Common Tragedies

Thoughts on Environmental Economics

Tropical Forest Conservation in Waxman-Markey

Posted by Andrew Stevenson on June 9, 2009

Originally posted on RFF’s climate policy blog Weathervane.

For many environmental advocates, the generous forest conservation provisions in the Waxman-Markey energy bill (summary here) are a no-brainer. They target one of the world’s largest—20 percent of the global total—and most cost-effective—about half the world’s deforestation at under $10 per-ton—sources of greenhouse gas emissions reductions while protecting some of the world’s most treasured natural places.

It seems these provisions provide something for everyone, as they have found support from a broad coalition of stakeholders. U.S.-regulated entities like the potential cost-containment benefits from offsetting up to 1.5 billion tons of their emissions by paying for cheaper reductions in developing nations, and that forest conservation does not create competitiveness concerns. The global development community likes the possible poverty reduction benefits of channeling an additional $10 billion per year by 2015 in what could be seen as U.S. foreign aid to tropical forest nations. Climate policy wonks like that this forest financing will strengthen U.S. participation in ongoing global negotiations.

Is it possible, therefore, that these provisions could survive attacks from equally-strong skeptics of offsets, foreign aid, and climate action during House and Senate debates?
 
As the debate unfolds, expect three key issues to come into play:
 
1) Whether the uncertainties in Waxman-Markey’s forest “set-aside” provisions can be clarified.

Currently the bill allocates 5 percent of allowance values (Section 753(b)(1)) for the purchase of “supplemental emissions reductions”—not offsets—solely from international forest conservation. This “set-aside” must be used to purchase 720 million tons of emissions reductions per year from 2020 to 2025 and 6 billion tons overall from 2012 to 2025, and the EPA administrator is required to increase the allowance allocation if necessary to meet this target.

Based on reasonable assumptions about the size of the cap-and-trade program and cost of forest tons, including analysis done by EPA, the U.S. will be lucky to purchase half that amount (about 300 million) with the current 5 percent set-aside. Meeting the required amount may require saving up money in the initial years to spend later, but even this approach cuts it close, and will take away funds from needed capacity building in early years. Does the EPA have the authority or the will to actually follow-through with this requirement? Where will these allowances come from (they’re certainly not going to come without a fight)? 
 
2) Whether the U.S. can demonstrate a plausible pathway to delivering offset tons from forests when cap-and-trade kicks off in 2012.
 
Forest carbon transactions in voluntary carbon markets accounted for about 7.5 million tons in 2007. With the relatively stringent requirements in the bill for developing countries’ participation in U.S. carbon markets—and the current low levels of market-readiness in many of these countries—how will they be ready to potentially deliver 1 billion or even 100 million tons in 2012? One answer is that they need funding for policy-planning and capacity building, on the order of several billion dollars per year between 2010 and 2012.

The good news is that these needs are being addressed by international negotiators in Bonn as we speak—including a strong U.S. forest team—and through other initiatives. The question is, will it be enough? Should the U.S. allocate substantial additional funds in its FY10, FY11 and FY12 foreign aid budgets to specifically target this issue? Or is there another innovative solution out there?
 
3) Whether the institutional structure that manages these forest programs can be strengthened.
 
Currently, the bill places authority to manage the forest set-aside and offsets programs with the EPA, in consultation with the State Department and several other departments. This is not ideal for several reasons. First, although the EPA has expertise in environmental markets, these forest programs will require much greater on-the-ground international development and conservation experience, and international environmental negotiation experience than it possesses. With the amount of funding on the table—about $10 billion per year, as stated before—and the need to get the most bang for the buck, it may make sense to create a specialized agency with expertise in all of these key areas. What should this agency look like? How should it be structured to most effectively manage these new funds and programs?
 
These are some of the key questions that academics and environmental organizations—including RFF’s climate and forest carbon policy teams—will be seeking to answer over the next several months. If policymakers are going to continue to support strong forest conservation provisions in U.S. climate policy, which many stakeholders would argue are absolutely essential from a scientific and economic perspective, these salient questions will need good, robust answers.

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One Response to “Tropical Forest Conservation in Waxman-Markey”

  1. Even if Waxman-Markey doesn’t turn out ideally, I applaud your country for actually working hard against climate change. Here in Canada, our PM has scrapped three consecutive climate change bills and is now planning to take no action until the US plan is fully underway – 2016 or so. I wish we could have Obama too….

    On a slightly happier note, I think you might be interested in my blog, which has to do exclusively with climate change. The purpose of my blog is:

    1) to help the public realize their place in the climate change debate
    2) to decide which sources to trust for scientific information
    3) to decide what action to take against climate change, given the risks and uncertainties
    4) to share sources and ideas that seem promising.

    I’d love for you to check it out – you can probably get there by clicking on my username.

    Keep up the good work.

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