Fossil fuel tariffs and forest carbon offsets


The promise that forest carbon credits will provide a fresh source of funding for reforestation, forest health restoration and conservation, remains unfulfilled.  National carbon market mechanisms are scarcely buying. The European Union’s (EU) Emission Trading System (ETS), which was designed to make it easier for industry to stay under their emission caps, had the EU environmental community lobby effectively against forest related offsets from developing countries, because they would delay direct industry reductions (e.g. delay gas replacing coal).  New Zealand was the first Kyoto nation to put forests on its account helping to define key climate negotiations. New Zealand’s reforestation, conservation, ecosystem and agriculture restoration projects were the first to finally make a few trades in the ETS.

Canada withdrew from their Kyoto commitments (like the US who never ratified) but claims to uphold the global Copenhagen Accord, whose core commitment is to avoid 2Co warming. The Kyoto Protocol only included 23% of global emissions, while the Copenhagen Accord includes developing nations like India, Brazil, and the largest emission nation, China, representing over 80% of global emitters.

What it means to avoid 2Co warming was given a sharper definition in Bill McKibbon of’s article in the Rolling Stone. The world is at .08Co warming now with worse consequences than scientists projected. To stay below 2Co warming total future global emissions have to be limited to CO2e 565 gigatons. With 2011’s emissions of 31.6 gigatons and annual increases of 3%, 565 gigatons will be hurdled by 2028. Sixteen years is not a lot of time.

There are known proven coal, oil and gas reserves of 2,795 gigatons of CO2e. Fossil energy companies spend hundreds of billions annually exploring adding to these total reserves. McKibbon quotes Nick Robins, HSBC's Climate Change Centre, "The regular process of economic evolution is that businesses are left with stranded assets all the time. Think of film cameras, or typewriters.”

To keep 80% of today’s known reserves in the ground will result in a US$20 trillion write off in coal, oil and gas assets on energy company books. There can be no tougher climate action opponents than these energy companies. With the citizens of all developed nations as carbonaholic customers, of course many national governments are in close partnership with these petrochemical companies.

Mitigation markets can work. The nightmare scenario of a planetary surface irradiated with Ultraviolet B was avoided by the 1987 Montreal Protocol.  Scientists proved unequivocally that a disastrous future would follow from the continuous use of ozone depleting substances like CFCs.  Consumer response was followed quickly by policy makers and very quickly over 98% of 100 ozone depleting chemicals were eliminated from both industrial production and domestic use.

Markets create first mover opportunities. The US was the dominant economic superpower in the 1980s, but before the 1987 Montreal Protocol, only 5% of refrigerant production remained in the US. Production had been outsourced to developing countries. By imposing a few elegant environmental trade tariffs in the early nineties requiring HCFC refrigeration, the US recaptured 95% of the manufacturing for its refrigerant demand.

China, Japan and Korea are imposing fossil fuel import tariffs that may make it impossible for developed nations to abandon the Copenhagen Accord. Apparently, the US’s Montreal Protocol strategy to reclaim refrigerant manufacturing was not lost on the South East Asian countries of Japan, Korea and China. On October 1, 2012, Japan’s carbon tariffs on the production emissions from all imported oil, gas and coal increased to approximately US$17/tonne CO2e. In 2013, South Korea and China plan to impose much higher tariffs.

Japan has properly prepared for World Trade Organization (WTO) challenges to its CO2e tariff, with its strong climate commitment and new initiative to sell full Greenhouse Gas (GHG) life cycle accounted products. China has already become the global supplier of solar and wind power products. Soon it will be able to use these tariffs to further consolidate its global product market dominance. EU tariffs on US airlines flying into the EU are being challenged by the US Congress. California’s tariffs on imports from other states, including states and provinces in the Western Climate Initiative, are being challenged by some states as unconstitutional. The courts may secure these states the right to keep these funds by allowing local forest or agriculture offsets.

The outlier nations, the US and Canada are major energy exporters to Japan, S. Korea and China, as is Australia. Within a year or two these tariffs will amount to billions in wealth transfers. Tariffs provide the most tangible potential sources of funding for forest and agriculture offsets. It remains to be seen if these wealth transfers can be recaptured through direct nation to nation or broader trade negotiations through the WTO or the Copenhagen Accord.

A global atmospheric cap of 550-600 gigatons will add impetus to new investment in exploring for cleaner fuels like natural gas and alternative energy. A global cap on total atmospheric CO2e can also bring reforestation, ecosystem restoration and conservation offsets into focus.  Terrestrial sinks like these remove atmospheric CO2 and offer a large scale solution to easing the painful transition out of fossil fuels with a multitude of spin-off benefits. China has committed to increase forest cover by 40 million hectares and forest stock volume by 1.3 billion m3 by 2020.

Climate credits alone can never pay for reforestation, ecosystem restoration or conservation. The internal rate of return from timber production for forest plantations is, at best, about 6% in temperate regions and 12% in tropical or moist semi-tropical regions. Because carbon credits can add 1-2% to eligible projects, it helps qualify projects for investment.

Integrating timber returns with bioenergy’s climate values which utilize former forest waste, increases the rate of return on investment. REDD+ (conservation projects) cannot stand alone without a buffer zone of restoration and agriculture programs offering sustainable development to local communities, thus taking the pressure off tree-poaching. REDD+ or conservation credits can add early returns to reforestation or agroforestry projects with a longer investment return horizon. Flood and fire planning can protect communities and integrate with ecosystem health management.

SE Asia’s climate tariffs may help connect regional mosaics of linked sustainable land use change planning. To optimize it, each core value requires its derivative: timber requires bioenergy; conservation requires agroforestry; biome health requires flood and fire planning; land use change requires monetizing carbon benefits, because climate change has defined the key principles for measuring other mitigation measures, like fresh water, biodiversity and pollution. It is when land use planners take all of this together that a global scale forest and soil restoration program like China’s comes into focus.