U.S.: California Becoming the Locus of Carbon Markets

By Nicholas van Aelstyn and Annise Maguire (Beveridge & Diamond)

 

According to the Forth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC), deforestation and land use changes, mostly in the tropics, account for more than 17 per cent of global greenhouse gas (GHG) emissions.  In fact, Brazil and Indonesia have long been the third and fourth largest emitters of GHG, behind China and the United States, due to the rate at which they are destroying their forests.  The United Nations Food and Agriculture Organization estimates that 13 million hectares of forest- that’s 32 million acres- are destroyed every year, mostly in the tropics.  Or, using an approximation from National Geographic, each year forest cover equal in size to Panama is lost.

 

The primary drivers of deforestation are related to agriculture, timber and charcoal.  The key to reducing the rates of tropical deforestation is to make the forests more valuable standing than cleared.  That is the essence of the climate change deforestation programs known by way of a chain of acronyms as RED, REDD, and REDD-plus (REDD+).  RED stands for reduced emissions from deforestation.  REDD adds the word “degradation,” so it becomes “reduced emissions from deforestation and degradation,” with an emphasis on sustainable forestry.  REDD+ is the most comprehensive.  It includes forest restoration, rehabilitation, sustainable management and/or reforestation and afforestation.        These programs attempt to put a market value on carbon stored in forests, making it more valuable to preserve them than to clear the land. REDD programs create economic opportunity via emission reduction projects that generate offset credits sold within a cap-and-trade program.

 

Despite the fact that there is no cap-and-trade legislation in the United States, nor has any agreement been signed at the international level, REDD is alive and well in California.  The locus of cap-and-trade regulatory initiatives in the United States has shifted back to the states and regional initiatives.  The California Air Resources Board, the agency charged with implement California’s landmark 2006 law, the Global Warming Solutions Act, better known as AB 32, adopted legislation in November 2010 that requires the state to reduce its GHG emissions to 1990 levels by 2020.  California’s economy-wide cap-and-trade program is scheduled to go into effect on January 1, 2012, and will include REDD credits.

 

Additionally, in 2008 California’s former governor, Arnold Schwarzenegger, founded the Governor’s Climate and Forests Task Force (GCF).  The GCF is a sub-national collaboration among 14 states and provinces from the United States, Brazil, Indonesia, Nigeria and Mexico, collectively representing roughly one-third of the world’s tropical forests.  The primary goal of the GCF is to develop sub-national REDD sectoral programs that include “nested” private projects, which in turn generate emission reduction credits for sale on carbon markets.  In sum, the technology, the economics and the policy tools for a real and economically viable REDD program are converging fast in California, and they are likely to generate some real opportunities, both in California and abroad.  Full article.

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