

Solution: factor in (i) what science says we need to do & (ii) what ethics says we should do, in arriving at climate change policies and measures.

How minimize risks of carbon offset AFOLU projects?

These risks apply whatever the scheme (CDM, REDD, National C&T, Voluntary)

But, there are limits to extent risks can be dealt with in UNFCCC CoP decisions (i.e. international law) as there is pressure to exclude ‘non-climate change issues’ (!)

What is ethics saying we should do?Acting ethically requires that we give due consideration to the impact of and potential for harm from our actions on ‘others’ for whom we are morally responsible. In the context of climate change, the ‘actions’ are mitigation policies and measures and the ‘others’ include the greater community of life (people in all nations, future generation, and ultimately other species).

The UNFCCC contains ethical principles which Parties have a legal obligation to consider when negotiating policies and measures (principles are echoed and expanded on by Earth Charter, UDHR, UNDRIP):o The prevention principleo The precautionary principleo The right to sustainable developmento The ecological integrity principleo The recognition of common and differentiated responsibilities and capacities

These principles can be used to frame evaluation of whether carbon offset projects may result (or are resulting) in perverse outcomes w.r.t. mitigation, sustainable livelihoods, and biodiversity

What is science saying we to do?

The life-time in the atmosphere of the air-borne fraction of a pulse of fossil fuel C02 is about 300 years for the first 75% and many thousands for the remaining 25%

The black curve shows the ‘pulse-decay’ function which captures the overall carbon dynamics of the Bern global carbon circulation model. Sources: Prentice et al. (2001) IPCC TAR Chapter 3; Archer et al. Annu. Rev. Earth Planet (2009)

0

0.2

0.4

0.6

0.8

1

1.2

0 100 200 300 400 500 600 700

Time (years)

% d

ecay

C0 2

pu

lse

Approaches zero ~30K yr

Life-time in the atmosphere of the air-borne fraction of a pulse of fossil fuel C02. The black curve shows the ‘pulse-decay’ function which captures the overall carbon dynamics of the Bern global carbon circulation model

The corollary is that…

1. A carbon offset project should be treated as a ‘once only’ and ‘forever’ activity. If it not, then the mitigation value of the project should be proportionally reduced

3. There are tradeoffs as many human land uses cause land carbon emissions, deplete ecosystem carbon stocks, and prevent the accumulation of dense organic carbon stocks

Source of images: Sarah Rees, Ern Mainka, Brendan Mackey

2. If the offset is an AFOLU project on previously cleared land, then ‘time since clearing‘ should be factored in as land clearing creates a carbon debt

With the mix of possible, feasible and appropriate land mitigation activities varying with national context and circumstances

…and

4. Therefore, we can rank AFOLU offset activities in order of the long term mitigation benefit they provide:

1. Protection of primary forest (avoided emissions)

2. Ecological restoration of natural forests (repaying carbon debt)

3. More sustainable management of production semi-natural forests

4. Plantation forestry

5. Improved agricultural/agro-forestry practices (e.g. >soil C)

Life-time in the atmosphere of the air-borne fraction of a pulse of fossil fuel C02. The black curve shows the ‘pulse-decay’ function which captures the overall carbon dynamics of the Bern global carbon circulation model

Elements of a risk management strategy for land carbon offset projects…

1. The ecosystem-based approach addresses both the scientific and ethical imperatives

o ‘Permanent’ in that ‘ecosystems are forever’

o Most dense and stable kind of carbon stocks

o Both of which are derived from the resilience and adaptive capacity that biodiversity confers on ecosystems

The Ecosystem(-based) Approach has been recognized by CBD and the special mitigation values of natural forest ecosystems is part of REDD negotiations

Elements of a risk management strategy for land carbon offset projects…

2. Co-benefits are a primary not a secondary consideration

o If a carbon offset project does not generate co-benefits then it will probably cause perverse outcomes (mitigation, sustainable livelihoods, biodiversity), potentially resulting in liabilities for the investor

Carbon Offset Project

Decision

Health ofPeople &

Communities

Healthy Planet &Sustainable Ecosystems

Figure adapted from: Stephen Boyden, 2008, Our place in nature: past, present and future

UNFCCC CoP as a ‘law making body’ !?

Figure sourced from Mackey B. et al. (in prep.) In the carbon confusion post-Copenhagen, does the world needs a new universal policy instrument for land carbon emissions

Future of KP (and thus CDM) and REDD subject to ongoing negotiations on texts:

o Will safeguards against perverse outcomes be noted and if so specified as ‘requirements’ or ‘advisory?

o Will the special mitigation qualities of ecosystems and biodiversity be recognized or lumped in with large scale industrial land uses such as plantations?

o Will we get comprehensive AFOLU rules to cover all ecosystems, e.g. wetlands

o Will there be enforceable penalties for non-compliance?

What will the implications be of these decisions (new international climate change law) for carbon offset investments

and their risk management?