European Commission on forests and carbon markets: “in the end we have to have the market”

The EU outlined its plans for carbon markets in relation to forests at a press conference today (5 December 2008) in Poznan. The EU aims “to halve the total forested area loss in the tropics by 2020, and to halt the global forest cover loss completely by 2030 at the latest” and estimates that this will cost somewhere between €15 and €25 billion a year.

A “global forest carbon mechanism” is to be established to fund this, followed by “a pilot scheme to test the inclusion of forest credits in carbon markets, which could be used by governments to achieve their compliance.”

One potential source of cash for the global forest carbon mechanism is from auctioning of emissions allowances, noted Jurgen Lefevre from the European Commission. He estimated that the aviation sector could generate from €0.5 billion to €1 billion. But as the questions came, the cash from aviation emissions seemed mysteriously to disappear.

The problems that the European Commission noted in its Communication in October also seem to have disappeared, at least according to Lefevre. The EC Communication described several dangers associated with including carbon from forests in carbon markets, including “market flooding” with carbon credits from forests, “unresolved monitoring, reporting, verification and liability questions”.

EU Press conference

UNFCCC Poznan, 5 December 2008

Brice Lalonde, French Delegation: Forest issues are ones that the EU would like to make progress on as soon as possible. Deforestation is responsible for up to 20% of world GHG emissions and, because of deforestation, some countries which are not industrialised figure in the top 10 emitters globally. The scientists tell us that forests could store, each year, 1 gigaton of CO2, but instead of storing 1 gigaton they are emitting 1.6 gigatons. So that is the task, to pass from one figure to another.

The forest discussion is presently on two tracks. One, is how do you manage LULUCF [Land Use, Land Use Change and Forestry], land use management and forestry, in the next period of engagement of the annex 1 countries. Second, how do we reduce deforestation directly, and forest degradation, and how could we increase the stocks of carbon in developing countries?

REDD is very promising, very exciting – especially for all the people who have been trying for a long time to reduce deforestation. Either you reward efforts of reduction that are quantified. We need to compare the results with a baseline. That is fairly difficult to achieve, to assess what is the baseline. Or either you directly finance efforts to avoid deforestation.

Yesterday the Council of [EU Environment] Ministers have adopted conclusions on fighting deforestation and welcoming the communication of the EU Commission on avoided deforestation.

The questions still pending here are: what mechanisms do we cover? The second question is how do we finance it? That is also a complicated question. Either you start with market, some say that is not ready. Our position is to start with public money and after that you have the market – because the money you need is a big increase. So here we are trying to get a consensus with the conclusion of the chair of SBSSTA (the scientific body of the convention), which is where the avoided deforestation issue is discussed. And we would like then to have this discussion central to the LCA discussion.”

Jurgen Lefevre, European Commission: Yesterday we had meeting of EU environment ministers in the Environment Council which adopted a set of conclusions on deforestation that were made in October.

We think that tackling tropical deforestation is essential – deforestation accounts for some 20 per cent of global emissions. The EU’s aim, yesterday endorsed by EU environment ministers, is to halve the total forested area loss in the tropics by 2020, and to halt the global forest cover loss completely by 2030 at the latest. A significant and ambitious challenge, but we think it is an achievable challenge.

Indeed, the Commission´s communication in October estimated that this would cost €15 to €25 billion per year. A significant amount of money, and one of the key challenges is to finance this.

The commission proposed the creation of a new international mechanism called the global forest carbon mechanism to fund this. The EU’s approach is to use such publicly funded mechanisms to reward developing countries for emissions reductions.

EU environment ministers had a first discussion. They agreed that the auctioning revenue of the allowances of the aviation industry that is coming under ETS from 2012 can be used to pay for deforstation. The inclusion of the aviation sector in the ETS was agreed upon earlier this year, with an obligation to auction 15 per cent of allowances. This could generate from €0.5 billion to €1 billion.

By linking it to auctioning revenues we already have a link to the carbon market. Some of the discussions ongoing now are also discussing the extension of this use of auction proceeds to include auctioning across all sectors of the EU Emissions Trading System. Obviously the EU proposals don’t stop there. We need a comprehensive approach, and the EU Commission will elaborate this at the end of January, as part of its larger financing package for deforestation, and other mitigation and adaptation areas.

The EU sees this as performance-based funding, and we will need to verify those emissions cuts. In terms of the links to the carbon market, what we have seen in the conclusion of the EU ministers’ meeting is that we are cautiously optimistic about providing those links.

There is also a possibility to link it directly with the carbon market. Once the global forest carbon mechanism is up and running we could start a pilot scheme to test the inclusion of forest credits in carbon markets, which could be used by governments to achieve their compliance. It is also important to underline that, in light of experiences of pilot scheme the EU is also open to allowing companies in the EU ETS to use forest credits, in the medium to long term.

There will be a side event in the EU Pavilion on 11 December where EU Environment Commissioner Dimas will participate, to discuss more on our position on deforestation.

Question: You say the EU ETS revenues from aviation credit auctioning will fund €0.5-€1 billion, and that €15 to €25 billion is the estimated need. How is the gap going to be made up?

Brice Lalonde, French Delegation: […] The EU as part of its climate and energy package has agreed to use the revenues of auctioning for a range of sources, and that range of purposes includes tropical deforestation. The Environment Council reaffirmed that it would want to use part of those revenues without specifying exactly which part. This broader debate on the various sources will happen as part of the bigger discussion on the finance package.

Question: So if the revenues from aviation will be used for a range of purposes, what you are talking about is going to be less than the €0.5-€1 billion. You also spoke yesterday of using public funding to address the first gigaton, and then to use markets, but today you quote a figure of 1.6 gigatons. Is your assumption, then, that this gap in funding will be met by the market?

Brice Lalonde, French Delegation: It is fair to say that this will not be solved in one night, and that we are trying to address this with tropical countries. So the price we have assessed is dependent also on palm oil, soya prices, and so on – there are lots of drivers for the price of avoided deforestation. We are having difficulties to earmark, as some countries do not accept earmarking. We have critically decided that the EU is going to participate and progressively, slowly work on how to introduce deforestation credits in the market. This will be slowly because you have to have clear commitments to introduce it in the market, and this depends on what happens in other countries. The US already has REDD in the bills proposed there, so that is already in the discussion there. We know that in the end we have to have the market because we need to multiply by 30 times the amount of money if we are to save the forests. So we know we will need the money [from the market] but to start with we will have public money.

The problem with deforestation is we also need to assess why the money provided in the past hasn’t always worked.

Thanks to Oscar Reyes for providing this transcription.