Climate Change and Forests: Emerging Policy and Market Opportunities

Chapter 5. Forest Carbon and Other Ecosystem Services: Synergies between the Rio Conventions

Sequestering carbon in forests by planting trees and reducing deforestation and forest degradation is an internationally accepted measure used to mitigate climate change. Projects that implement such measures may be awarded tradable “carbon credits.” These carbon sequestration services, however, are not the only services forests can provide. They can simultaneously be harbors for biodiversity, protect watersheds from degradation, and provide natural beauty to local people and visitors.1 Depending on their design, most carbon forestry projects provide one or more additional services that benefit the local, regional, and in some cases global community. In doing so they can also contribute to the objectives of the United Nations Millennium Declaration and of two United Nations Rio Conventions , the Convention to Combat Desertification (CCD) and the Convention on Biodiversity (CBD).2 In the context of the Millennium goals, carbon forestry projects also have the potential to contribute to the reduction of poverty through income generation and to the reduction of opportunity costs by providing, for example, adequate supplies of bioenergy and water. It is possible to attach economic values to the majority of these services.3 The economic benefits may be either direct or indirect, through the avoidance of costs that would be incurred if the service ceased to be provided. For example, a deforested watershed can cause severe and expensive problems downstream, such as flooding, sedimentation, and reduced water quality. However, apart from their Forest Carbon and Other Ecosystem Services: Synergies between the Rio Conventions jan fehse 5 59 climate change mitigation benefits, forestry projects are in practice not valued and rewarded for their additional services. Experience also shows that in the current carbon policy and carbon market environment, revenues from the sale of carbon credits do not make a great contribution toward a project’s implementation costs. Prices paid for forestry carbon credits are low relative to credits from other emission reduction sectors, and overall revenues on average raise the internal rate of return for commercial plantation projects by only a few percentage points, let alone cover the costs of conservation reforestation projects.4 As a result, carbon trading has so far not been a great incentive to implementing projects on a large scale. This may improve as markets become better established and the carbon policy context becomes more conducive to forestry in general and to avoided deforestation in particular. Nevertheless, considering that the global community has collectively agreed on the importance of sustainable development and has defined goals and objectives toward this end in the Rio Conventions, it would make sense to recognize, value, and reward not only the forest services that relate to climate change mitigation but also the other services forests provide. Doing so would create a more synergic approach to the implementation of the Rio Conventions and contribute to reducing the financing gaps that forestry projects currently face. In what follows I discuss current and potential regulatory environments that could be created to facilitate the trading of noncarbon ecosystem services. I then offer an overview of carbon forestry project experiences that feature synergies with the objectives of the CBD and CCD. Markets for Noncarbon Ecosystem Services: The Regulatory Context The Kyoto Protocol, adopted under the auspices of the UN Framework Convention on Climate Change (UNFCCC), includes three carbon trading mechanisms that allow for the offsetting of unavoidable emissions by purchasing emission reductions or removals from elsewhere. These are the project-based Joint Implementation and Clean Development Mechanism and the International Emission Trading mechanism. They provide market incentives to generate lower-cost emission reductions, thereby converting emission reductions into business opportunities instead of only costs. Could similar incentives be used toward the objectives of the CBD and CCD? Could a scenario exist in which a contribution to deserti- fication or loss of biodiversity would have to be offset, and consequently a contribution to the fight against desertification and loss of biodiversity be rewarded? Could there even be international targets to this effect? Such policies were not de- fined to this extent by the CBD and CCD, which indicates that doing so might not be as simple as for carbon trading. 60 jan fehse There are several reasons for this. First, desertification and biodiversity lack an easily quantifiable unit of measure, such as the metric tons of CO2 equivalent. This makes it impossible to design a straightforward offsetting system in which the offset equals the offense. What people mean by...