The carbon market is growing in leaps and bounds. It is now worth EUR 25 billion and over 1.4 billion tons of CO2 in traded volume. How much of this is benefiting conservation?
Compliance vs. voluntary markets Not much is the answer. Political decisions to limit land use activities in the Kyoto Protocol’s Clean Development Mechanism and to prohibit land use carbon credits for compliance in the EU Emissions Trading Scheme (ETS), the world’s largest CO2 trading regime, have severely dampened demand amongst utilities, governments and financial players in Europe.
Only in Japan do corporations show any appetite but even there the dearth of projects (only one land use project is now CDM registered out of some 600 in total) and the complex crediting framework for these types of projects means that to date no transaction for the compliance market has been executed with the notable exeption of those done through the specialized World Bank BioCarbon Fund previous article.
In the voluntary carbon market where corporations look for social and environmental benefits in addition to carbon offsets, there is stronger demand for land use projects. About 50% of this segment is reportedly made up of land use projects but prices are roughly half those in the compliance market and traded volumes are only a fraction (EUR 30 million) (1).
Paying attention to renewables Far less attention has been paid to the biodiversity impact of hydro, biomass and other renewable projects developed under the CDM, which effectively provides a subsidy to these otherwise marginally attractive investments. Nearly 60 percent of the 600 registered CDM projects are renewables and another 1050 of the some 1800 projects currently in the CDM pipeline also fall into this category. The CDM registered renewable projects are expected to generate about 150 million tons CO2 until 2012 with a market value of roughly EUR 1.5 billion. The ones in the pipeline will deliver more than double that volume of Certified Emission Reductions.
Within this category, the project type most likely to impact biodiversity is small / medium hydro: there are about 100 of these CDM registered, and another 250 or so making their way towards registration. Of the registered projects, three-quarters of them categorized as ‘run of river’ — a loose term covering a range of project sizes that does not involve dam construction. Many of these projects are small enough to be exempt from national requirements for environmental impact assessments and the conservation movement tends to hand these projects a free pass on the assumption that numerous small projects are better for the environment than a fewer number of large dams.
Within the EU ETS, hydro projects with a capacity above 20 MW are required to comply with the World Commission on Dams (WCD) criteria (2) but, in many developing countries, particularly those where CDM hydro is popular, the frameworks for WCD implementation are not fully in place. Because CDM projects are discouraged from taking public funds, the environmental safeguards set out by donors and funding agencies, which would otherwise set standards, are not applicable.
As many hydro projects are only now starting implementation, it is impossible to evaluate the conservation impact, positive or negative, but it is worth examining whether biodiversity is really better off as a result of hundreds of small / medium sized hydro projects being fostered by the CDM.
Reviving the debate Another project type with potential biodiversity consequence is biomass energy, where either residues and waste material are used for energy production, including bagasse, palm oil solid waste or agricultural and forest residues, or biomass from dedicated plantations is applied for electricity generation. While many of these projects are based on extensive land cultivation, the carbon component, through the use of residual material or the applicability of plantations only on highly degraded lands, cannot be expected to substantially impact biodiversity directly. On the other hand, it is worth looking closer at whether carbon revenues extend the primary business of agricultural companies, i.e. whether the carbon revenues increase the pressure to grow cash crops on natural lands.
The debate over whether the carbon market could be used to further conservation objectives has fallen silent since the heady days of the Kyoto Protocol negotiations when conservationists battled amongst each other.
We say it is worth reviving that debate, in light of the several hundred projects now coming through the CDM to see if clean energy production and biodiversity conservation have really gone hand in hand, and what can be done on a practical level to both harness the conservation opportunities whilst minimizing the impact in the rapidly growing carbon market.
Brett Orlando is Director, Environmental Financial Products,
Deutsche Bank and
Joachim Sell is Project Manager,
Factor.
(1) Overseas Development Institute, 2006
(2) http://www.unep.org/dams/WCD
Disclaimer. The opinions or recommendations expressed in this article are those of the author and are not representative of Deutsche Bank AG as a whole. Deutsche Bank does not accept liability for any direct, consequential or other loss arising from reliance on this article